Harper and the Economy: Setting the Record Straight

[Moonlight Graham]

I am tired of continually hearing easily refuted nonsense about the Harper government's economic policies regarding the current rescission. This nonsense is based on 2 myths:

Myth #1: The policies of the Harper government kept Canada's economy relatively strong amid the global recession.

Truth: The vast majority of the regulations that prevented Canada's banking system & economy from suffering a similar fate to that of the U.S. and other countries worldwide were already in place before the Harper gov came to power.

Myth #2: The Harper government is leading Canada's economy into dire straights because of the large deficits/debt this gov is racking up.

Truth: If one knows anything about economics, countercyclical fiscal policies aka deficit spending during an strong economic downturn is Keynesian economics 101, and is meant to stimulate the economy with the idea (ha!) that the debt will be repaid with surplus during better economic times. This has been done internationally over the past 70 years, and 30 of the 33 OECD countries (including the UK, US, France, Germany, Japan, Australia, New Zealand, Denmark etc.) posted deficits in 2009 with this similar idea, and there is little doubt the Chretien/Martin Liberals would have done similar. And as you can see with the link i just posted, Canada's deficit as a % of its GDP is well below the OECD average, and looking at the estimated 2010 budgets, Canada is ranked with the 5th lowest deficit-per-GDP% among the 33 OECD countries. This is not to say one can't criticize the way the deficit money has been spent, but a deficit in itself is not a bad thing.

But feel free to spin this along partisan lines as you wish

Edited November 16, 2010 by Moonlight Graham

[KeyStone]

Well, I agree with you on the first point.

And I partially agree with you on the second point. It is true that the Liberals would have spent as much, if not more.

It is also true that our national debt as compared to GDP is better than many countries.

However, there a few things, I would like to point out.

The spend your way out of a recession approach works best in a closed economy. This way the 'pass the buck' mentality works, and money is circulated throughout the economy. However, in an era of globalization, our borders are extremely porous, and aside from the single cycle of government spending, leakages are immense and much of that money will be stimulating someone else's economy. The US stimulus probably did much more good to Canada than the Canadian stimulus did.

Now, if we are simply doing our share to stimulate the global economy fine. But let's not pretend that the injection of government spending had a massive effect on our own economy.

Secondly, the way that the money was spent has to be questioned. There were some good initiatives aimed at boosting home sales such as the renovation tax credit. However, the tax reductions were completely unnecessary. Taxes are paid only after all the costs are covered, and all employees are paid. No business ever went banrupt because income taxes were too high. If they really wanted to help struggling businesses, they should have reduced payroll taxes and subsidized workers comp premiums.

Thirdly, the arbitrary handing out of monies to start-up companies and various half-baked initiatives was disproportionate. Instead, this would have been a great time, to increase funding to various infrastructure projects such as subways, roads, sewage, power lines etc. Then, the money is spent, spread across many people - and we have a tangible benefit, and a better infrastructure empowering all businesses.

[August1991]

Truth: The vast majority of the regulations that prevented Canada's banking system & economy from suffering a similar fate to that of the U.S. and other countries worldwide were already in place before the Harper gov came to power.

I largely agree with you Moonlight but I will take exception to this "Truth". Banking regulations do not explain why we avoided this crisis.

In many regards, Canada's banking regulations are looser than those in the US, and those elsewhere in the world.

The comparative history of banking in the US and Canada is absolutely fascinating because of the stark differences. This latest episode is hardly new. (If you are curious, I suggest that you read Galbraith's Money.) In short, we avoided this housing bubble for many reasons - in part, because of the way we are.

In his defence, Harper can take credit for not having done anything stupid - and in such situations, governments often do that.

[August1991]

The spend your way out of a recession approach works best in a closed economy.

Whether closed or open, governments can rarely "spend their way out of a recession" - as you put it - except in rare situations such as the one the US is experiencing now.

