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Friday, October 19, 2012

Feedback loops, austerity & Tim Hudak's Ontario

Many of us, no doubt, have begun to hear about "positive feedbacks" or "feedback loops" over the last few weeks. This has been in regard to the increasingly alarming ecological situation that we all globally face with the far more rapid than anticipated melting of the arctic permafrost and the release of methane into the atmosphere that this is causing.

The "positive feedback" consists of the fact that, as methane gets released, it acts as a greenhouse gas and drives up global temperatures. This increase in temperatures causes greater polar melting which, in turn, releases more methane. After a certain point the cycle becomes self-perpetuating and irreversible and its effects become more consequential as the cycle unfolds. In this case, of course, in truly catastrophic ways.

If, as some climatologists feel, a "runaway" feedback loop has actually begun, then the best that we can hope for is to mitigate its consequences. There will be absolutely nothing we can do to undo or stop them.

Oddly, and ultimately for analogous socioeconomic reasons,  there is a similar process at work in many advanced capitalist economies. These economies, due to self-perpetuating consequences that are the result of tax-cuts, austerity measures and a societal propensity to accumulate debt to offset and finance a decline in production that corresponded with an increase in consumption, are now facing an unprecedented period of perpetual stagnation, gradual decline and persistent systemic risk, in addition to dramatically increased social inequality and instability,  despite the reality that most of them remain nominally very "wealthy".

If they slip into a period of  rapid decline due to the collapse of one-or-another speculative  sector of their economy, countries can descend into an economic situation where the systemic risk is realized and where a downward spiral becomes basically irreversible as long as the fundamental market and capitalist conditions that triggered it continue.

The most obvious component, and the easiest to demonstrate, of economic "feedback loops" is what could be termed the "austerity loop". The austerity loop, which has been an ongoing process in parts of Europe for several years now, is relatively simple. Due to the increasingly speculative (as opposed to productive) nature of the Western capitalist economy, many Western economies were experiencing highly inflated "growth" due to financial "paper-tiger" empires and other non-productive "stimulus" that bankrolled the ability of various governments to maintain lifestyles that had no basis in national production (in capitalist terms). When this financial bubble burst, these same governments were unable to stem the tide of the burst without either abandoning the system that had led to it in the first place, (which, of course, they did not do) or by seeking to keep the system in place by attempting to offset the now disastrous debts that they were facing by adopting austerity measures to allegedly placate international financial concerns and lenders.

These austerity measures generally consisted of massive cuts to social spending, to the numbers of government employees and to the wages of those who kept their jobs. They also usually included deep cuts to infrastructure spending. The primary, and worst examples of this are Greece and Spain.

In all cases, needless to say, the "pain" of austerity was felt almost entirely by those in the economy that had had the least to do with the conditions that led to it: the working and lower middle-classes.

These initial austerity cuts, as widespread as they were, had entirely foreseeable consequences that were, ironically, the opposite of their intent. They directly resulted in lowering, not raising, the social wealth as a whole and the money available to government. The reasons for this are obvious. Rather than placating foreign financial concerns, the cuts meant that citizens had less money to spend, less wages to pay taxes on and that national businesses and government departments received fewer projects and less government subsidy both directly and indirectly (such as workers being hired to pave roads, issue birth certificates, maintain historic sites, etc.). Lower wages and fewer jobs meant less socially disposable income, leading to less spending by citizens, leading in turn to more business failures, yet lower wages and yet fewer jobs. This had a further depressing effect on the economies in question, and the cycle repeated, getting worse with each wave of austerity and its consequences.

With every round of austerity measures, the same financial concerns whose confidence was supposed to be restored by the measures,  ended up lowering the credit ratings of the countries in question, thereby exacerbating and accelerating the very process which austerity was supposed to prevent.

Austerity measures compounded the problem, they did not alleviate it. They acted as a positive feedback mechanism.

In the case of the U.K., where the austerity measures were entirely unwarranted and "preemptive", they, in fact, have induced a recession, and the economy has now undergone three quarters of  GDP contraction. The U.K.'s GDP is projected to shrink by 0.7 per cent this year. Still, the U.K.'s Conservative PM David Cameron has vowed to stay the course on policies that are manifestly hurting the economy, not to mention the citizens of his country.

The illusions and ideological blinders of  neo-liberal politicians are so great, that they cannot accept that the models they hold dear are false. Akin to those who deny climate change, they deny the economic outcomes of their theories in action over the last thirty years.

