# 1

Occupy Economics Toronto Oct. 1st, 2013. Facilitator: Dix Sandbeck

How F a i l e d Po l i c i e s o f Austerity keep Canada Locked in the Carbon Economy

# 2

It is common knowledge that economies are subject to cyclical fluctuations: good times when the economy expands and bad times when it is in recessions. Obviously, these swings also affect government’s revenues and expenditures. When recession hits, tax receipts fall, while on the other hand governments have to spend more on income support for families hit by the unemployment; and vice versa in good times.

# 3

Public Debt 2012. Percent of GDP. After CIA Estimates

0.0

22.0

44.0

66.0

88.0

110.0

132.0

154.0

176.0

198.0

220.0

Cana

da

Unite

d St

ates

Fran

ce

Ger

man

y

Gre

ece

Irela

nd Italy

Neth

erla

nds

Portu

gal

Spai

n

Unite

d Ki

ngdo

m

Braz

il

Russ

ia

Indi

a

Chin

a

Japa

n

214.3

31.7

49.6

7.7

58.8

9084.1

123.6

71.1

127.0118.4

156.9

81.990.2

72.584.6

Keynes in the 1930s maintained that governments should add to spending in slumps and slow spending during booms. However, after Keynes was repudiated by conservative economists, most governments have fallen victim to the neoliberal supply-side fallacy, stating that cutting taxes always spur economic growth. Thus, they have concentrated on cutting taxes in good as well as in bad times. But instead of adding significantly to growth, such tax cuts have mostly created structural underfunding, which has burdened many countries with large debt loads. A typical example was Bush policies of repeated large tax cuts.

# 4

Budget Deficit/Surplus 2012. Percent of GDP. After CIA Estimates

-12.0

-10.5

-9.0

-7.5

-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0Ca

nada

Unite

d St

ates

Fran

ce

Ger

man

y

Gre

ece

Irela

nd Italy

Neth

erla

nds

Portu

gal

Spai

n

Unite

d Ki

ngdo

m

Braz

il

Russ

ia

Indi

a

Chin

a

Japa

n

-9.9

-1.6

-5.4

-0.1

2.2

-8.2

-10.6

-6.4

-4.0-3.0

-7.5

-10.0

0.2

-4.8

-6.9

-3.7

After the crisis struck in 2008, spooked by already high debt loads, the preferred response to the crisis has been austerity, in the mistaken belief that if just debt loads are reduced, growth will return again. The problem with this logic is that austerity further reduces demand. As a result, now five years after the crisis erupted, all major Western economies are still experiencing budget deficits, high unemployment, and little growth in GDP and incomes.

# 5

Debt/ 10 yr. 2011 GDP Bond Unem-

percent yield ploymentGermany 81.9 1.97 5.3Spain 84.2 4.41 26.3Italy 127.0 4.53 12.0Portugal 123.6 7.14 16.5Greece 156.9 10.38 27.6Memo:Canada 33.8* 2.79** 7.1**

* 2011-2012, federal debt only

** Most recent data

Japan proved that it might not be catastrophic to have very high levels of public debt when you are in the ideal situation that you control the issue of your own currency, have plenty of foreign currency reserves, and the central bank keeps interest rates near zero.

However, the countries at the heart of the euro crisis have lost the ability to implement active monetary policies and effectively control interest rates since they, as members of the euro area, have yielded control over monetary matters to the European Central Bank. Without access to monetary policies, including financing by expanding the money supply, they rely on financing budget deficits in commercial bond markets, where market perceptions by investors set the interest rates at which they can sell their bonds. This has placed the weaker European economies in intractable debt traps.

The difference between market interest rates on ‘safe’ debt (here German) and ‘unsafe’ debt is called the ‘risk premium’, the extra income investors demand for holding debts that they consider risky.