Right now, many Americans (and some Europeans) are paying off their debts. They are deleveraging, and this is the source of the worldwide recession. To put this in very simple terms, Keynes argued that governments should go into debt when many individuals try to pay back private debts.

Edited November 16, 2010 by August1991

[Shakeyhands]

It is true that the Liberals would have spent as much, if not more.

It's true? Like, for a fact??? Did you consult your Magic 8 Ball for this tidbit?

[KeyStone]

It's true? Like, for a fact??? Did you consult your Magic 8 Ball for this tidbit?

Perhaps, 'likely' would have been a better word than 'true', if you want to get pedantic.

But it seems fairly obvious given the Liberal demands in QP that the Conservatives spend money to get out of the recession when the original Conservative plan had been to do nothing.

I'm hoping you are familiar with that, and won't ask me to go through the Hansard logs to prove it to you.

[Saipan]

Is it really past Nov 17 2010 12:32 AM already?

Whatever happened to this Forum?

[William Ashley]

I'm someone who loathes Kenyesian Economics because it is based on a taxation model - the government needs to tax the wealth to recoup it. The only exception is a socialist state owned system that reaps direct profits from economic activity - command economy etc..

Here is the TRUTH: taxation doesn't target the people with the most wealth in the instance of corporations, and a larger and larger portion of wealth has been oozing into megacorporations, with lower tax rates than individuals.

So who is really paying for this?

Also just giving money doesn't insure efficiency it actually promotes unneeded waste, and this can hyper stimulate continuance of bad economic elements - that is the economy doesn't adapt based on needs.

...better economic times. This has been done internationally over the past 70 years, and 30 of the 33 OECD countries (including the UK, US, France, Germany, Japan, Australia, New Zealand, Denmark etc.) posted deficits in 2009 with this similar idea, and there is little doubt the Chretien/Martin Liberals would have done similar. And as you can see with the link i just posted, Canada's deficit as a % of its GDP is well below the OECD average, and looking at the estimated 2010 budgets, Canada is ranked with the 5th lowest deficit-per-GDP% among the 33 OECD countries.

OK you are quoting a wonderful deficit, but what about the debt load of 3/4th of a Trillion dollars? and rising?

I'd ask why Canada has a debt, and why it is running a deficit. You might say keynesian economics - just to spend? Why not let the people spend their own money? The government can make money to dilute the wealth it doesn't need to tax and borrow. You want to inflate the economy print money. It equally effects those with the wealth rather than partisan biased policies.

GET RID OF THE CENTURY OLD WAR FUNDING INCOME TAX!!!!

LET THE PEOPLE DECIDE!!! PRINT ONLY WHAT IS NEEDED TO MAINTAIN ESSENTIAL NEEDS! GIVE THE PEOPLE THE CHOICE!!! ENABLE THEM TO SPEND ON PROGRAMS THEY WANT!! END FORCED TAXATION WITH THREAT OF PROPERTY CONFISCATION, PHYSICAL VIOLENCE, AND IMPRISONMENT!!!

END THE EXTORTION!!!

END THE DEBT!!! STOP DEFICIT SPENDING!!!!

GIVE THE PEOPLE THE CHOICE!!!

Keynesian Economics in the Canadian model makes a corporatist fascist state, and turns them into the holders of power, not the public.

It empowers the few wealth holders, ultra capitalist, injecting capital into elite control, while depriving the government of its revenues unless it borrows because it gets locked into a cycle of ever increasing debt a weakening based on the interest of the funds borrowed. Thus forcing higher taxes to pay the funds.

1 trillion personal debt

750 billion public debt.

This is what Keynesian economics does.

Edited November 17, 2010 by William Ashley

[Evening Star]

Strongly agree with KeyStone. The political cost of raising taxes back to a sustainable level in the future + the insufficient level of sustainable investment in public infrastructure will likely straitjacket future governments.

[dre]

I largely agree with you Moonlight but I will take exception to this "Truth". Banking regulations do not explain why we avoided this crisis.

