Pre-budget austerity musings

Prime Minister Mark Carney let the word austerity slip out recently, as in, “we should expect an austerity budget.” For some people, this is welcome because it signals to them reining in spending and focusing on economic growth, worthy objectives. Other people cringe when they hear the A-word because they know they will be the victims of austerity. These are people living on low incomes, or unable to work because of disability, or single parents needing to focus on raising young children.

Conventional economic commentators see the belt-tightening that comes with austerity as a virtue. People need to cut wasteful expenditures, work harder, get off the dole, and stop whining. In their view, money should be in the hands of the wealthy segments of society because they know how to apply it to growth and prosperity. Above all, Canada must be attractive to investors, usually meaning low labour costs, lax regulations, and generous tax incentives and breaks.

Austerity is conventionally achieved on the backs of the poor: fewer workplace protections, discouragement of workers organizing, social benefit freezes or reductions, weak rental protections, and increased costs of goods.

This ignores how capital tends to behave in Canada. Foreign-owned firms tend to siphon profits out of the country. Domestic owners take their profits and invest much of it abroad, often storing it in low-tax regimes. Highly paid executives do the same. Companies reward shareholders with dividends and share buybacks. Reinvesting profits into research and development is often minimal, more maintenance than vision.

A person with a low income puts their earnings into rent, food, clothing, and other family necessities. Each dollar is returned quickly into the economy, to pay wages for farmers, construction workers, teachers, and shopkeepers. This is the money that drives the economy, and it is used efficiently.

Hopefully the commentators aren’t channelling Prime Minister Carney, and he is thinking differently. Just like conventional thinking equates military spending with guns and warplanes, it might equate austerity with further strapping vulnerable people. Military spending might align with our national housing needs or strengthening our health care, and austerity might align with reforming the wasteful habits of capital in Canada. Mr. Carney would indeed be the rare leader who might dare to do more than “fail conventionally,” as Keynes had it.