Monday, April 04, 2011

Cue The Confidence Fairy

This morning's Nanos Poll suggests that the Conservatives now lead the Liberals by 14 points.

To support their cause, the Harperites have invoked what the American economist Paul Krugman calls " the confidence fairy." Their argument goes something like this: Global stability rests on business confidence. Business confidence rests on corporate tax cuts. Therefore, if you reverse those tax cuts, you cause global instability. No, they say, what we need is "expansionary austerity." -- which, in the short run, will lead to unemployment. But job destruction leads to lower wages, and lower wages lead to job creation. If this sounds like a tautology, that's because it is.

That policy is now being followed in Britain. But things are not working out as planned. Krugman writes:

Did I mention that in Britain, where the government that took power last May bought completely into the doctrine of expansionary austerity, the economy has stalled and business confidence has fallen to a two-year low? And even the government’s new, more pessimistic projections are based on the assumption that highly indebted British households will take on even more debt in the years ahead.

In the United States, the Republicans -- Mr. Harper's cousins -- are arguing that, if it takes a government shutdown to achieve expansionary austerity, then so be it. The Harperites are definitely following the crowd. And -- if the polls are to be believed -- so are a substantial number of Canadians.

There is a counter argument, of course. It is contained in the Liberal platform. The difference between the two arguments is the difference between night and day, between costs and investments, between employment and unemployment, between folly and wisdom.


Dan O'Neil said...

I live in the UK and to be honest, I think that's a pretty pessimistic argument about the state of things here. The one thing that is clear is that you can't simply change what you are doing in a country because it affects the whole world - especially in the bigger economies. Things have to change, but the only true way forward is for everyone to talk to everyone - which would take a pretty long time!

Owen Gray said...

I understand your argument -- and I agree that talking to everyone takes a long time and is not easy.

Our Prime Minister is making the argument that Canada is an island of calm in a sea of troubles. But the policies he advocates caused that sea of troubles; and the damage those policies caused could not be contained to the place where they originated -- the United States.

Mr. Harper only changed course when the opposition parties revolted and threatened to bring down his government. Now he claims that his foresight is the reason for Canada's good fortune.

Each country, in the end, has to deal first with its own economy. But following the crowd -- in the belief that the crowd is the source of wisdom -- is sheer wooden headedness.