In many regards, Canada's banking regulations are looser than those in the US, and those elsewhere in the world.

The comparative history of banking in the US and Canada is absolutely fascinating because of the stark differences. This latest episode is hardly new. (If you are curious, I suggest that you read Galbraith's Money.) In short, we avoided this housing bubble for many reasons - in part, because of the way we are.

In his defence, Harper can take credit for not having done anything stupid - and in such situations, governments often do that.

I largely agree with you Moonlight but I will take exception to this "Truth". Banking regulations do not explain why we avoided this crisis.

They definately explain part of.

Canada inherited the Scottish banking system while the US inherited the shitty english system. The US system has way way way more small banks, and it has always been much less stable.

Consider this...

In 2002 in Canada the six largest banks controlled 90 percent of Canadian domestic banking assets, while the five largest U.S. banks controlled only 9.7 percent of their domestic assets.

Thats a massive difference. Canadas banks are stronger institutions with more branches, and lots of commercial banking activity (as opposed to pure investment banks and thrifts like in the US).

Only one large bank has collapsed in Canadian history compared to many thousands in the United States. The Canadian system stayed stable during meltdowns in the US system in the late 1800's and again in the 1930's.

Canadian banks are also financial conglomerants that are essentially financial service supermarkets. They have bought up almost all the trust and brokerage companies in Canada, and they sell insurance, investment advice and scads of other crap. So they have a more diverse business model and are more likely to weather the storm if one area fails. Up until the last few years US banks were not allowed to engage in quite a few of these activities, and institutions were segmented based on services (branch banks, investment banks, mortgage companies and thrifts.

Another big difference is the way regulators are structured. All banks in Canada are regulated by the Office of the Superintendent of Financial Institutions (with the exception of credit unions). In the US theres a patch work of more than 50 different regulatory bodies.

Canada just has a flat out more stable system and always has. We just built a better mousetrap. Thats not the only factor though... other major factors were the level securitization, the quality of of mortgage derivatives, and our trade policy.

Edited November 17, 2010 by dre

[wyly]

I am tired of continually hearing easily refuted nonsense about the Harper government's economic policies regarding the current rescission. This nonsense is based on 2 myths:

the nonsense that annoys me is the myth conservatives are better fiscal managers a myth no doubt invented and spread by conservatives...our glorious leader an economic whizz kid and his band of idiots didn't see the recession coming, it seems everyone in canada saw it coming but the conservatives...oh ya conservatives are fantastic economic managers what was that harper projection "no deficit, we would have a surplus" :lol: Edited November 17, 2010 by wyly

[bush_cheney2004]

...Canada just has a flat out more stable system and always has. We just built a better mousetrap. Thats not the only factor though... other major factors were the level securitization, the quality of of mortgage derivatives, and our trade policy.

...and the lack of domestic capital, forcing a policy of foreign investment and ownership.

[Wild Bill]

Here is the TRUTH: taxation doesn't target the people with the most wealth in the instance of corporations, and a larger and larger portion of wealth has been oozing into megacorporations, with lower tax rates than individuals.

So who is really paying for this?

You've put your finger on it, Mr. Ashley! I've always been amazed that most people think governments target the rich more than the working man for their tax base.

Here's a simple way to see what's really going on. Set up an Excel spreadsheet. Take a wild guess as to the number of working people in Canada making whatever you think is an average annual wage and enter it into a cell. Label the cell if you want to get fancy.

Set up another cell to total the income of working people available to be taxed.

Now set up another cell for the number of millionaires in Canada. Again, just plug in whatever you yourself feel is reasonable. I'll explain in a minute. Then go ahead and set up a cell to multiply this figure by a million dollars.

You will instantly see that the amount of money available from millionaires to be taxed is mice nuts compared to the amount from ordinary working people!

Why did I say you could just pull numbers out of your ass? Because the difference is so extreme that even if you just use your own guesses, based on your own personal experience or even prejudices, you will still get an answer that makes the difference very clear! It's not worth researching for accurate numbers, although of course you can do that if you wish. What's important is to get a clear view of the "Big Picture" and not get bogged down in picking apart the model and not the point.

