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May 8, 2015

Starving ourselves to Prosperity?

Reuel S. Amdur

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Austerity as public policy is not good. It is not good for people and it is not good for the economy.

Those were the observations of Dr. Marjorie Griffin Cohen, speaking at a breakfast gathering of the Federation for the Humanities and Social Sciences, held at the Parliamentary dining room on April 28.  She is an economist at Simon Fraser University.

The pro-austerity theory, she explained, is that, by reducing social spending, lowering taxes, and limiting wage increases, the economy will grow due to increased exports.  It is held that increased corporate spending will take up the slack.  However, austerity, she said, causes a slight initial decline in a recession, but then the decline worsens.

She addressed the issue with a historical review.  Austerity policy began in the 1980’s. 

Before that, the approach was for government to act to prevent economic crises by managing the economy through economic planning.  This was the approach during World War II and subsequently.  Governments addressed the question of how to provide what is needed.  We had strong social spending to prevent economic decline—unemployment insurance, social housing, money for education.

Fiscal contraction to deal with economic crises is contrary to the Keynesian revolution of ideas.  The focus of current austerity thinking is to contain economic crises, less on preventing them.  In the current ideological climate, any stimulus is short-term, for example through tax relief and infrastructure spending.

Austerity policy does not have an impact on all government spending, just on social spending.  The evidence is that in fact money spent on low income households, the unemployed, and on infrastructure provides a strong economic stimulus.   It has been said that the welfare dollar is the fastest dollar in town: it gets spent.  By contrast, lowering business taxes has just a minimal impact.

In the 1990’s, austerity policy reigned.  The growth rate declined.  In 1994, the federal government cut Employment Insurance, education, and social assistance.  Provinces followed suit.  The result was an increase in inequality.  Companies contracted work out, to avoid having to pay benefits.

Since the 1990’s there has been a great deal of volatility in the economy.  The lows are getting lower.  There is not less government, but social spending is impacted.  Corporations are encouraged by lower taxes.  We are living at a time of a whittling down of social services and economic opportunities.  “People could be optimistic, but not now.”  There are no decent well-paying jobs.

She contrasted the welfare state and the austerity state.  In the welfare state, the state looks after people at risk, while in the austerity state people are seen as the risk.  The welfare state looks after the welfare of people, while the austerity state marginalizes them.  The vision of the austerity state is to reduce taxes and balance the budget.  However, she held, “Providing what people need is not harmful to the economy.” 

“We need a federal government that cares about people,” she said.  She commented on the shift of governments to regressive taxes such as sales taxes, property taxes, and various fees.  These are not a way to build a future.  We need an expanded Canada Pension Plan and an increase in the Old Age Security supplement, but these things are not on the political agenda.

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Dotan Rousso. Holds a Ph.D. in Law—a former criminal prosecutor in Israel. Currently working as a college professor in Canada.

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