Tuesday, January 6, 2009

The People Flaherty Isn't Listening To

Jim Flaherty has been a busy boy. Running all over the country, meeting, consulting, listening, getting input from all sides as to what stimulus measures he should put in his budget.

Well, some sides. Ok, one side.

So far, he's met with the CEOs of the big banks, the Canadian Taxpayers' Federation (aka "The Canadian Federation of Really Rich People"), and of course his 'economic panel' of top corporate movers and shakers.

Funny. I'm not seeing the word "labour" anywhere here. I'm not seeing the word "poverty" mentioned, either.

Happily, the Canadian Centre for Policy Alternatives - which, as the media has helpfully informed us, is a "left-wing think tank" - has come out with its own proposals for a stimulus package that focus more on jobs and strengthening the social safety net than anything being proposed by Flaherty's advisors.

The stimulus package, whose promised impact was validated by Informetrica Ltd. -- which has a macroeconomic computer model -- would boost GDP by three per cent and create 407,000 jobs, it said.

A breakdown of the proposed key investments includes:

- $12.4 billion to strengthen the employment insurance system so more out of work Canadians receive benefits, and to provide income support for low-income seniors, children and the working poor.

- $14.7 billion to strengthen municipal infrastructure and affordable housing, invest in child care, post-secondary education, and honour the First Nations Kelowna Accord scrapped by the Conservative government.

- $5.8 billion investment in "green infrastructure, training and education, and energy retrofits."

Most significantly, CCPA's proposal omits the one element almost guaranteed to figure prominently in Flaherty's budget.
The package does not include any broad-based tax cuts.

"Simply put, government-spending initiatives outlined in this plan provide far more job-creating stimulus than across-the-board tax cuts," said David MacDonald, an economist who co-ordinated preparation of the alternative federal budget.

"People who have jobs spend; people who lose (jobs) do not."

A few things need to be understood here. One is that, fundamentally, tax cuts cost just as much as government spending. 'Tax cut' sounds better in an election, but translated into personal terms it amounts to the difference between having a $500 rent increase and a $500 cut in your paycheque.

Another is something that Ali Velshi just pointed out on CNN, talking about the possibility of Obama bringing in tax cuts: that giving everyone, say, an extra $500 in their pockets doesn't really solve anything because if you are out of work or losing your house, it's not enough to help, whereas if you are doing ok then you won't really need it.

The third point is this: a lot of the stuff we buy here in Canada is made elsewhere. So a goodly chunk of the money spent at Wal-Mart or Loblaws or Canadian Tire, is just going to go to support the economies of the U.S., China and Mexico. And that's assuming that people would actually spend that money and not just sock it away in, say, one of Flaherty's not-really-tax-free savings accounts.

All of this would be perfectly obvious to Jim Flaherty if he were listening to those who speak for the low to moderate income Canadian workers (i.e. most of us) who are going to be hardest hit by this recession. Instead, he is choosing to consult only with those seeking to protect their profits and wealth. Who, incidentally, are the very people whose opinions on economics are pretty much identical to Flaherty's.

Welcome to the echo chamber.


  1. I think it was Jeff Jedras over at A BCer in Toronto who made a comment I think hit the nail on the head over the upcoming budget.

    The CPC will include broad tax cuts and frame it as a means of economic stimulus. This forces the opposition to vote against tax cuts if they vote down the budget, something surely to cause a backlash from the electorate. So the opposition are put in the position of voting for bad policy, or shooting themselves in the foot and causing another election.

    Given the CPC's ability to stay on message (no matter how warped it maybe), expect they will attempt to hammer home the virtues of tax cuts as a recession fighting measure.

    That trickle down cartoon is amusing, by the way :)

  2. Oh, and commenting on the CCPA, they may have a bad reputation for bias, but no worse than the Fraser Institute. All research has bias, it just depends on what spin the politician wants to put on it.

    The CCPA's report on Harper's crime strategy "The Harper Record" hits more than it misses, from my perspective at least.

  3. Whenever I look at bias in reporting or research, I always ask myself, "Who profits?" As far as I can tell, the only people who disproportionately benefit from the bias of "left-wing" organizations like the CCPA or the Council of Canadians are low-to-middle income Canadians.

    That's a bias I can live with.

  4. I agree that Harper will include tax cuts in the budget to try to buy votes again...even though all kinds of economists, including Paul Krugman, have pointed out that they are a poor replacement for a spending boost. Even though the last GST cut will cost billions that could have been used to stimulate the economy...or help retrain workers.
    But since Harper and Flaherty are such fanatically ideological Cons,
    what do we expect?
    The opposition would be wise to make sure Canadians understand all of the above, because as you know I believe an election is coming sooner rather than later...

  5. Unlike Simon, I believe a coalition govt is coming sooner rather than later. See Saskboy latest post and why 1979 ended in an election but did not have to.