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.

Tax relief and the austerity agenda.

One has to hand it to the neo-liberal ideologues and the neoconservative political movement in Canada; they have managed to get all political parties, the mainstream media and most of the population on board the "tax relief" train. To one degree or another, they all kneel at the alter of this ultimate false god.

And in the wake of round-after-round of federal and provincial income, sales and corporate tax cuts, the threat of severe austerity measures grows as each year passes.

While this story has played itself out across the country, right now it is doing so most dramatically in the province of Ontario, where citizens are faced with an austerity agenda that will be one-degree-or-another of the disgraceful Drummond Report

The massive income tax cuts of the 90's and the past decade in Ontario are the chickens that have come home to roost and they are directly why our governments claim they cannot "afford" to fully fund the programmes that citizens depend on, and why they are increasingly rattling the sabres by giving us the entirely false and unnecessary choice between supposed impending economic collapse and massive service cuts and user fees.

To put this in perspective, we have to begin by looking at what potential revenue was lost by Ontario's two decades of tax cuts. By 2003 the Harris era personal income tax cuts alone were removing $11.6 billion per year from the Ontario treasury. (1) These tax cuts, which were never reversed, (and which no one is proposing to reverse) have meant that Ontario has lost a minimum of $90-100 billion in revenue since 2003, not including the further tax cuts of the McGuinty era and not including the revenue lost during the Harris era itself. They also were of far greater benefit to the upper income brackets than the lower.

The reversal of these specific tax cuts would have reduced Ontario's overall debt from in excess of $236 billion to under $140 billion. This is very significant, given that Ontario paid out more in interest on this debt in 2010-2011 than it spent on post secondary education. The interest the province is handing to global financial concerns would have been around half the nearly $10 billion it was. That pays for a lot of programmes. It would also have meant that instead of facing an approximately $16 billion deficit this year we would be facing at most a deficit of $4.5 billion.

And this does NOT include all the other tax cuts; the cuts to corporate taxes, to small business taxes, to personal taxes since 2003 under McGuinty, etc. It only includes cuts to personal taxes that occurred under Mike Harris.

In fact, McGuinty's government has bragged that it is cutting income taxes even further. In Ontario's Tax Plan for Jobs and Growth the Ontario government is openly proud about how their personal income tax "relief" will benefit 93% of Ontarians (which means many very well-off people) and take another $11.8 billion in revenue out of the coffers over three years. That's almost $4 billion a year. And that means that, without these additional tax cuts, had there not been the "tax relief" since 1995, there would have basically been no deficit and their would be no need for the austerity agenda at all.

If the corporate and small business tax cuts of the 1995-2011 period had not happened, combined with the restored revenues from personal income taxes mentioned above, we would be running a surplus now and we would have an overall debt well under the $100 billion mark.

And yet no one, in any of the mainstream political parties, is advocating for reversing the vast bulk of these taxation policies. Not even close.

It is very important to understand that for the majority of citizens the money that they have received through this "relief" does not even remotely compare to the services, social cohesion and opportunity that they have lost as a result of it.

Unless you are in one of the small tax brackets at the pinnacle of our very steep income pyramid, tax relief is no relief at all. 100 per cent the opposite in fact. Tax relief is the key reason we can't "afford" and do not have programmes like universal day care. It is the reason that "economists" like Don Drummond can claim a fiscal crisis where none need exist and advocate to cut your programmes to the bone in the name of "fiscal responsibility". It is the reason our social programmes are not as good as they were in the '80's and early '90's. The reason our social and even physical infrastructure is falling apart. The reason why all those kid's programmes that used to be free or at very low cost are now either gone or charge often high user fees. The reason why public transit exists at levels way below what is required. The reason why if you lose your job you can't count on any real long-term government help, why health care is in "crisis", why tuition fees are way up, and so much more. It is a large part of why it seems, despite unprecedented economic "growth" over the last 25 years, that we are asked over-and-over again to make sacrifices to keep the wealthy wealthy and big business afloat. And it is the primary reason we have been utterly unable to really confront the stain of child poverty and it is a root cause of the massive growth in social inequality.

The results of the theory and practice of "tax relief".

Tax relief is the greatest snake oil salesperson political trick of all time...it promised to deliver financial aid and social stability but, for the bulk of the population, it delivered the exact opposite.

After the 2008 crisis of capitalism and the massive funds that were found to bailout major corporations in both Canada and the USA, it is also very clear that the idea that all this "tax relief" would result in eternal prosperity, corporate investment and trickle-down wealth has now obviously been shown to be the total nonsense that it always was. Most of the population has less job security, less access to programmes and less of a share of overall social wealth than they did when it all began. So, one has to ask, what was the point if not simply to benefit companies and those with higher incomes?

But there is no real political counter-offensive against the basic idea of personal tax cuts.

As shown the McGuinty Liberals have carried the Harris tax cuts further, and have pledged repeatedly that any tax hikes are off the table. The Tories advocate for even deeper tax cuts, and have implied that they would, if they could, implement Drummond's report in its entirety: a recipe for Greek-style social collapse.