# 6

Quarterly Growth Rates of real GDP, change over previous quarter. Unites States and Canada, 2008 Q2 - 2013 Q2. After OECD, http://stats.oecd.org/Index.aspx?QueryId=350#

-3.00

-2.25

-1.50

-0.75

0.00

0.75

1.50

2.25

2008 III 2009 I 2009 III 2010 I 2010 III 2011 I 2011 III 2012 I 2012 III 2013 I

0.430.54

0.230.190.39

0.19

0.46

1.52

-0.15

0.55

1.07

0.470.66

1.361.26

0.52

-0.90

-2.25

-1.09

0.66 0.61

0.29

0.04

0.69

0.30

0.92

1.20

0.34

0.79

-0.32

0.690.69

0.96

0.40

0.96

0.32

-0.11

-1.39

-2.15

-0.50 US CND

In the preamble to the 2013 budget, Harper tries to spin a slow economy and high unemployment as a success, on the premise that everyone else in the G7 club are in worse shape. This pathetic spin is covering over that what little spark there is in Canada’s economy is coming from backwards looking industries, such as condo construction and resource extraction (in particular, the tar sands), and not development of forward looking industries, such as renewable energy and smart transport infrastructures, areas where Canada is falling behind.

This is the Canadian ‘success’ economy compared to the economy south of the border. The verdict: they are both in trouble and recovery actually appears to be stalling with low growth and persistent high unemployment (not shown) in both countries.

# 7

The slow fall in the unemployment rate is partly engendered by a labour force that has shrunk because many have given up job search, and not because the economy is soaring back.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/06/the-incredible-shrinking-labor-force-again/

# 8

Harper is spinning that the current federal deficit is caused by the crisis, but this is another fallacy. Certainly, the crisis played a substantial role in growing the deficit. But the reversal from surpluses started before the crisis, when tax cuts, for instance cutting corporate rates and the GST, in a ‘starving the beast’ strategy (a strategy borrowed from Bush) started the budgetary reversal, which then later is used as excuse for cutting down the government’s role in the economy.

# 9

“There is no ‘average’ consumer. The share of high income households in consumption is very large.” Citibank, The Global Investigator – September 29, 2006

In 2006, a Citibank investment research team wrote a report that advocated investing in companies that cater to the demand of the rich on the premise that since income inequalities were bound to continue to rise (a prophesy that despise the set-back of the recession have proven right) these industries were bound to be growth industries. In unapologetic terms, the report included following frank observations: “We (Citibank’s Investment Research Team) believe that the rich are going to keep getting richer in coming years, as capitalists (the rich) get an even bigger share of GDP as a result, principally, of globalization. We expect the global pool of labor in developing economies to keep wage inflation in check, and profit margins rising – good for the wealth of capitalists, relatively bad for developed market unskilled/outsource-able labor.” The report however also had this warning “We think the most potent and short-term threat (to the proposed investment strategy) would be societies demanding a more ‘equitable’ share of wealth.”

# 10

Yorkville, once a hotbed of counterculture, is today centre for Toronto’s high end shopping

Since the late 1970s, the economy has followed a secular trend of rising income inequalities. The income inequalities—exacerbated by reducing tax progressivity—have, as indicated in the Citibank report, substantially altered the division between the different expenditure choices that individuals make in the aggregate. In particular, more of society's available resources are today committed to provide luxury goods and services consumed by the rich, and less to provide public goods and services to the benefit of everyone. Of importance, considering the challenges we face as a society, is that this shift in resource allocation reduces the part of society's total resources available for developing a sustainable and balanced growth model.

# 11

Current society faces the pressing problem of how to engender a shift to a sustainable, low resource economy. This can only be accomplished if certain conditions are fulfilled:A) Instead of combatting the high public debts with socially unaffordable austerity, major parts of the debts must be written down—considering that they mostly are accumulated by irresponsible politicians in collusion with wealth holders, who shelter incomes in tax havens and welcome rising public debts as investment objects. Simply put, they lend back, at interest, the money they have saved through tax cuts and avoidance. But debts that can’t be paid, won’t be paid (Michel Hudson). We must reduce debts to a level where they don’t impede the need for investments in a sustainable future.

