PHOTOS: The economic landscape nowadays in Saskatchewan. Below: Economist and New York Times columnist Paul Krugman (Twitter), Canadian economists Jim Stanford (Twitter) and Toby Sanger, and, of course, Saskatchewan Premier Brad Wall (Photo: Daniel Paquet).
Saskatchewan appears to be suffering from a serious economic malady.
Nobel Prize-winning economist and journalist Paul Krugman calls it “Austerity Fever.”
Call it what you will, a new case has now been diagnosed in Manitoba, and conservatives here in Alberta appear to have been afflicted as well – although, thankfully, not our social democratic NDP Government.
As a result, for the time being at least, we will likely be spared the worst symptoms of this tragic condition, which Mr. Sanger noted in correspondence with your blogger is “mainly a disease of affluent older white males, in which the ‘cure’ is inflicted on others, and is far worse than the disease.”
The supposed remedy, akin to the application of leeches in Medieval Europe, takes the form of harsh austerity applied to depressed economies. It “isn’t necessary, and does major damage when it is imposed,” Dr. Krugman has explained in many places, including the comprehensive piece quoted here, written in 2015 for the Guardian.
So the “strange malady” causes its victims (like Saskatchewan Premier Brad Wall and the members of his cabinet, although they were too insignificant for Dr. Krugman to mention by name) to exhibit such symptoms as “extravagant fear and blithe optimism.”
So, if you were wondering, it’s obviously SADS/Austerity Fever that’s behind the cuts, wage caps and rollbacks for front-line public sector workers like nurses and teachers that were announced by the Saskatchewan Government last week.
“Everything must be on the table” when it comes to the task of rolling back Saskatchewan’s deficit – which, by the way, is about the same size as Alberta’s as a percentage of GDP and would be bigger without that province’s 5-per-cent sales tax – Premier Wall said recently.
“The worst thing we could do for health and education is delay this decision so that in five or six years the problem is compounded so seriously that what some government down the road would have to do would set us back,” he told the CBC at the end of last year, exhibiting the strange mix fear and optimism, both unjustified, that characterizes this condition.
Of course, whether Mr. Wall’s Saskatchewan Party Government actually believes everything its says – which, as Dr. Krugman points out is almost entirely rejected by mainstream economists of all stripes – is another matter entirely.
“Perversely, trying to eliminate a cyclical deficit through proactive restraint … only makes the recession worse,” Dr. Stanford wrote in his 2008 book, Economics for Everyone.
In his 2015 Guardian story, Dr. Krugman confidently stated his belief that “the austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it.”
Alas, on this point at least, the author of a twice-weekly economics column in the New York Times was wrong. With the election as President of Donald Trump, widely understood to be an economic ignoramus, the United States looks to be about to suffer a serious relapse of Austerity Fever/SADS.
As for Saskatchewan, the malady has stubbornly resisted treatment.
Just the same, it is worth remembering that, as Dr. Krugman enumerated, “since the global turn to austerity in 2010, every country that introduced significant austerity has seen its economy suffer, with the depth of the suffering closely related to the harshness of the austerity.”
It is reasonable to assume that Saskatchewan in 2017, while hardly a country, will be no different.
Again, unfortunately, that judgment was made before the phenomenon of alternative facts – and alternative realities – became respectable in the United States.
Of course with the case for austerity pretty well universally discredited as bankrupt, you have to look to the underlying motives of conservatives for persisting with this dogma.
“Conservatives like to use the alleged dangers of debt and deficits as clubs with which to beat the welfare state and justify cuts in benefits,” Dr. Krugman wrote, stating the obvious.
“But won’t this lead to budget deficits?” he asked rhetorically. “Yes, and that’s actually a good thing. … In such an economy the government does everyone a service by running deficits and giving frustrated savers a chance to put their money to work.”
“Counter-intuitively,” agreed Dr. Stanford, who now works in Australia, “a government can maintain a stable debt burden (measured as a share of GDP) while still incurring annual deficits. So long as GDP is growing … quite significant annual deficits can be incurred by governments with no long-run increase in the debt burden.”
Dr. Krugman therefore concluded: “It’s foolish and destructive to worry about deficits when borrowing is very cheap and the funds you borrow would otherwise go to waste.”
