Monday, July 21, 2008

Where Do We Go from Here?

In 1976, Milton Friedman received the Nobel Prize for Economics. In 1979, Margaret Thatcher was elected Prime Minister of Britain. And in 1980, Ronald Reagan was elected President of the United States. Thus began what Canadian political economist James Laxer has called, "the Age of Reaction." It has been a time, he writes, when "political ideas, cultural assumptions, the role of government, relations between the employed and their employees, and between the wealthy and the rest of the population have assumed a new shape."

In the United States in 2007, writes Laxer, "the relative income gap between the rich and the poor [was] wider than at anytime since 1928 (the eve of the Great Depression.) The lives of ordinary people have grown more uncertain. During the past quarter century, most people have been on an economic treadmill, precariously trying to make ends meet and to ward off the danger of crippling indebtedness."

And in a recent article entitled, "A Nation in Debt," -- in The American Interest -- Barbara Defoe Whitehead chronicles how, in this same period, "the institutions that encourage thrift have moved uptown, catering to upper income Americans with an ever expanding array of tax advantaged opportunities to invest and build wealth. The potential "small saver" has been left behind as prey to new highly profitable financial institutions: sub prime credit card issuers and mortgage brokers, rent to own merchants, payday lenders, auto title lenders, tax refund lenders, private student loan companies, franchise tax preparers, check cashing outlets and the state lottery. Once existing on society's margins, these institutions now constitute a large and aggressively expanding anti-thrift sector that is dragging hundreds of thousands of American consumers into profligacy and over indebtedness."

And the contagion is spreading to Europe and Canada -- as any recently cashiered auto worker (one out of seven jobs in Ontario is related to automobile production) can verify. The government of Stephen Harper has bet its and the country's future on Friedmanesque economic theory; and, like the Bush administration to the South, it has squandered the surpluses which it inherited.

Indeed, as Douglas Peters, the former chief economist at the Toronto Dominon Bank, wrote in The Toronto Star last week, "it appears that this was exactly what both the U.S. and Canadian conservative governments intended. The purpose of the tax cuts was to make it more difficult for governments to raise spending and introduce new programs." The people who bore a visceral hatred of government set out to make sure it would fail. Now the bill for this folly has come due. World markets -- which these folks raised to iconic status -- are teetering; and the future of the planet hangs in the balance -- as we fight wars in the Middle East, the largest repository of the stuff which is a major cause of our economic and planetary woes.

We are at a precarious moment. But, as Al Gore also reminded us last week, there is a common thread which runs through the multifaceted problems we face, "which is deeply ironic in its simplicity: our dangerous over reliance on carbon based fuels is at the core of all three of these challenges -- the economic, environmental and national security crises. We're borrowing money from China," said Gore, "to buy oil from the Persian Gulf to burn it in ways that destroy the planet."

Gore suggested that the way out of our morass is to rebuild our electricity grid and take advantage of renewable energy sources -- wind, solar and geothermal. It would be an expensive project. But oil at just under $150 a barrel is expensive; and it kills jobs, not to mention the lives which have been lost in the sands of the Gulf. Gore believes that we can do this in ten years -- the same critical path which President Kennedy set to put a man on the moon. It would mean abandoning Friedman's economic model; and it would mean taxing carbon, or as Gore put it, "we should tax what we burn, not what we earn."

That, coincidentally, is the policy on which Stephane Dion has staked his and his party's future. There will be an election in the United States in November. There will be an election in Canada shortly thereafter. During the Age of Reaction, Laxer writes, "in the developed countries . . . democracy has been in decline, increasingly replaced by a plutocracy in which money dictates political outcomes." No one should be foolish enough to believe that money can, or should, be banned from politics. But, if the Obama campaign has proved anything, it is that small donors have a voice. The question is, can the non-plutocrats once again grasp the levers of power? And do they care enough to fix the mess Mr. Friedman, Mrs. Thatcher, Mr. Reagan -- and their hundreds of thousands of acolytes -- have left us?


Anonymous said...

Gore's challenge to American's and by extension the world is formidable and necessary. Gore has called for a carbon price and he does suggest shifting taxes but like many, Gore also supports a cap and trade system like that proposed by the NDP.

I think that the debate between those parties in Canada that support pricing carbon (NDP, Liberals, Green Party) is around which model should be prioritized.

Gore's speech does not focus primarily on implementation of a consumer carbon tax. He focuses first on energy providers and specifically reformation of the electricity grid. Like Jack Layton he is calling for an national east west electricity grid powered by renewable energy.

Like Gore the NDP wants to implement a plan that will maximize effectiveness in terms of the reduction of ghg emissions. The Liberal plan has no targets for reductions whereas the NDP plan has science-based targets. The other main difficulty with the Liberal plan is that the 'revenue neutrality' (assuming that it works) would limit the government's ability to fund investment in green solutions.

By curbing the emissions of big industrial polluters like electricity providers and manufacturers through cap and trade, the sale of emissions credits will provide funding to government to make it easier for individuals and smaller businesses to access green solutions to reduce their carbon footprint.

Sweden, Denmark, Netherlands and Norway all have some form of carbon taxes but they lately have made the move to the more effective pan-European cap and trade approach.

Finally, for me the reason that I prefer the cap and trade approach over the carbon tax (aside from my concerns about the impact on low and middle income Canadians) is that it would require a massive reorganization of our tax system and the bureaucracy which I think will take considerably longer to enact than would cap and trade. We already have a model of the cap and trade system in place (used by US and Canada to combat acid rain). I fundamentally don't trust the Liberals (should they regain power) that the 'revenue neutrality' would work and/or that it could be as quickly and effectively implemented as cap and trade.

Owen Gray said...

You are right to draw my -- and my readers' attention -- to the NDP's cap and trade system. And you are equally right to point out that it has been an effective tool in reducing acid rain. Moreover, at least some of the premiers have endorsed a cap and trade system -- and they have taken the lead in the face of federal indifference on this issue. However the parties work out a deal, the tide is turning.