Street level public transit in Toronto are stuck in traffic jams, and drivers diverted by fare collection. In Europe, electronic fare collection have led to new bus design with wide centre doors that speed up passenger on- & offloads.

# 12

B) The trend of rising income inequalities must be reversed. One method is to reduce and control the financial sector, but we must also tax away the ability of the rich to spend society's resources on socially useless consumption, and to accumulate savings that mainly fuel asset bubbles.

C) A program for developing a sustainable economy is not only a question of committing material resources and money; education and raising public awareness are equally crucial. In this respect, it is particularly important to break the surge of distractions that has risen to a new level as consequence of the development of wirelessly connected electronic devices, and devise strategies that can focus people’s mind on the brewing storm.

Based on Swedish research, airships are used as floating cranes and service modules. Harper’s way is to curb science in order to keep the 1%‘s taxes low.

# 13

Differences in outcomes: Toronto train system consists of subway (red), Kennedy-Mccowan light rail extension (red) and go trains (green), although many of the go lines run as busses on the congested streets. Investment in public transit has been inadequate for several decades, and the result is an underdeveloped system, incapable of alleviating street congestion. Moreover, investments follow political whims and not advice by traffic professionals, such as the underutilized Sheppard subway built under Mel Lastman’s tutelage.

GTA: c. 6 mio. inhabitants.

# 14

Copenhagen: High taxes are the price of livable cities, able to fund the transition to CO2 neutrality, which Copenhagen is aiming to achieve by 2025*. Part of its strategy is an expansion of urban rail transit: the map shows existing lines (solid colours), and lines under construction or in planning phase (dotted colours). The expansion included a bridge (opened in 2000) to Malmo in Sweden across from the Oresund Strait. * http://e360.yale.edu/feature/copenhagens_ambitious_push_to_be_carbon_neutral_by_2025/2638/

Greater Copenhagen: 1.7 mio. inhabitants.

15.9 km Bridge/tunnel link to Malmo, with c. 400,000 inhabitants in Sweden

Colour codes: Blue - subways Red - S-trains (≈go trains) Yellow - light rail Green - main rail lines

airport

# 15

Europe and Turkey, high-speed rail. In contrast, intercity travel in North America remains car- and air-based.

# 16

Copenhagen, network of bicycle paths. Red are along streets, green are off-street paths and yellow is super bike paths from suburbs.

Generally, bike lanes along streets are elevated with a kerb to prevent intrusions of cars.

More than a third of daily Copenhagen commutes is done on bikes.

# 17

While advanced economies in Europe are implementing strategies for reducing carbon dependency in order to stabilize the climate threat, in Canada Harper’s conservatives are ignoring the need for accelerated investments in the technologies and infrastructures that can promote sustainability. On the contrary, its economic policies are focused on subsidising backwards looking industries. Moreover, policies of tax cuts followed by austerity policies have, among other things, led to cuts in desperately needed research in sustainable technologies.

Typical street scene in built-up inner Copenhagen: kerb separated bike lane and dedicated bus lanes leaves little space for private cars.

# 18

Harper’s policies in Canada’s has reduced the public sector from 34.5% to 31% of GDP. The reallocation of societal resources caused by this switch has changed the economic distribution. In turn, this allows high income earners and corporations to retain a larger part of the pie, which fuel asset inflationary tendencies (e.g. speculative ownership pushing the condo boom where profits are high, versus the liquidity trap in the real business sector*). The overall result is that Canada is falling behind in developing and deploying the technologies of tomorrow. *http://www.thestar.com/business/real_estate/2013/12/18/investors_own_less_than_a_quarter_of_toronto_condominiums_cmhc.html http://www.thestar.com/business/article/1257248--canada-s-corporate-dead-money-grows-as-consumers-fall-deeper-in-debt

Streetsville old village centre: picturesque corners of Canadian cities instead of being converted into traffic-calmed urban oases are abandoned to the cars.

# 19

Occupy Economics Toronto

See you next time