Eye on the Economy: Ending Austerity

The upstart anti-austerity Syriza party didn’t just win this past week’s elections in Greece—it won big, coming just short of an absolute majority. Their victory overturned decades of rule by establishment parties of the left and right and provided inspiration to similar political movements across Europe. But instead of being a surprise, the question many ask is why did it take so long?

Syriza’s victory follows five years of punishing austerity implemented by the established parties and the so-called Troika following a “debt crisis”.   But instead of improving Greece’s fiscal situation and economy, the deep spending cuts, privatization, wage suppression and other austerity measures made it much worse. The economy shrank by 30%, the unemployment rate tripled to over 25% (with youth jobless over 50%) and millions were forced into poverty. Despite cutting public spending by more than a fifth, Greece’s debt situation got worse, not better, with its debt/GDP ratio rising by almost 40 percent to 175% of the country’s GDP.

There should be no mincing words: people in Greece and other European countries were forced into economic depression and condemned to unnecessary misery by wrong-headed economic policies. Syriza aims to turn those around by increasing minimum wages, creating jobs, restoring collective bargaining and public services, reforming taxes, reducing the power of the oligarchy, reforming public administration and renegotiating the country’s debts. While some argue they will need to moderate their demands, others such as Nobel economist Paul Krugman say “they’re not radical enough.”

While most reasonable economists—including international organizations such as the IMF, OECD, World Bank, ILO and others—agree austerity has failed and that stronger wage growth and greater equality is needed to improve the economy, we remain saddled with politicians who persist with zombie economic policies. Policies of cutting spending, suppressing wages and relying on ultra-low interest rates to stimulate the economy have resulted in a seven-year slump while also further inflating asset prices, which will make the inevitable bust even worse.

Doug Porter, chief economist of BMO had to resort to irony and sarcasm in his attempt to rationalize the Bank of Canada’s recent interest rate cut. Meanwhile, billionaire investor and economic thinker George Soros told the World Economic Forum that current policies reinforce inequality because “excessive reliance on monetary policy tends to enrich the owners of property and at the same time will not relieve the downward pressure on wages.” Instead he says nations need to tax and spend more to get our economies to grow stronger.

Bottom line: As another Nobel economist Joseph Stiglitz writes, “The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.”

  • More of the same. In an election-style speech, Prime Minister Harper touted his policies of free trade, getting tough on crime and plans to balance the budget this year. Meanwhile economist Chris Ragan writes “if the government really cares about the economy, it will avoid any spending cuts, delay its target for budget balances and maybe even announce some modest spending increases.”
  • Oil spillovers. Ottawa’s Parliamentary Budget Officer calculates if oil prices remain at $48/ barrel, it will reduce the federal government’s surplus by approximately $5 billion annually. It would also reduce the balance of other governments in Canada by about $4 billion but while some would lose, others would gain. And the TD Bank says oil prices should remain relatively low for longer
  • The last will be the first and the first last. With the drop in oil prices, TD Economics cut its forecast for Canadian economic growth to 2% this year but boosted its forecast for S. growth to 3.2%. At the provincial level, while Alberta and Newfoundland go from boom to bust, Ontario and BC are now expected to lead the country in economic and employment growth this year and next, both growing faster than previously expected.
  • Inflation dips. Although lower energy prices knocked national consumer price inflation down to 1.5% in December, it averaged 2.0% for 2014 overall. BMO and TD banks now forecast inflation will average less than 1.0% in 2015, but rise slightly above 2% in 2016.
  • Real wages down in BC and Ontario. Workers in Ontario and British Columbia saw their median average wages decline in real dollar terms from 2006 to 2012, including by as much as -13.6% in Windsor, -2.8% in Toronto and -3% in Vancouver, analysis by Broadbent Institute Wages for workers in Saskatchewan and Newfoundland and Labrador increased the most during this period.
  • The cost of unpaid care provided by Canadian workers for family (not including parenting) and friends with long-term health conditions adds up to $1.3 billion and over 100 million hours per year for employers, according to the Conference Board and a new report by a federal employers’ panel and a Conference Board report, Making the Business Case for Investments in Workplace Health and Wellness. With a shortage of other supports, including long-term care, more than a third of employees have to juggle work and family responsibilities and take unpaid time off to care for loved ones.
  • Baby blue T-Bird for $60K? Just as the Alberta government prepared plans to restrain spending and travel, Premier Jim Prentice flew to Arizona to buy a ‘56 white and baby blue Thunderbird in a classic car auction for $60,000, well above Albertan’s average income. While it was on his own coin and he plans to give it to his grandson and it may look real nice….it don’t look too good for the Premier One-Percenter to drop so much on expensive hobbies while telling the rest of the province to restrain themselves.

Toby Sanger, Economist, CUPE National. Twitter: @toby_sanger tsanger@cupe.ca

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