I’ve heard it said many times before, and I have caught myself saying it as well: in the current economic climate, universities can likely forget about any increases in public funding for the foreseeable future. And indeed, austerity has been the watchword for most governments here and abroad since the collapse of the world’s financial markets in 2008. But, at a recent panel discussion, two well-known public commentators argued that we should just say no to austerity.
The two were Jim Stanford, an economist with the Canadian Auto Workers and the Canadian Centre for Policy Alternatives, and Alex Himelfarb, director of the Glendon School of Public and International Affairs at York University and former clerk of the Privy Council. They were joined by Derek DeCloet, editor of the Globe and Mail’s Report on Business magazine. The three were speaking on Jan. 10 at the “Academia in the Age of Austerity” conference held in Toronto and organized by the Ontario Confederation of University Faculty Associations. It’s a long post that follows, but there were many interesting points made and I encourage you to plow through.
Government spending not the problem
Starting off, Dr. Stanford’s main message was that government spending did not cause the deficit. “It was the recession that caused the deficit – not spending on teachers’ salaries, or university pension plans, or unionized garbage collectors.” Until the financial crisis in 2008 and the resulting recession, in Ontario “we delivered our programs, paid for them, and delivered balanced budgets.”
The current deficit in Ontario will likely be in the $10-billion range this year, which represents about 1.5 percent of GDP, Dr. Stanford estimated. We need to work to reduce this deficit over time, but if it takes a little longer than planned, “it’s not the end of the world as we know it.” There has been “a lot of scaremongering” about debts and deficits, he said, “this ridiculous charade … where finance ministers want to make it look as bad as possible to scare people into accepting tough medicine.”
What’s more, “not only is austerity not necessary, it is not even going to work. It’s self-defeating. If the recession caused the deficit, then trying to solve the deficit by slashing billions of dollars from spending … and throwing lots of people out of jobs, is obviously worsening the underlying problem that created the deficit in the first place.” The International Monetary Fund, the “holy church of free-market economics, has just woken up to this and finally recognized the macroeconomic spinoffs of all this belt-tightening. We see this in Europe, where the more they cut, the more the economy falls and the worse the deficit becomes.”
There “has to be another way”
Dr. Himelfarb said he “more or less” agreed with Dr. Stanford’s analysis, adding that it was a good time to have this discussion because, in the U.K. and Europe, austerity “is beginning to lose its luster.” Why? “It’s not only because of protests in the streets, often violent, and the breakdown of social cohesion – although that’s a good reason,” said Dr. Himelfarb. “And it’s not only because of significant job losses and rising inequality; and it’s not only because of the devastating impact on the most vulnerable – women, young people and the poorest.” But, austerity is also coming into disrepute “because the impact on growth has been even deeper than the critics had anticipated.” Because of austerity, “what you’re getting is continuing joblessness, growing debt, stagnant economies and no end in sight to the cuts. So people are starting to say, ‘There has to be another way. Any other way has got to be better than this.’”
Also, “it has become apparent in this debate how much of the austerity agenda is driven neither by fiscal objectives nor economic policy,” said Dr. Himelfarb. Rather, “it’s driven by ideology – the absolute commitment to reduce the role of government in economic and social affairs. In many ways deficits are a gift to those who would wish to reduce government because they become the cover for doing so.”
Austerity, he continued, is not the same as fiscal responsibility. “Everybody would agree that we should be fiscally responsible, spend wisely, reduce waste, and that we should over time keep revenues and expenditures in balance, and in good times reduce the debt. But, austerity is something different. It’s ‘damn the consequences,’ cut government, even at the expense of growth and increased debt, and irrespective of the human consequences, which are extraordinary.”
The Canadian version of austerity is different than in the U.K. and Europe. Here, he calls it “austerity in slow motion,” but he says the consequences are equally pernicious. “In large part our austerity is self-induced from over a decade of tax cuts that were sold to us as a free good but which we couldn’t actually afford. And that’s true at every level of government.”
As an example, Dr. Himelfarb noted that when the current federal government came to power in 2006, it had a $16 billion surplus, and that was “after the biggest tax cut in Canadian history in 2000.” This, he said, was “a signal that maybe we didn’t have a spending problem.” That extra $16 billion “would have provided some significant resilience in a time of recession, which came shortly thereafter.” Instead, we cut taxes. Just the “two-penny” cut in the goods and services tax (when the GST was reduced from 7 percent to 5 percent) represents a $14-billion annual loss in revenue, he said.
No magic wand
Mr. DeCloet of the Globe and Mail was asked to argue the contrary side for the sake of debate, but his defence of austerity was lukewarm. He said “we can all agree” that the recession caused the deficit. Likewise, “there is lots of academic evidence that austerity curbs growth, it’s just simple math.” And, he said, if you can get the growth rate back up to pre-recession levels, then that will largely solve the issue.
However, the problem, he said, “is that we don’t have a magic wand to get the growth rate up.” Ontario’s sluggish growth is a factor of many problems, many of which are global and beyond our control. You can’t just ignore government deficits, he said, because if you do, “an ever increasing proportion of tax dollars will go towards bond holders in New York and elsewhere,” he said.
“We fell into this trap at the federal level in the 1970s and 1980s,” said Mr. DeCloet, “when we believed deficits didn’t matter, and we woke up one day and found 25 cents of every dollar went to investors rather than being spent on social programs.” The federal government managed to solve the problem through a mix of “good policies and good luck, a lot of that external.” As a result, when the crisis hit in 2008, Canada had the lowest proportion of debt relative to economic output of any G7 country. That meant that “we could run a $50-billion deficit and bail out the auto makers. That was the fruit of what came before. So, if you look at it as a long game, rather than a short game, austerity doesn’t’ look quite so bad.”
Dr. Himelfarb countered that “we talk about austerity in the ’90s and how brilliant it was, but this is not the ’90s.” First, the tax levels then were higher, so revenues “were more solid.” As well, at the time, we were the only country contracting, he said, while other countries were expanding. “So we grew ourselves out of deficit to a significant degree. We fed off the growth in the U.S.” But now, when most countries’ economies are contracting, “you have a problem.”
There was much more back and forth during a question-and-answer period that followed which mainly reinforced the points made. To sum up, I’ll give the last word to Dr. Himelfarb:
“The biggest lesson to learn is that we oughtn’t be shaped by the neo-liberal ideology that has driven us for three decades that less tax, less government, less intervention is the answer. We need a new paradigm, and that paradigm ought to put people … at the centre of the agenda, and not the fisc (the public treasury). We need to ask ourselves, when did the health of the fisc become more important than the health of the people?”