One can only hope the major damage about to be done to Saskatchewan’s economy by Mr. Wall’s maladministration happens in time for the results to be evident during the next Alberta election.
With Premier Rachel Notley’s effort to build social license for the province’s resource exports by adopting responsible environmental policies obviously bearing fruit, Albertans should brace themselves for another influx of badly driven cars with green and white license plates in the very near future.
This post also appears on Rabble.ca.
Conservatives have for way too long worshipped at the altar of deficit reduction as a means to curtail government spending, impacting public sector jobs and social spending on health care and education (i.e. Ralph Klein circa 1993).
Sadly, we are seeing signs of that debt and deficit hysteria emerging from the Wildrose Party and PC leadership candidate Jason Kenney. It’s like a dead snake. You can cut off the head, but the body still craves life.
Sober second thoughts from the current government should be enough to stem the tide against rising conservative economic dogma. One can only hope that there are no Bob Rae’s in this Alberta New Democrat government, during this current economic downturn.
Have you ever noticed how, when ‘everything is on the table’ the only thing that comes to actually being implemented is public sector cuts? Another phrase austerity minded people use, with an equal degree of untruth, is ‘we all have to share the pain’, yet if no consideration is given to measures that would truly share the pain equally, like a tax increase or user fees.
Bob, when Jim Prentice tabled his proposed budget I believe it included something like 59 tax increases. When the NDP were elected about the only increase they eliminated was was the health care fee. Then they increased personal and corporate tax rates and now a carbon tax. All this shared pain as you put it and still an unprecedented deficit. My guess is that Brad Wall feels that raising taxes during an economic slow down will not help the deficit. Higher taxes in Alberta haven’t lowered the deficit or lowered the unemployment rate.
Hi Farmer B,
As usual, there is no denying the facts you present, but I do want to mull over some of your conclusions. Of the 59 tax increases you mentioned, I’m guessing many were probably minor user fees and the like, that would have given revenue a bit of a boost, but nothing significant, except to the Canadian Taxpayers Federation who gleefully counted them up. To whatever extent this is correct, they couldn’t really be expected to make much difference to the balance sheet. I expect what they did do was prevent the deficit from being even higher.
There is also no denying there is a danger in bringing in any kind of huge change on the taxation front during an economic downturn. Thus we have deficits.
Really, what needs to happen is for the government to gradually implement a taxation scheme that allows the government to pay its expenses without relying on oil revenue, then enjoy the income that results from investing the surplus that results when times are good. That was more or less what Peter Lougheed tried to set up, but I think he didn’t go far enough.
Personally I think a big problem is groups like the Fraser Institute, Canadian Taxpayers Federation etc that simply will not acknowledge when a tax increase is necessary.
Bob,I just read an article in the Calgary Sun by Rick Bell which sums it all up: “Notley NDP continues the sins of the Progressive Conservative’s Toryland past, says Fraser Institute probe”. I am sure you will find it an interesting read even though you dislike the Fraser institute.
We’re seeing that now in the U.S. with their utterly schizophrenic approach to government spending/cuts; Trump just announced a freeze in all government operational spending except, of course, the military… because it has always been so underfunded.
Its more than coincidental that austerity buffs see teachers and health care workers salaries as ‘expesnses’, but military spending as a wealth creator. How we came to be a people who fall for the idea that the folks who care for our children’s intellectual growth….and the workers who tend us when we are sick, create debt………….but arms manufacturers, weapons of mass destruction, and interferring in other people’s problems, is a necessary expenditure……..producing all kinds of GDP dividends………says something scary about the right wing mind set.
People are obviously the problem; austerity the cure for that problem. Military hardware and extractivist expenditures…much of which is also funded by debt, is the solution.
I suspect the austerity bug is not the only infection suffered by conservative white males. Contempt for the people who do the work, fear of the Others threatening their power, is also a part of their immune system. Enslaved workers, and career opportunities in the military being their vision of a working economy. Watch Trump and his minions to the south of us.
They are already off to a mad and authoritarian start.
Saskatchewan was a beacon. It provided generously and responsibly.
