Thursday, January 14, 2010

Recalibrate the Economy: Abandon the Obsession with GDP and Get Back to Work

Indeed, with the issue of climate change becoming ever more urgent and a growing recognition that economic growth does not make people any happier, there are growing calls for growth and the endless consumption of ever more material goods to be downgraded as political goals.

According to the Prime Minister, proroguing Parliament would allow for the recalibration of the economy. It seems that we have one zombie idea that refuses to die giving justification for an equally zombie-like political manoeuvre.

Now that the lost decade of the zeroes is over, we should be moving away from the ideological cant that got us into such a mess. Notwithstanding that continued economic growth is incompatible with a sustainable environment and that once a certain level of material well-being has been reached, as is the case with Canada, increased material wealth does not translate into greater happiness for the population, thinking we can just grow our way back to economic health is a remnant of an outdated economic approach.

In fact, the last decade saw robust economic growth as measured by GDP in North America despite the onset of the recession in the last quarter of 2008. However, there was no increase in the number of private sector jobs in the US despite a growing population; the median income dropped; the Standard&Poors 500 Stock Index had a negative return over the decade, and this is before inflation is factored in; there were more than a million mortgage defaults during the last year; two of the big three car makers went bankrupt; private and public pension funds encountered huge losses; and Canadian and US governments ran the largest deficits in their history.

Its time we exorcise the idea that GDP growth alone brings about increased prosperity from the land of the dead economists and move on to political-economic goals that can be demonstrated to lead to an increased well-being of the general population and not simply the top 1% of revenue earners.

It should also be clear that the globalization of world’s economies has led to previously unseen levels of volatility, where no nation controls its economic levers. What happens in one part of the world can have significant impact on another with little or no warning.

Given such conditions, the pursuit of economic growth as an objective in itself should be downgraded in favour of policies that promote economic stability and resilience. Consequently, increases in the GDP that are a result of increased levels in public and private debt, or the substitution of economic activity in the financial sector to replace lost activity in the manufacturing sector due to the offshoring of manufacturing jobs should not be taken as indicators of better economic performance no matter what our politicians would have us believe.

Certainly, we should be concerned with what the Parliamentary Budget Officer, Kevin Page, has identified as Canada’s structural deficit. According to Mr. Page, economic growth without an increase in existing tax rates or a significant decrease in expenditures will not generate sufficient revenues to eliminate the deficit.

I for one would like to see the imposition of a financial transaction tax and a capital gains tax tied to the length of time one holds a security as possible measures to generate new revenues and to bring stability to the real economy.

However, for this type of political debate to take place in a meaningful way Parliament must be in session, for it is here where the people’s elected representatives can legitimately work to tackle the problem of structural deficits head on. Instead, with Parliament prorogued, we can expect to see a show and sell tour leading to the tabling of a budget, with a strong possibility that we will plunged into yet another general election, which will resolve nothing considering how votes are distributed regionally.

Constitutional convention anyone?

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