The Ontario NDP has called for a raise in the corporate tax rate back to 14%, but the money that this would put back into government coffers would be offset in large part by what the government would lose by the NDP's promises to cut the HST on home heating and gasoline, and by tax breaks to small business. They outline this themselves in their Plan for Affordable Change. Nowhere does this platform call for any personal tax increases, not even on the highest income earners. (2)

The plan's constant refrain of "Rewarding Job Creators", "Living Within our Means", and "Making Life Affordable" expose the central idiocy of the tax relief idea. These targeted tax cuts of the NDP are bad environmental policy, as many have pointed out, most notably the David Suzuki Foundation. But also, would life not be made considerably more affordable for the pocketbooks of "working families" if we reversed personal income tax cuts and used the money to create a provincial system of, for example, free daycare or free pharmacare?

These are programmes that cannot really happen in any other way. Sometimes one can't help but feel that Social Democrats in Canada think that one day they will deliver Scandinavian Social Democracy and social programmes with US level tax rates. They won't.

These are just two examples of the programmes that could have, and could yet exist, if we turned back the near twenty years of personal and corporate tax cuts. Instead we will likely see more service cuts, and we will see a yet greater burden on the province's poor, its workers and its middle-class.

In fact, of course, without personal tax increases on, at the very least, the top income brackets, all the rhetoric of the "shared pain" that is flowing from Queen's Park is unbelievably and contemptibly hollow.

Now, more than ever, we need to fight for real, fair, steeply graded progressive income taxes and to understand that only with these taxes can we build the kind of society that we want and can we fight the inequality that is the hallmark of our times.

(1)http://www.policyalternatives.ca/sites/default/files/uploads/publications/Ontario_Office_Pubs/bti_taxcuts.pdf
(2) The platform, I would note, also envisions savings from the kind of fictional government "gravy" that Rob Ford said was being wasted in Toronto. And yet increasing income taxes marginally on even the top 25% of incomes in Ontario, which it does not advocate, would generate far more government revenue than all these "savings" combined, and many times over.

The World that made Don Drummond

In his opening paragraphs to the 18th Brumaire of Louis Bonaparte, Karl Marx noted that people "make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past."

It is one of the most basic and fundamental insights into the way our society, its politics and its mass thinking work, and yet its meaning is often forgotten or ignored.

We, as people exist in a context, and that context shapes the way we think and the way we act. That context is sometimes of our own making, in part or in whole, but regardless, it is inescapable and it frames the way we think, react and act as a society, often imperceptibly.

This social discourse evolves constantly, and the actions of politicians and political advocates help to shape what becomes the essential framework of their day.

The citizens of Ontario have come under a kind of full frontal ideological assault recently, delivered to them by an agent of their own provincial Liberal government, the former TD Bank economist Don Drummond. His commissioned report has recommended deep cuts to programmes that millions depend on. It disgracefully calls for the imposition of user fees on things like school buses (as one small example), massive cuts to health care, farcical ideas such as ending all day kindergarten or cutting access for seniors to medication, etc. It seeks to undue the little that the Liberals can claim as their attempts to reconstruct an inclusive civil society in the wake of the Harris years.

But what is fascinating about the Report is that the reaction to it has been akin to the reaction to a hurricane or some other unavoidable though unfortunate force of nature. Much of it has accepted its basic premises (even when somewhat critical) and has promoted it as a "bitter pill" that was overdue.

The "progressive" Toronto Star has had the Drummond Report as a link under its own masthead on its website since it came out. Some of its less interesting commentators, such as Martin Cohn, have written nonsensical articles with idiotic narratives about the "chickens coming home to roost" economically etc. The National Post, Globe and the Toronto Sun, hardly surprisingly, have embraced its recommendations with a glee bordering on the obscene. It is as if they cannot wait to take these programmes away from people and to watch life become that much harder for Ontario's citizens.

The report seeks to make constant the false ideas that neoconservatives used to deconstruct the post-war social compromise, and it seeks to do so as a kind of permanent counter-revolution against the gains of workers and other groups economically that were the dominant ideological hegemony and narrative after the Second World War and until the mid 1980's.

But the report did not fall out of the sky and its defenders are not merely post-modern Chicken Littles. It is the outcome of an ongoing process of ideological reeducation within the developed West that seeks to both reverse any traces of economic Social Democracy (in the traditional sense of the term) and that also seeks to make perpetual economic turmoil a constant so as to subsidize the lifestyles of people exactly like Don Drummond and so as to aid in the shareholder return driven amoral culture of profit that has destroyed the North American industrial base, wiped out the communities and jobs that existed for so many and that has successfully made even "left" parties sing its tune.

The idea, of course, is rather simple. Supposedly, despite decades of massive economic growth, despite record corporate profits, despite the fact that the wealthy are wealthy to a degree unparalleled since the "Gilded Age" era of capitalist Robber Barons, and despite the demonstrably obvious fact that our society is wealthier and has more overall social capital than it did forty years ago (and remember, the forces of capitalist ideological hegemony have hitched their fences to the logic of its capacity for perpetual growth, so they will not even deny this), we are still told to beleive that governments cannot afford to implement or sustain the kinds of programmes they introduced in the 1950's!