Grant Devine started the slippery slope -his gang ended up in jail. Then mass denial lead to a change of label and the Saskatchewan Party blossomed. A new generation with an old agenda seized power, privilege, and profits. In their formula, the poor, the elderly, the sick, students, and unions are the first to scapegoated, then they are vilified, and then, more they suffer, the more the conservative economic model will be seen to have succeeded.
How long men like Trump, O’Dreary, and Wall can sustain a reign of tyranny for the privileged boys club?
Dr. Krugman therefore concluded: “It’s foolish and destructive to worry about deficits when borrowing is very cheap and the funds you borrow would otherwise go to waste.”
So what happens when borrowing is not cheap, and the debt has grown immensely because of the deficits? And what’s the trigger to stop the deficit spending? And what if GDP does not continue to grow? Then what? You have to deal with a massive debt and are paying an arm and a leg to service the debt. This is crazy!
I think this is an excellent question. While it is fun to poke fun at the other side, their concerns over deficit spending are real and are borne of living through times when deficits were disastrous for Western economies, the 70s being the last great example of the killer combination of high interest rates, stagnant growth and runaway public spending.
We need to reconcile the two schools of thought. Good luck circling that square though.
re: ‘And what if GDP does not continue to grow? Then what? You have to deal with a massive debt and are paying an arm and a leg to service the debt. This is crazy!’
Please take the time to read Krugman’s blog posts for yourself. The answers are there. Or Jim Standfords.
Saskatchewan is an interesting study in Conservatives consistently making mistakes in the timing of spending. The Devine PC’s did not control spending enough in good times and left a big fiscal mess for the NDP to clean up. After that, Wall came to power and now he is wanting to cut spending when times are tough. Bad timing !!
The current economic situation is due to the cyclical price of oil. Therefore it makes sense that governments do not cut spending to make the cycle even worse. Most of Europe went down the path of austerity and is still suffering from sluggish growth almost a decade after the great “recession”. In contrast, the US did not adopt much harsh austerity (mostly due to political gridlock) , which it was criticized heavily for at the time and many predictions or economic ruin were made. Now the US economy is performing much better than most of the western world (including Canada were the previous Harper government tried austerity) and they are recovering from the great recession.
I suppose if you are a laid off oil worker, cuts to government spending might make you feel better temporarily, as they say misery loves company. However, it will further hurt businesses that depend on retail sales, so if the spouse of that oil worker works in that sector, austerity could hurt their household even more. Of course if school fees have to increase, or if the quality of medical care declines that also hurts many citizens beyond the government sector too.
It is interesting that as a percentage of GDP the Saskatchewan deficit is in the same range as Alberta’s. This makes sense as the two provinces face a similar economic problem – the big decline in the price of oil and shows that the myth of a free spending government in Alberta causing a big deficit is just that – a myth.
A couple of questions David. Which European countries went down the path of austerity? Greece and Ireland are the only examples I can think of. Ireland is showing better economic growth than most of Europe. As for Harper practicing austerity, this is a myth. Every Harper budget spent more than the previous year but I will agree he tried to slow the growth of government spending. I thought that Justin Trudeau’s deficit spending promised during the election was supposed to promote economic growth? How has that turned out?
Several European countries I can think of that tried austerity – France, Spain, Italy and the UK. I think Spain’s unemployment rate is still somewhere around 20%, France and Italy somewhere around or above 10% – not good after all these years of “recovery”. In comparison Alberta’s unemployment rate is around 8.5% to 9% now.
Harper bragged about reducing the deficit from over 40 billion to a small surplus towards the end of his mandate and he also bragged about not increasing tax rates. He didn’t get close to a surplus magically, there was a lot of spending reductions to get there. Ask veterans and others about service cuts.
The economy is moving ahead in most of Canad now, but unfortunately was not in 2016 in the main energy producing provinces. Alberta is forecast to have the highest economic growth rate in Canada in 2017 (tied with BC I think), Saskatchewan’s growth is forecast to be 0.4% lower than Alberta’s but I think that forecast was made before Saskatchewan’s freeze and cut back announcements.
In France the debt to GDP ratio in 2010 was 81.7% rising to 96.1% in 2015. In Italy the debt to GDP ratio was 115.3% in 2010 rising to 132.7% by 2015. In Spain the debt to GDP ratio was 60.1% in 2010 rising to 99.2% in 2015. In the U.K. The debt to GDP ratio was 76.6% in 2010 rising to 89.2% in 2015. If these countries were drastically reducing spending wouldn’t their debt to GDP ratios improve? I would say they have continued to spend.
