Wednesday, January 14, 2015

The Other Path


                                                http://www.forgetthebox.net/

Like a Puritan obsessed with sin, Stephen Harper is obsessed with austerity. He is not alone in his obsession. Most of Europe's leaders share it. And their obsession has led The Financial Times' Martin Wolfe to write that their economies suffer from "chronic demand deficiency syndrome." The OECD has also been trying to get those who mistake economics for theology to see the folly of their moralistic crusade.

Not all countries take a moralistic approach to economics. Murray Dobbins writes that the Scandinavian countries -- particularly Norway -- have chosen another path:

A recent study, "How Can Scandinavians Tax So Much?" on Norway, Sweden and Denmark, demonstrates how national governments can actually address underlying structural demand weaknesses -- or rather, in their cases, how to prevent such weaknesses from developing in the first place. The key is not just high government spending but a dedication to revenue collection that comes as close as possible to eliminating leakage in the tax system.

The top marginal income tax rate in the three countries is between 60 per cent and 70 per cent compared to 43 per cent in the U.S. and about 50 per cent in Canada. Add in other taxes like consumption and payroll levies and the average Scandinavian worker gets to keep just 20 per cent of her paycheque. In the U.S. that same employee keeps 63 per cent. How can such high tax rates (which would be denounced as "punitive" here) result in some of the best economic outcomes on the planet -- high standards of living, high labour participation rates, highly profitable corporations and high placements (all higher than Canada) in the world competitiveness sweepstakes?

With the governments pumping billions of dollars into the Scandinavian economies there is no "chronic demand deficiency syndrome." They do not rely on debt-financed consumer demand, and the reduction of private consumer spending makes for more rational economic decision-making overall. The U.S. has accomplished what appears to be a stable recovery by also rejecting the austerity obsession and engaging in repeated rounds of quantitative easing  -- artificially pumping money into the economy through bond purchases. Canada, meanwhile, is actually sucking billions out of the economy through tax cuts to sectors (corporations and the 1 per cent) who aren't spending it.

Over the last thirty years, rather than injecting money into our economy, our governments have withdrawn billions of dollars:

Of course we have withdrawn billions since 1985 -- over $60 billion a year in abandoned revenue at the federal level if you go back and count Paul Martin's huge tax cuts in 2000-2005. If we had that money back to spend, the vast majority of it ultimately ends up being spent in the private sector -- and might actually convince Canadian corporations to invest some of the $626 billion in idle cash they are now sitting on. (An IMF report recently chastised Canadians corporations for accumulating idle capital at a faster rate than any other country in the G7.)

And, rather than taking in money from our petroleum wealth, we have sold that resource at fire sale prices. Norway took a different tact:

In Canada we have virtually given away our energy heritage through criminally low royalty rates over a period of some 70 years. Norway bargained hard with oil companies to develop its relatively new found resource -- and kept ownership of it. The result, as reported in The Tyee last year, is a heritage fund of (as of a year ago) $909,364 billion (Canadian). That puts tiny Norway $1.5 trillion ahead of us and while each Canadian has a $17,000 share of our $600 billion debt national debt, each Norwegian has a $178,000 stake in their surplus. Norway puts aside a billion dollars a week from its oil resource.

Clearly, there is another path. And austerity isn't it.

15 comments:

lungta said...

"Clearly, there is another path. And austerity isn't it."
you can get a do over once you have sold the goose that laid the golden eggs?
there WAS another path
and the first father of weasel words made sure we will never get back to it
"First, facts about Canada. Canada is a Northern European welfare state in the worst sense of the term, and very proud of it. Canadians make no connection between the fact that they are a Northern European welfare state and the fact that we have very low economic growth, a standard of living substantially lower than yours, a massive brain drain of young professionals to your country, and double the unemployment rate of the United States."

Owen Gray said...

The Northern welfare states have proven Stephen Harper doesn't know what he's talking about, lungta.

mogs moglio said...

If Albertans stayed the course Premier Peter Lougheed set it would be a different world in Canada and especially Alberta. Norway quite literally used Peters Heritage Trust Fund as a role model. They though stuck with it and it paid off in spades.

This so-called Austerity Campaign is a brutish slap to the poor and reminds me of medieval Europe and the serfs vs royalty we are marching backwards under the Harper-con regime...

Owen Gray said...

That's why they dropped the word "progressive" from the party brand, Mogs.

These people do not believe in going forward.

The Mound of Sound said...

Mogs is right about Peter Lougheed's vision but the horse has bolted from that barn and it's not coming back. We've treated a high-cost (extraction/processing/transportation/cleanup), high-carbon resource as if it was sweet, light crude. The nature and inherent drawbacks of bitumen ought to have demand prudence in how the asset is marketed and the revenues are handled. The legacy of Ralph Klein was to firesale the stuff as quickly as it could be dug/steamed out of the ground. Then the royalty revenues were taken into current accounts and squandered. Yet these are people, including our prime minister, Captain Cowered, who praise themselves for their prudence.

Owen Gray said...

As I recall, Mound, Lougheed was thrown out of Calgary's Petroleum Club because he favoured cautious development of the tar sands.

He knew they were a Pandora's Box.

mogs moglio said...

Yes I remember Lougheed I was a young man in Alberta when he was Premier and he cut quite a dashing figure. He was hellbent set on making the resource extraction companies pave the way for all Albertans future. He was on the right track and got called a "Red Tory" because of his forward thinking and caring about future generations. Yes the snobby [believe me snobby]Petroleum Club of Calgary despised him. Yet he was most likely the best of the best leader Alberta ever had. But like Mound of Sound said "...the horse has bolted from that barn and it's not coming back..." No it ain't now that corporations are more powerful than government and dictate government policy. How have Canadians fallen into this slumber where this is even allowed?

Anonymous said...

I get extremely irritated when devious people like Stephen Harper and his ilk preach austerity. That austerity is for the poor and the rapidly declining middle class, it is not for the Harperites and the wealthy. Harper's personal wealth has risen partly because he does not pay for anything himself, it primarily comes from the public purse. His security detail costs more than $20 million annually, which far exceeds any of the costs of his predecessors. Free hockey tickets for him, his security detail and the equally deceitful Gordon Campbell is just the tip of the iceberg in the misuse of declining public funds.

Owen Gray said...

As with partisan political advertising, Harper's cost of living is paid for by the public, Anon.

Anonymous said...

The Scandinavian countries are the most honest countries. Canada has become, a cesspool of corruption and what works in the honest countries, could never work in Canada.

Harper is not about, what is good for the country, provinces nor the people. Harper is about Harper, what benefits him, his own power, glory and to hell with the people.

Harper has regressed Canada, way back to the feudal age. Harper and his so called *Harper* government, is very primitive.

Owen Gray said...

"Primitive" is a good word to describe the Harper government, Anon.

Certainly we've become an angrier country under Harper. He calls forth our worst instincts.

mogs moglio said...

Primitive Owen try this one on "Neolithic" eh? Ya Steve the neanderthal fits does it not? I think so...

Owen Gray said...

As I said, Mogs, "primitive" fits the bill.

mogs moglio said...

If you ever see Harper in public have a set of "Sally Ann" shoes you can throw his direction but do not hit him just make the statement and he will run off stage and hide in the nearest closet.

I am getting more humorist about this idiot named Steve...

Owen Gray said...

It's certainly true, Mogs, that Harper's statements about a balanced budget are coming back to haunt him.