If that is the case then capitalism has manifestly failed. It has failed by even its own logic.

But how have we gotten to this point of absurdity? This surreality where we are told that capitalism has delivered tremendous material reward and incredible advances in social wealth, and yet, somehow, we cannot afford to fund basic social programmes and we are now suggesting that parents should PAY to have their kids bussed to schools that they have a legal right to have their kids attend.

And how is it that it is not noted that this supposed lecture and recipe for "recovery" comes from a social aristocrat, who was instructed to NOT discuss tax increases (not that he would have), and whose version of austerity would inflict far greater pain upon working people than it ever would upon those of his peculiar pedigree of social leach. Telling the masses to depend less on government while making an enormous personal sum off of government to say this.

Why did McGuinty hire him in the first place? Was it not perfectly obvious that Drummond had a vested interest in a specific agenda? To hire him to suggest how government could better govern itself was akin to appointing the head of the Yankees to run a commission on how to deal with revenue sharing in baseball. In other words, it was either stupid or this is what the McGuinty government wanted. It does not really matter which is true.

McGuinty, sensing perhaps that the "Report" would be nasty, tried to do the usual preparation for its impact in January, by telling everyone that they would all have to "share the pain" when the austerity regime started.

But never has this rhetoric been less true. There is no "sharing" that will occur. Millions of people will have their lives impacted on in ways that will range from the severe, in the case of the poor, to the serious, in the case of much of the middle class.

But others, like Don Drummond, given that tax increases are off the table, will feel little to nothing at all.

If you want to see how this really works, check out
http://www.mittbucks.com/

Here you will see that "sharing pain" in this era of grotesque inequality is a farce. For austerity to have an impact on the lives of the welathy like it will on the rest of us, taxes would have to be massively increased and laws put in place to remind corporations of their social responsibility to the society that created them and that they could not have existed without.

Instead, not a single party in mainstream "left" thinking is calling for anything like this at all.

They have completely capitulated to the forward march of the relentless neo-liberal economic logic of tax cuts, service cuts, deregulation, anti-unionism and much more.

Louis Menand of The New Yorker, when reviewing Rick Perlstein's "Before the Storm" put what I am trying to say very well..."It's not only that more politicians today sound like Goldwater than like Tom Hayden. More politicians today sound like Goldwater than like Lyndon Johnson". What this was pointing out was that the ideological spectrum has changed to the point that the ideas of the "extreme" presidential candidate Barry Goldwater are now mainstream thinking, while the ideas of Johnson, who declared a "War on Poverty" that actually achieved results, would be regarded as unrealistically and even ridiculously radical now.

In Canada we can see the ideological shift in many ways. Unlike the USA and the UK, Canada took slightly longer to capitulate in the face of the new hegemony. Even as late as 1989, all federal parties were willing to agree that it was the function of government to actually attempt to eliminate child poverty by the year 2000. They spectacularly failed to do so, but, far more significantly, none of them would really make this pledge now.

In 1995 a Liberal federal government introduced a budget that signified the first shift of "progressive" forces away from the ideas of interventionist government and the social responsibility of the wealthy and corporations.

The NDP has followed suit. It has also bought into all of the basic ideas of the new neo-liberal ideological framework, as is clearly shown in Manitoba, and, more bitterly, Nova Scotia, where the government has singularly failed to act on the few promises it made to organized labour and is bringing in a preliminary form of its own austerity agenda.

In Ontario the shift can be seen in how the party, which has sought in an entirely reactionary way to distance itself from its Bob Rae past, called their 2011 platform (such as it was) "The Plan for Affordable Change" as opposed to Bob Rae's "Agenda for the People". The difference in tone is quite telling. So is the reality that the ONDP's 2011 platform was far to the right of Rae's re-election platform in 1995 let alone the 1990 one.

Andrea Horwath, reflecting this now, released a statement calling for a "Balanced Approach to a Balanced Budget" as if a balanced approach is really what is needed and as if a balanced budget, with the fetishistic right wing reductionist logic that this entails, is actually what should be the government's focus as opposed to the well being of its citizens and the attempt to end the suffering and deprivation that poverty and social inequality cause.

The federal NDP has also done this, and the Jack Layton lead "Orange Crush" took opposition on what was without any doubt the most right wing platform the party has ever run on. Read it for yourself:
http://www.ndp.ca/platform

As with the Democrats in the US and most of the Socialist and Social Democratic parties in Europe, the Liberals and the NDP have bought into almost every fundamental aspect of the new ideological order and, by doing so, have created and helped to perpetuate the very ideas and philosophies that hinder them in their pursuit not only of power but of actually making a difference and being anything other than a last defence against the "Storm"

They have aided in their rhetoric, their platforms and, most importantly in their acceptance of the basic premises of the neo-liberal right, in perpetuating the ideological and social ideas that allowed this report to be taken seriously at all, which it would not have 30 years ago (despite the fact that our economy has supposedly "grown" so much in the meantime).

They have helped in every meaningful way to manufacture the world that created Don Drummond.