The same process may soon be coming into play in Ontario courtesy of our own Tories, very much inspired by Cameron, despite the results "across the pond".

Now, as the province's economy was just beginning to show some signs of recovery from the 2008 North America wide government stimulus bailouts, a government intervention that obviously prevented economic collapse and that should have put an end to the ideas of austerity and unregulated, "free market," Chicago School economics forever, we find instead that governments continue to play into the fallacies of the failed models.

It is bad enough that the Ontario Liberals have set the process in motion by shifting the focus from economic recovery to deficit fighting and by implementing the first steps of austerity with wage freezes and  setting the ideological tone through the commissioning of the Drummond Report, which was little more than a blueprint for social collapse.

Much worse, the Tories have recently released an economic plan which is basically guaranteed, despite its title "Paths to Prosperity: An Agenda for Growth", to stall, if not reverse economic growth, especially should it be implemented to coincide with the possible collapse of the housing bubble in Canada.

The plan calls for the reduction of ALL government spending by 10% outside of health and education (allegedly), which means the removal of billions of dollars in direct stimulus from the economy. It promises further "tax relief", despite the clear, and easily demonstrable fact that not only does "tax relief" not create jobs, it also necessitates greater spending cuts that act as a brake on growth.

The Tories would "support a mandatory public sector wage freeze -- saving Ontario $2 billion over two years." What they fail to mention is that this means removing $2 billion from the pockets of citizens and consumers, (and public sector workers are citizens and consumers) and thus directly from the economy. It also means that these citizens will have $2 billion less in income to pay taxes on; an unfortunate side-effect to wage freezes that the Liberals are already running into.

In addition to removing this $2 billion from the economy, they would further remove an additional $2.5 billion by ending "corporate welfare." But, despite the seemingly leftist overtones of this slogan, stealing a phrase popularized by NDP leader David Lewis in the 1970s, what they are proposing is the massive slashing of subsidies that will unquestionably lead to the slashing of jobs and closing of plants, businesses and, in some cases, the demise of entire communities.

Yet somehow we are to understand that the cumulative withdrawal of billions and billions of dollars from the economy that is outlined above, all to take place in a very short period of time, will actually result in economic and job growth?

Further, rather farcically, during his recent press conference on how his plan would create jobs, Hudak said "We actually will have to have fewer people working in government...There's no doubt about that.", presumably indicating his firm belief that the province has to throw people out of work to ensure that they can then find work.

The Tory plan is also explicit in its commitment to suppress wages generally, taking yet more disposable income out of the economy, by calling for dramatic and very broad anti-union measures in the private sector; measures that he openly admits are inspired by American anti-union laws. He advocates the end of the very notion of public sector unionism with his ridiculous proposal to open many basic government services up to competitive bidding, presumably in the fantasy that the private sector can deliver these essential government services efficiently with the cut corners and costs and the low wages it would take to do so and still turn a profit. Profit being the basic motive force of private enterprise after all.

Their platform pits public and private sector workers against each other by stating, entirely disingenuously,  that "it’s only fair to ask public sector workers to share in the sacrifices their private sector colleagues have already been making" without noting that the "sacrifices" of the private sector workers came through recessionary economics and the appalling fiscal irresponsibility and greed of the private sector. The two have absolutely nothing to do with each other, and the "sacrifices" of private sector workers, (lost jobs, lower wages and so on), are what need to be reversed to create true economic growth.

The notion that the public sector should copy the proven incompetence and inability of the private sector in providing stable jobs and living wages would seem at best misguided.

Of course, despite all of its populist rhetoric,  Hudak's policies would also  accelerate inequality in Ontario. Wage suppression, anti-unionism, public sector job cuts, deregulation and deep cuts to social spending and social services are not only certain to increase the economic instability and threats faced by workers and some elements of the middle class, they will also directly benefit the upper middle-class and the wealthy and many, though not all, corporations and their profits in the short term.

Given that millions of Ontario residents are a couple of paycheques away from missing credit card and mortgage payments, and given the government created and backed housing bubble and personal debt crisis, the Tory plan to "create" growth and jobs by taking wages, benefits and either the actuality of or possibility of union rights out of the pockets of these same citizens is a recipe for disaster.

While McGuinty may have got the ball rolling, Hudak's vision, if implemented, would set the austerity loop loose. Once unleashed, Greece and Spain are only a housing bubble burst away.

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