"The first thing we do, let's kill all the economists."
(Modern adaptation of Henry VI, part 2)
These are trying times for politicians who rely on the advice of economists. Now that the collapse of the financial markets has been averted, at great cost to the public purse, what do we do about the mountains of debt?
There are basically two schools of thought: implement austerity measures to reduce public spending or continue deficit spending to promote economic recovery and once this has been achieved, pay down the debt.
How you respond to this dilemma probably indicates whether you are on the right or the left of the political center. Those on the right prefer austerity measures while those on the left opt for continued deficit spending.
Unfortunately, economics (the dismal science) has little in the way of predictive capabilities, as born out by the massive failure of the vast majority of economists to predict the onset of the Great Recession. This raises the fundamental question, how are we to choose between the two aforementioned options if we cannot be certain of their effects upon the economy?
This is where the economy becomes political. In fact, given the level of uncertainty, this choice is entirely political, a question of with whom do your interests lie.
One thing that we must remember is how we got into this fine mess.
Lest we forget, the principal cause of the Great Recession was the unregulated trading of debt securities. Trillions of dollars from the public sector were then used to forestay a collapse of the financial sector and a subsequent economic disaster in the global economy.
So, who should pick up the tab to set things right, the innocent victims or the culprits?
Indeed, why should those who use public services be asked to bear the brunt of the economic and social costs of the malfeasance and the sector which is largely responsible for this disconcerting state of affairs should get off scot free?
In order to reduce the deficit, cutbacks to social services represent only one option. A second option is to maintain current expenditures and to raise revenues, in particular, a financial transaction tax that would in effect recoup the monies spent to prop up the financial sector and to decrease the possibility that speculative trading would again disrupt the lives of those who toil in the real economy.
Economic prognostications are just a smokescreen for the more fundamental question of whose ox is going to be gored.
For example, in the UK, the government just announced the annulation of a billion dollar expenditure to refurbish their aging public schools and in the United States, elected federal politicians just left for vacation while approximately 3 million unemployed workers were to see their benefits expire. Have a nice summer.
So, which path is Canada going to take? The last budget had a wait and see approach that given the circumstances, I thought was appropriate. In my opinion, the next budget should trigger a federal election since it will entail some very fundamental political choices that await.
This would be a good time to have an electoral system which would bring about a democratic result.