Governments tax the working person 'cuz that's where the REAL money is! Period and end of story!

[bush_cheney2004]

....Governments tax the working person 'cuz that's where the REAL money is! Period and end of story!

Well done! It's amazing how some people think and wish others to believe otherwise. "Tax the rich!" scream such fools....not realizing that government has to go where the real money is, often with regressive revenue policies when all consumption taxes are factored in.

[M.Dancer]

Governments tax the working person 'cuz that's where the REAL money is! Period and end of story!

Ontario’s projected deficit for 2010-11 has been reduced to $18.7 billion.

Finance Minister Dwight Duncan says that’s a 25 per cent reduction from last fall, when the deficit was $24.7 billion.

Duncan credits improved corporate tax revenues and reduced spending for the big drop in the deficit.

http://www.thestar.com/news/ontario/ontariobudget/article/891662--rising-tax-revenues-cut-into-ontario-deficit

[blueblood]

You've put your finger on it, Mr. Ashley! I've always been amazed that most people think governments target the rich more than the working man for their tax base.

Here's a simple way to see what's really going on. Set up an Excel spreadsheet. Take a wild guess as to the number of working people in Canada making whatever you think is an average annual wage and enter it into a cell. Label the cell if you want to get fancy.

Set up another cell to total the income of working people available to be taxed.

Now set up another cell for the number of millionaires in Canada. Again, just plug in whatever you yourself feel is reasonable. I'll explain in a minute. Then go ahead and set up a cell to multiply this figure by a million dollars.

You will instantly see that the amount of money available from millionaires to be taxed is mice nuts compared to the amount from ordinary working people!

Why did I say you could just pull numbers out of your ass? Because the difference is so extreme that even if you just use your own guesses, based on your own personal experience or even prejudices, you will still get an answer that makes the difference very clear! It's not worth researching for accurate numbers, although of course you can do that if you wish. What's important is to get a clear view of the "Big Picture" and not get bogged down in picking apart the model and not the point.

Governments tax the working person 'cuz that's where the REAL money is! Period and end of story!

If that's the case, why isn't there a flat tax in place?

If rich people just sat on their money, then there is a case for going after them, but they don't. Rich people are most likely business owners, and as such spend vast sums of money operating their businesses which help out other people, which includes providing employment. Then there is investments into businesses/emerging markets/local economy.

Wealthy people contribute a lot to this country, and IMO its folly to put an insane tax bracket on those who contribute more than the average working class person. It's a matter of principle really.

[Michael Hardner]

http://www.thestar.com/news/ontario/ontariobudget/article/891662--rising-tax-revenues-cut-into-ontario-deficit

The tax rates used to increase marginally, to a very high level.

The relationship between taxes and revenue, and the economy is complicated - I would offer product pricing as an analogy. If the highest earners see the system as unfair, then they will send their money elsewhere. But they have also seen their tax rates drop dramatically over the past 40 years.

I would favour a resizing of the government budget, including a fair increase for those who can afford it, and cuts to some services that are useless. The revenues should equal expenditures in a year of average economic well-being.

[nicky10013]

If that's the case, why isn't there a flat tax in place?

If rich people just sat on their money, then there is a case for going after them, but they don't. Rich people are most likely business owners, and as such spend vast sums of money operating their businesses which help out other people, which includes providing employment. Then there is investments into businesses/emerging markets/local economy.

Wealthy people contribute a lot to this country, and IMO its folly to put an insane tax bracket on those who contribute more than the average working class person. It's a matter of principle really.

Maybe we have a progressive tax bracket because a flat tax would dramatically shift the weight of taxation onto the people that can't afford it, rather than the rich who can. Rich or poor alike, we all need food, clothes and services. The difference between middle and lower classes and the rich in terms of those services really isn't all that large. The only real differences are on luxury purchases such as cars, houses, boats etc. Really, how often do the rich make these purchases as opposed to people who will have to live day to day paying more tax?

