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Austerity and other euphemisms of G20 economics
In my last column I threw around some terms that have now become buzzwords of the noxious G20 media cloud. It’s worth paying attention to these terms because they tend to be repeated in provincial and federal budgets and the newspeak jargon of our own Finance Minister Jim Flaherty. It is, again, important to remember that these terms have direct impacts on our countries, communities and families. Despite talk of an economic upswing, trouble in the banking system continues to have a real impact on the jobs and lives of working people. So when you hear suited economists babbling about austerity and deficit cutting, remember that these terms mean the difference between well paid work with benefits and a life of low-wage temporary work with no benefits and continued financial instability for your family and community.
The Deficit
The dreaded ‘D’ word looms over this G20 summit like a bloated banker, but what does it mean for us and why should we care about it? The deficit is the difference between what governments spend and what they take in. In times of economic crisis, deficit spending is high. Governments often claim deficits are the fault of social spending that’s too high. But in fact deficits always grow when economic activity slows down or contracts because tax revenue falls while state spending rises. In Greece, we’ve recently seen the enormous social upheaval caused by attempting to cut the deficit. In Greece, Spain and Portugal trade unions responded to the package of layoffs, cuts and tax increases with a mass wave of protests and general strikes. It is utterly irrational for workers to suffer in the name of reduced deficits.
Austerity
Financial austerity is a pleasant enough term for a not-so-pleasant process. In order to cut their deficits, G20 member countries are being pressured to roll back the billions of dollars they’ve pumped into the economy to prevent a repeat of the Great Depression. The International Monetary Fund recently told a gathering of G20 Finance Ministers that “Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.” In other words, cut social spending, gut welfare programs and restore fiscal balance on the backs of those most affected by the recession, workers and the poor. In Britain, citizens are learning the lessons of the economic austerity through the Cameron government’s budget, which includes slashing welfare rates by 20% and capping housing and child benefits. This process is known as financial austerity, and it is a key, albeit hotly contested, component of the G20 talks.
The austerity model employed by Cameron and his flabby Lib-Dem coalition is based upon the 1990 Canadian Liberal government’s brutal cuts in public spending. It’s these exact policies that mobilized millions in the Days of Action here in Ontario.
The international response to the economic crisis was initially to funnel money into banks, failing auto-giants and the too-big-to-fail companies that received billions in taxpayer money. But many G20 Finance Ministers have decided it’s time for this spending to end and the belt tightening to begin. The IMF has warned G20 nations that “the exit from fiscal support must start now or by 2011 at the latest,” or risk “facing acute financing pressures.” This requires a combination of spending cuts and tax increases amounting, on top of which governments will have to fund increases in public health and pensions costs with an ageing population. The Nobel Prize winning economist Paul Krugman has argued that cutting spending by 1% at a time of high unemployment and deepening poverty will actually raise unemployment by 0.75% and reduce future debt by less than 0.5%. So while the markets might demand cuts, they will actually do little to keep the deficit down and they will cause direct harm to workers and their jobs. In other words, cut social spending, gut welfare programs and restore fiscal balance on the backs of those most affected by the recession, workers and the poor.
The Bank Tax
Also called the Financial Transactions Tax or the Robin Hood Tax, this regulatory measure is a way of restoring some semblance of sanity to global financial markets. Conceptually similar to the Tobin Tax it would apply a 0.05 % tax on a range of financial assets including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options—the freewheeling trading of these led in-part to the latest economic crisis. The revenue would then be put toward a range of social programs that would mitigate the severity of capitalist recession and climate change. Surprisingly, Canada was the first G20 nation to adopt Tobin Tax policy in 1999, however, a decade later Canada’s Finance Minister spoke publicly against the policy at the G20 meeting in Scotland. In an effort to exorcise all Keynesians from the G20 summit, Harper dispatched a squad of Canadian Ministers to fan out to G20 countries to lobby against UK, European and US support for the tax. The idea being, Canada’s banking system wasn’t bailed out so why should we be taxed for other’s irresponsible behaviour?
The reality is that Canada was very much affected by the turmoil in the international financial system and this had direct carry-over effects for jobs, house prices, inflation and welfare rates in the real economy. Canada’s recalcitrant stance is all the more absurd when the positive effects of such a tax—see job creation and social service delivery—greatly outweigh the minor dents to the bottom lines of international banks. The returns from this tax could greatly dampen the negative economic impacts of the financial austerity measures mentioned above, but it will not provide stability to a still deeply unsettled global financial market.
A bank tax is a step in the right direction, but it should be done within an ongoing framework of democratizing banks and financial structures. After receiving trillions in public funds, banks have largely returned to their predatory ways. This is not indicative of their greed or irresponsibility, but the fact that they work within a system that requires growth without end and competition without restriction. This is why economic crisis is inherent to capitalism, and deficits are a result of capitalism’s crisis. Public debt has replaced private debt as the engine of the capitalist economy, but this adherence to deficit cutting is inducing governments to roll back social spending. This is the dilemma. G20 nations can’t live with ever rising public debt, but they also can’t live without it.
Chris Webb is a journalist and activist living in Toronto. He is currently the Publishing Assistant at Canadian Dimension magazine and a Communications Officer with SEIU-Local 1 Canada. Read more by Chris Webb.
