Sunday, November 24, 2013

Thirty years of Cheaponomics: crumbling infrastructure, soaring debt

Back in the 1950s and 60s, Canada engaged in big, expensive infrastructure projects like the Champlain bridge in Montreal. These created good paying jobs and greased the wheels of business. They were investments that not only paid for themselves, they paid dividends.

Today we apply duct tape solutions to keep crumbling infrastructure from falling into the river. Where did it all go wrong?

Paradox of thrift

To understand the answer we have to go back to the Great Depression of the 1930s. Back then, free-market ideology caused the global economy to implode in a never-ending depression. At the source of the problem was the “paradox of thrift”: people were afraid to spend which killed economic activity and jobs in a vicious circle.

Centrist system

John Maynard Keynes identified the problem as a lack of demand. From this he created the centrist mixed-market system founded on partial government involvement in the economy and progressive taxation.

In the post-war era, Western governments embraced the Keynesian system. Even though they had greater debt than they do today, they spent big on infrastructure and social programs to prime demand and keep the economy firing on all cylinders.

The end result? An economic golden age which enabled governments to pay off most of their debts by the mid-1970s.

The empire strikes back

In the 1980s, free-market ideology made a comeback through leaders like Ronald Reagan and Margaret Thatcher. To them, Keynesian “big government” was the problem. This began an era of big tax cuts, deep spending cuts, deregulation and trade liberalization.

The result? Instead of paying our bills we borrowed vast sums to dole out in tax cuts to the rich. Instead of investing in infrastructure, we let our roads and bridges crumble. Instead of having an economy firing on all cylinders, we got soaring inequality and another free-market implosion.

Conclusion

We don’t need to reinvent the wheel to fix the mess we’re in. The centrist Keynesian system worked before. It works great in northern European countries today. It will work here again.

2 comments:

  1. We had a classic opportunity to restart infrastructure investment when Parliament passed the 2009 stimulus budget. Instead the Cons and Libs (under Iggy) blew it, implementing an ineffective policy that helped some Canadians pay for a bit of landscaping or tossing a new deck on the cottage.

    While Calgary was inundated in June, the World Council on Disaster Management held its annual conference in Toronto. One expert in attendance estimated Canada needed to invest a trillion dollars to bring its infrastructure into a condition to meet the climate change impacts coming our way.

    http://the-mound-of-sound.blogspot.ca/2013/06/canadian-infrastructure-not-ready-for.html

    The critical point is that, if we don't invest that trillion dollars, our failure will exact a far greater cost on our society and economy in the foreseeable future. We're still stealing from the generations to follow us.

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    1. Thanks for the info. Looks like 30 years of slacking off really adds up. I agree we are stealing from future generations by not paying our bills or acting responsibly.

      What's most distasteful is our Robin-Hood-in-reverse mentality. Maybe most people believe they're going to hit the lottery so they're really looking out for their own interest...

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