This is a great piece and I appreciate it. I agree, too, it's a pity Canada's 1995 austerity shock isn't better understood, even in Canada.
A good example of what's not well understood is downloading. Cuts by the Federal government were downloaded to Canada's provinces and then to its municipalities. I recently had the opportunity to review my (Ontario) municipality's taxes and they doubled in real terms between 1998 and 2005 and were then launched on a trajectory of consistent 3% growth (again in real terms) - a doubling time of just over 20 years.
The point is the shock upended government services from top to bottom and the effects are still being felt, today, particularly in Canada's health care sector - in my municipality we are heading to 40% of residents not having access to primary care, and affordable housing - the Federal and Provincial governments stopped building.
The point is that "shock therapy" is not something that quickly rebalances - it results in long-term decline.
It's long overdue that somebody does serious research about the effects of austerity - not as a quick fix but as a way of permanently immiserating society.
Thanks. My latest article has a bit more on the topic, but I don’t really have too much time right now to dig into that history. Statscan developed a new fiscal database that might make it easier to work with in the old days (you had to track each province separately), so seeing what was pushed down was hard.
Of course, Brian, I didn’t mean you, you do a tremendous amount already. It’s a job for serious academic research - a perfect case study, in fact - the austerity shock in Canada was severe and comprehensive, and almost 30 years ago, so lots of time (and statistics) to unravel the consequences.
It makes me wonder what on earth academics are doing with their time?
Austerity is so well embedded in our economics it’s become a law of nature. Witness Osbourne’s austerity in the UK, which has probably permanently destroyed its social fabric, and the never-ending drumbeat by the GOP in the US to get rid of “entitlements” (but only for the poor, of course).
Thanks to MMT, and maybe blind panic on behalf of governments everywhere, we pushed the rudder hard in the opposite direction during COVID - and with spectacular results. Yet here we are again. It doesn’t take long for us to be yoked to the austerity harness again, including here in Canada.
For the record, I’m reading Clara Mattei’s new book, “The Capital Order, How Economists Invented Austerity And Paved The Way To Fascism”. It describes what she calls the trinity of austerity - fiscal, monetary, and industrial - and how it evolved after WW1 when war overturned private ownership of the means of production and the very social order. People dreamed of a better world but were quickly re-harnessed by austerity. Austerity is nothing new, it’s over a hundred years old. Yet academic research?????
Mattei also compares austerity’s implementation in the UK and Italy - very different cultures and economies - and shows they were the same. And how, later, politicians around the world cheered on Mussolini for reestablishing the God-given social order.
LOL, I should buy a copy for Tiff Macklem or maybe even for Mark Carney to stack against his “Values” nonsense.
There was an interesting-sounding old PK article on that subject, but I lost the reference. It might have been on the Fictional Reserve Barking blog. There weren’t too many posts on that blog, so it might be relatively easy to find.
These comments aren’t aimed at what I see as the interesting bit of the critique. The issue is that these points represent the bulk of the paper, and readers might argue that I skipped over everything if I just look at a couple assertions.
You pretty much have all the arguments here. One overseas episode that may be of interest (ha!): From 1996 to 2006 Australia ran budget surpluses (a mining boom allowed this without crushing the real economy). By 2006 the government debt was "paid off", yet achieving the neo-liberal wet dream caused the finance sector to freak out - there were no bonds being issued! So, who needs the bonds? The government does not "need" to sell its bonds - it is the finance sector that needs to buy them.
It's a great neo-liberal/neoclassical truth inversion that government is dependent on financial markets. This episode shows that, even in good times, financial markets are dependent on government.
Further to this, when I plot out Australia's national accounts (from the Australian Bureau of Statistics), the negative private savings rate is an exact inversion of these government surpluses, as predicted by the sectoral balances equation. Australia now has one of the highest private debt levels in the OECD, combined with run-down universities and desperately underfunded health, welfare and cultural sectors.
Another of the great neo-liberal/neoclassical truth inversions - government *surpluses* are a burden on future generations, not government deficits.
If this is an indication of the quality of your opponent's arguments then you will easily 'win' the debate. Sounds like most of what they are saying has been debunked not only by MMT academics but by central bank researchers too
This is a great piece and I appreciate it. I agree, too, it's a pity Canada's 1995 austerity shock isn't better understood, even in Canada.
