Austerity Canada

Where is Canada’s mild Keynesian alternative?

You know something is up when the social democrats are trailing the centrist pundits on the economy. The space for a just a mild Keynesian alternative in Canada is wide open. Such an alternative, however, needs a political rather than merely a technocratic push.

Here is a fragment of a piece that just appeared in Canadian Business magazine and is typical of recent centrist commentary:

No one would counsel a return to unchecked spending. But the magical thinking around balanced budgets should stop. Canada’s debt is a sunk cost, not an anchor. The IMF now advises that countries with enough fiscal room to manoeuvre should think twice about reducing debt for the sake of it. If debt is manageable, economic growth should be the priority. An expanding economy will reduce the debt burden organically.

After establishing centrist credentials via the bogeyman of “unchecked spending”, the author quickly offers an argument to the left of all three major political parties, including the NDP. Debt reduction for its own sake is contrasted with restarting economic growth and there’s even an appearance of the now-common progressive appeal to the IMF as the voice of technocratic reason.

The left counterpart to this centrist line is the “Varoufakiste” argument of trying “to save capitalism from itself…to minimise the unnecessary human toll from crisis.” This argument concedes that today even the meager gains from growth that would go to the many are better than redistributive austerity that encourages stagnation amidst the “creative destruction” of social protections. It is a modest Keynesianism fit for neoliberal times.

Canada Crisis

Transformations in profit and possibilities of resistance: A reply to Sam Gindin

Several weeks ago, I published a series of blog posts on profitability and investment in Canada since the financial crisis of 2007-8. These were republished as a single long article on Socialist Project and given the title, “Canada’s Profitability and Stagnation Puzzle”.  Since them, Sam Gindin has published a reply to my piece, “Puzzle or Misreading? Stagnation, Austerity and Left Politics”. Gindin challenges me on a number of fronts, most generally for misreading the current predicament in terms of a static formula that treats all capitalist crises ahistorically. This critique has ramifications for how Gindin sees not only my empirical account of present trends, but also my theoretical background and thoughts on strategies for resistance and alternatives.

Despite what appear to be many points of dispute, I think Gindin and I actually agree on a great many things, both in terms of the diagnosis of the current crisis and strategies for overcoming it. There are quibbles about statistics and wording, and I want to deal with a couple of these here, but I think we share much on broader theoretical and strategic matters. I want to primarily focus on the agreements behind our recent Socialist Project-facilitated interaction.

Canada Crisis Economic theory

Demand or destruction: Two ways out of the profitability puzzle

In my previous post, I outlined the disconnect between profitability and investment in Canada’s private sector.  While businesses are doing well and profits have rebounded quickly after the global financial crisis of 2007, investment has continued its slow and steady 20-year decline.  This decline is especially visible when investment is related directly to profits. Slightly more than 60% of gross profits are currently being re-invested, down by a third relative to just two decades ago.  Such a gap between strong profitability and dismal investment does not correspond with standard accounts of how the economy functions.  According to standard accounts, strong profitability should encourage investment, not depress it further.  This theoretical relationship is not borne out in recent Canadian experience.

While the last post also examined a few factors that could have been at play in creating this odd state of affairs, here I want to move in the opposite direction and look at two competing pictures of how to revive low private-sector investment.  The first picture comes from Keynes, the second from Marx.  I am particularly indebted to Michael Roberts, who has written extensively on the crisis from a UK perspective and who used a similar framework in a recent article (on the adoption of the idea of a permanent slump by mainstream Keynesians).

The two pictures agree on a diagnosis of on-going stagnation – with low investment being just one feature.  Indeed, the lack of sustained recovery across much of the developed world has led increasing numbers of mainstream economists to declare that the current slowdown is permanent.  Paul Krugman, likely the most prominent Keynesian economist, recently wrote that we may have entered a “permanent slump.”  Even the more hawkish Larry Summers has added his voice to the chorus, referring in a recent speech at the IMF to a period of “secular stagnation”.  Many Marxist and other radical economists have, of course, been making the same point for years, citing a variety of structural changes and imbalances in the economy, particularly those that characterize the neoliberal period that began in the 1970s when the great post-war boom lost steam.

While their diagnosis may be similar, Keynesian and Marxian economists see the way out of the current long-term slump rather differently.