Dr. Stanford states “Perversely, trying to eliminate a cyclical deficit through proactive restraint…only makes a recession worse,”. I would say that Saskatchewan’s deficit is indeed cyclical, Alberta’s has been ongoing since Ed Stelmach took power in 2006. It was masked by the 17 billion dollar sustainability fund Ralph Klein had built up before he retired. Every year Alberta spent more than it took in and the sustainability fund was finally exhausted during the NDP’s first year in power, contributing to the larger projected 10.8 billion dollar deficit in the 2016-2017 budget year. It is certainly possible Brad Wall is over reacting to Saskatchewan’s 1 billion dollar shortfall. Alberta’s overspending is entrenched and a much bigger problem!
It is more than interesting that the Saskatchewan and Albertan debt is about the same….because in Alberta our wing nut right wing wild rosers venerate Brad Wall, and constantly attack our current government……but until I read this post, I had no idea Brad Wall’s government was in the same boat as we are.
Ideology muddies waters that should be kept clear. The conservative governments of Saskachewan have had no better luck with declining fossil fuel revenues…….and everyone should know this.
Where is our mainstream media investing its austerity dividends???
Happened in BC in 2001 too with the coming of the BC Liberals. Campbell &Co. inherited a budget SURPLUS from the hapless NDP, then immediately squandered it on a massive tax cut for the wealthy (which they somehow failed to mention while campaigning). Finding the lack of revenue could not support current spending the BC Liberals deceitfully declared a ‘structural deficit’ and promptly imposed cuts across the public service, health, education and developmentally disabled.
Most of those imposed cuts have since been declared illegal by the Supreme Court of Canada in a string of costly decisions, but the damage runs deep and a still malingers over the province.
Oh yeah, we have had more than 15 consecutive years of record debt too… so call Krugman what you want, but he is right on the money here in BC.
Yup, I see another influx of Saskatchewan people down the road. Their personal income tax rate is already higher than ours and their corporate tax rate is the same (they reduced theirs to 12 % nine years ago) so Wall’s government won’t want to raise those rates. They already have a sales tax of 5% and that doesn’t compare favourably with our province with no sales tax. Senior’s benefits and family child benefits are better here in Alberta (thanks to the NDP for the latter). I’m not sure about health care and social services but I’ve never heard that Saskatchewan has exemplary care in either of those areas. It’s so sad the right-wing government will punish the government workers and the poor like they always do.
I would watch for lots of privatizations in the near future. Before the election, Wall promised he wouldn’t sell off Crown corporations (communications -SaskTel, insurance – SGI, power – SaskPower and others) without a referendum but I think that promise will soon be broken. Large private companies are itching to get their hands on these assets and Wall’s government is likely to sell them cheaply to their ‘friends’. Everything will cost more.
Sad times ahead for our neighbors and not fun to watch.
Your post is an example of why I’d like to encourage our host to enable comment up-voting. I can’t really add much but in my time I’ve seen profligate spending by way of privatization that still to this day gags me!
We can support each other’s ideas and information with short replies. I completely concur with what you both have said. The right wing uses fear tactics……and builds on people’s need to blame rather than understand. Too many of us buy into punishing the weakest members of the society with austerity. Look at the EU. What they did to the people of Greece…for a debt load actually encouraged by members of the EU who wanted trade to continue……was and is appalling.
Privatization of public utilities in Alberta hasn’t led to cheaper electricity; private overbuilding of the grid led to cheaper electricity…so now the companies Klein sold our public resources to, charge more for administration and transmission fees, than they do for electricity. We know, because our solar units make most of our electricity…but we still pay: for their secretarial help I suspect!!!
Once the private sector owns the publicly built companies…your bet the profligate spending, and gouging, begins. It’s wealth creation, don’t you know?
this article does bring my memories about my grandfather, who often did joke – “better to die with million in debt, that way someone would remember you much longer”.
it seems like his joke have lately become sort of mantra and major political motivation for governments and “economists” of nowadays.