A good example of what's not well understood is downloading. Cuts by the Federal government were downloaded to Canada's provinces and then to its municipalities. I recently had the opportunity to review my (Ontario) municipality's taxes and they doubled in real terms between 1998 and 2005 and were then launched on a trajectory of consistent 3% growth (again in real terms) - a doubling time of just over 20 years.
The point is the shock upended government services from top to bottom and the effects are still being felt, today, particularly in Canada's health care sector - in my municipality we are heading to 40% of residents not having access to primary care, and affordable housing - the Federal and Provincial governments stopped building.
The point is that "shock therapy" is not something that quickly rebalances - it results in long-term decline.
It's long overdue that somebody does serious research about the effects of austerity - not as a quick fix but as a way of permanently immiserating society.
Thanks. My latest article has a bit more on the topic, but I don’t really have too much time right now to dig into that history. Statscan developed a new fiscal database that might make it easier to work with in the old days (you had to track each province separately), so seeing what was pushed down was hard.
Of course, Brian, I didn’t mean you, you do a tremendous amount already. It’s a job for serious academic research - a perfect case study, in fact - the austerity shock in Canada was severe and comprehensive, and almost 30 years ago, so lots of time (and statistics) to unravel the consequences.
It makes me wonder what on earth academics are doing with their time?
Austerity is so well embedded in our economics it’s become a law of nature. Witness Osbourne’s austerity in the UK, which has probably permanently destroyed its social fabric, and the never-ending drumbeat by the GOP in the US to get rid of “entitlements” (but only for the poor, of course).
Thanks to MMT, and maybe blind panic on behalf of governments everywhere, we pushed the rudder hard in the opposite direction during COVID - and with spectacular results. Yet here we are again. It doesn’t take long for us to be yoked to the austerity harness again, including here in Canada.
For the record, I’m reading Clara Mattei’s new book, “The Capital Order, How Economists Invented Austerity And Paved The Way To Fascism”. It describes what she calls the trinity of austerity - fiscal, monetary, and industrial - and how it evolved after WW1 when war overturned private ownership of the means of production and the very social order. People dreamed of a better world but were quickly re-harnessed by austerity. Austerity is nothing new, it’s over a hundred years old. Yet academic research?????
Mattei also compares austerity’s implementation in the UK and Italy - very different cultures and economies - and shows they were the same. And how, later, politicians around the world cheered on Mussolini for reestablishing the God-given social order.
LOL, I should buy a copy for Tiff Macklem or maybe even for Mark Carney to stack against his “Values” nonsense.
There was an interesting-sounding old PK article on that subject, but I lost the reference. It might have been on the Fictional Reserve Barking blog. There weren’t too many posts on that blog, so it might be relatively easy to find.
Such a good response that it has left me with absolutely no desire to read the original piece.
These comments aren’t aimed at what I see as the interesting bit of the critique. The issue is that these points represent the bulk of the paper, and readers might argue that I skipped over everything if I just look at a couple assertions.
You pretty much have all the arguments here. One overseas episode that may be of interest (ha!): From 1996 to 2006 Australia ran budget surpluses (a mining boom allowed this without crushing the real economy). By 2006 the government debt was "paid off", yet achieving the neo-liberal wet dream caused the finance sector to freak out - there were no bonds being issued! So, who needs the bonds? The government does not "need" to sell its bonds - it is the finance sector that needs to buy them.
It's a great neo-liberal/neoclassical truth inversion that government is dependent on financial markets. This episode shows that, even in good times, financial markets are dependent on government.
Further to this, when I plot out Australia's national accounts (from the Australian Bureau of Statistics), the negative private savings rate is an exact inversion of these government surpluses, as predicted by the sectoral balances equation. Australia now has one of the highest private debt levels in the OECD, combined with run-down universities and desperately underfunded health, welfare and cultural sectors.
Another of the great neo-liberal/neoclassical truth inversions - government *surpluses* are a burden on future generations, not government deficits.
If this is an indication of the quality of your opponent's arguments then you will easily 'win' the debate. Sounds like most of what they are saying has been debunked not only by MMT academics but by central bank researchers too