You may think that you do more for society through your economic activity, but just remember that the rich folks that run businesses wouldn't be rich without people working for them. Nor would they have a business with people buying.

[Evening Star]

Well done! It's amazing how some people think and wish others to believe otherwise. "Tax the rich!" scream such fools....not realizing that government has to go where the real money is, often with regressive revenue policies when all consumption taxes are factored in.

This (and Wild Bill's preceding post) don't make sense to me. Chart B here:

http://benmuse.typepad.com/ben_muse/2005/11/oh_canada_so_fa.html#more

seems to show that the top 10% of earners accounted for over 40% of total income in the country in 2000.

This review quotes a CCPA paper written using StatsCan figures: http://www3.sympatico.ca/ian.g.mason/Rags_and_Riches.htm

According to Kerstetter’s figures, in 1999 the wealthiest 20% of households controlled 70% of the total wealth “pie”, while the poorest 20% controlled literally 0% of the wealth. When the households are separated into deciles (groupings of 10%), the distribution looks even more extreme: the wealthiest 10% owned 53% of total wealth, while the poorest 10% had negative wealth.

The 'real money' does seem to be towards the top.

[Evening Star]

Here's a TD report (presumably not a left-biased source) based on Stats Can figures again, considering the data from 1999-2004:

http://www.td.com/economics/special/dt1206_wealth.jsp

In terms of absolute inequality, the shares of total income held by each quintile were effectively unchanged over this period with the highest quintile earning 44% of total income while the bottom quintile accounted for just 5%.

[ToadBrother]

Wealthy people contribute a lot to this country, and IMO its folly to put an insane tax bracket on those who contribute more than the average working class person. It's a matter of principle really.

Here's another principle to consider. The reason they have that wealth is in large part because the larger society creates the conditions where such acquisition is possible. What you seem to want is a "scratch my back and I'll say 'screw you' in return".

[Keepitsimple]

Governments often take too much credit when things go well and get too much criticism when things don't go well. Regardless, we should all be thankful that Canada is putting up a good struggle against the Global recession. As August said - at least Harper hasn't done anything stupid - which governments often do.

[ToadBrother]

Governments often take too much credit when things go well and get too much criticism when things don't go well. Regardless, we should all be thankful that Canada is putting up a good struggle against the Global recession. As August said - at least Harper hasn't done anything stupid - which governments often do.

We'll see what happens. I think we're closing in on The Recession Strikes Back. Ireland and Portugal are in serious straights, Ireland doesn't seem to want a bailout, Greece has announced that they've just discovered they are in even shittier shape than they thought prior to the EU bailout (and they looked pretty damned shitty then). If we see some of these countries pull out of the Euro and start devaluing, or maybe even defaulting, it's going to get really painful, maybe worse than the first time around.

[blueblood]

Here's another principle to consider. The reason they have that wealth is in large part because the larger society creates the conditions where such acquisition is possible. What you seem to want is a "scratch my back and I'll say 'screw you' in return".

That can go the other way as well, in that society has done well because of the wealthy providing jobs and capital. What you get in essence is a circular argument with no end. A good example I can think of going on right now, is in the US with an extremely large voter backlash against the Democrats and their policies and the rise of the tea party movement.

The point I'm making is that wealthy people don't bury all their money in the ground or hoard it in a vault behind a painting. Wealthy people buy things, invest, and provide labour, and IMO shouldn't have to be hindered with a punishing 44+% tax bracket and/or double taxation if in the case they are business owners for providing with society with a multitude of non-tax benefits.

Society is taxed at a certain percentage in the long run anyway, so what does it matter if the wealthy people pay less tax, and their customers/investments pay more tax by having a larger bottom line?

[bush_cheney2004]

...The 'real money' does seem to be towards the top.

Don't confuse "wealth" with "income".