Mr. Climenhaga: your analysis of the Saskatchewan experience is a little off. Historically the political culture of this province since the post war era is to never run operating deficits. The authors of this creed were the CCF of Tommy Douglas, who put Saskatchewan’s finances on a pay as you go footing. This attitude against deficits carried over to the Ross Thatcher Liberal government, and of course that of Allan Blakeney.
This reluctance to run operating deficits was abandoned by the Conservative government of Grant Devine, who left a trail of financial destruction in his wake. The NDP administrations from 1991 – 2007 reverted back to a course of fiscal responsibility. By the time of the Sask. Party victory in 2007 Saskatchewan had an accumulated deficit of only $ 6 billion and a surplus in hand of $ 2 billion. Move ahead ten years.
The accumulated deficit is now $ 14 billion and the reserve fund is empty. Although overseeing the greatest period of economic expansion in provincial history, Mr. Wall has added $ 10 billion to the accumulated deficit. This is rather an extraordinary example of complete incompetence with respect to handling taxpayer funds. It is rather doubtful that this would have happened had the NDP been in power.
The moral of this story: in Saskcatchwan the NDP are the fiscal conservatives. Right of centre governments have behaved like drunken spendthrifts who eventaully conclude their terms in office implementing austerity and privitazation, which both inevitably make matters worse.
Be also aware that Mr. Wall is using austerity and the Federal carbon tax as a cover to divert attention from a multi million dollar misuse of public funds relating to a shady land deal (the Bill Boyd Land Flip Scandal.)
Thanks for this. As a former Saskatchewan person, this is my history also. Trouble is, neo-liberal right wingers, have for the last 30 years, let the foxes guard the hen house. Once we gave everything over to capitalists, over-spending of other people’s money becomes inevitable. It’s happened everywhere though, and one scandal after another doesn’t seem to wake up the electorate enough to get rid of the ideology.
Yes…the CCF/NDP are the fiscal conservatives, at least historically. And they put the people’s tax dollars to work largely for the benefit of the whole society.
But that doesn’t create wealth, don’t you know………..and its wealth we all decided we wanted. Endless growth, everything for sale, everything ‘open for business’. But money has to come from somewhere, and increasingly, it has come from borrowing against the future.
I’m one who doesn’t think that’s a good idea. But putting a debt run system in place, and then periodically making the people with the least disposable income pay for it……..so crooks can pretend they are being ‘fiscally responsible’ (with working people’s money) is outrageous.
David is satirizing the practice, but if enough of us woke up to the crime, we’d likely need to build some publicly funded jails to hold all of the fraudsters. We’ll look into this Bill Boyd Land Flip Scandal you refer to. Thanks again
I just looked at Saskatchewan’s debt clock 5 minutes ago, it was 6 496 803 000, a far cry from 14 billion. Not sure where you are getting your numbers.
Many people assume that Conservatives are good fiscal managers while Liberals and NDP spend wildly.
At the Federal level the largest deficits, by very large amounts, were created by the Mulroney and Harper Coservatives.
In politics it seldom does what it says it will do on the label.
Don’t you remember when the Liberals and NDP were demanding Harper increase spending? When they went as far as trying to form a coalition federal government because the federal Conservatives were not willing to increase spending? Harper went into deficit, against his every belief, to save his government and his own job. So please stop blaming the Harper government for its deficits.
By the way, is there ANY time when a deficit is not a good idea? Deficits are okay because GDP is growing (early 2000s Canada, late 2000s/10s Alberta). Deficits are okay because interest rates are low (2010s all gov’ts). Deficits are okay because interest rates are high and people can buy bonds for themselves (1970s/80s Canada). Deficits are okay because the economy is booming (late 1980s Canada). Deficits are okay because the economy is hurting (Alberta, from 2015). Deficits are okay because Krugman says so (really Dave, you need to study other economists, not just that famous one who supports your world view).
I would like to hear from just one person of the left persuasion tell my if there is any circumstance at all when deficits are not good.
Is there any case when a deficit is bad? Yes, when it is used to finance imperialist wars of aggression: Viet Nam, many low level wars in Africa, Central America, Chile, Iraq, Afghanistan, and how about the Cdn 100 million we spent bombing and killing little brown people in Libya not to mention the slaughter of World War One?
Leave a comment