1.
Canadian (Non)Exceptionalism:
Crisis, Recovery, Austerity
Presentation by Jim Stanford
Economist, Canadian Auto Workers
CLMR Conference, Ryerson U., March 2012

2.
Global Financial Crisis

3.
Mother Of All Meltdowns

4.
The Long-Awaited Demise
Of Capitalism
As We Know It

5.
Big …

6.
Where Did This Crisis
Come From, Anyway?

7.
Where Did This Crisis
Come From, Anyway?

8.
Wha’ Happened?
• Speculative bubble (again):
– Centred in U.S. housing
• Fueled by aggressive, irresponsible lending
– “NINJA” mortgages
• Speculators borrowed at 50:1 or more
• U.S. housing prices began falling in 2006
• Chain reaction of collapse, deleveraging
• Blow to wealth, confidence, lending, investment,
spending  RECESSION
• Globalization made things far worse
• Global austerity just a new phase of same crisis.

9.
The Economic “Recovery”…
(Has anybody seen it???)

10.
Do the Math
• Official unemployment: 1,500,000
• Lost participation: 350,000
• Involuntary part-time: 375,000
• Waiting for a job to start: 130,000
• True unemployment: over 2 million (12%)
• No improvement in “employment rate”
since summer 2010.
• Canada’s performance has been “ho-hum”

11.
Employment Rate Decline
64.0%
63.5%
Employed as % Working Age Pop'n
63.0%
62.5%
-2.5 pts
62.0%
61.5%
+0.4 pts
61.0%
2007 2008 2009 2010 2011

12.
Mediocre is the Word
• Comparisons of Canada to other countries must
take into account our faster population growth.
• Relative to population growth, our performance
has been mediocre:
– 17 out of 34 in real per capital GDP since 2007
– 17 out of 33 in employment rate since 2008
• We did better than others that experienced all-
out bank failures:
– US, UK, Ireland, Iceland, Italy
• But compared to the rest, we’ve done badly
– Germany, Korea, Australia
• Canadian triumphalism rings increasingly hollow.

13.
Change in Real per Capita GDP,
2007-2011

14.
Change in Employment Rate,
2008-2011

15.
The Coming Fiscal Austerity
DON’T FORGET!
• Deficits are the consequence of financial
crisis & recession (not “overspending”).
– Automatic deficit (less tax in, more EI out).
– Stimulus measures.
– Bank bail-outs in some countries.
• Slow recovery has undermined budgets.
• Now governments and business (who
always wanted cutbacks) are going for
blood:
– Federal - Provincial - Municipal

16.
Fiscal Math 101
Bad recession
+ Lousy Recovery
= Deficit

17.
Ontario Provincial Deficit
5
0
-5
$ Billion
-10
-15
-20
-25
2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11

18.
Impact of Recession: Ontario
• Double-barreled impact on revenues:
– Decline in GDP (8-10% below previous trend)
= $10 billion lost revenue.
– Decline in revenue as share of GDP (<1 point)
= $5 billion lost revenue.
– Combined fiscal impact: $15 billion.
• Impact on program spending:
– Automatic stabilizers (income supports).
– Discretionary stimulus.
• Impact on debt service costs:
– Follow-through growth of interest costs.
– Low interest rates have been helpful.

19.
Canada, Ontario
Have No Debt Problem
• Debts are low by historical and
international standards.
• Deficits are clearly cyclical.
• Interest rates are low (and likely to
remain there).
• First task: put Canadians back to work
(paying taxes).

20.
Ontario Debt Ratios
40
35
Net Debt
30
25
% of GDP
20
15
Accumulated Deficit
10
5
0
2002-3 2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11

21.
An “Animal Farm” Theory
of Debt
“Private debt good, public debt bad.”
• But like any other borrower, public debt makes
sense to finance productive long-lived assets.

22.
Fiscal Math 201:
Numerators and Denominators
• Key constraint: debt ratio
= Net debt
GDP
• Reducing debt ratio requires reduction in the
numerator and/or expansion in the denominator.
• Greece: The more they cut, the more GDP
shrank, the worse the debt ratio became.
• Normal recovery? Ratio falls via denominator.
• Crucial task: start the engine of true recovery.

23.
But Where’s the Engine??

24.
Growth Needs an Engine…
• Some sector must lead the way with
leading injections of expenditure
(hopefully productive).
• Resulting employment and income leads
to circular generation of more
employment and more income.
• In a credit money system, the leading
sector must also be borrowing
…Creating the new money needed to buy new
output.

25.
Possible Engines
• Investment (business, government)
• Exports
• Construction (private, public)
• War (hope not!)
• Public works
• Consumers?
– Rarely, because consumer spending usually
follows cycles (and amplifies them), not
leads.

26.
How It’s Supposed to Work…
• Businesses borrow funds, put money into
motion in the real economy.
• Resulting stimulus generates
employment and income several times
over.
• Real production, productivity, and
innovation are supposed to result.
• We can argue over the terms (wages,
taxes, regulations)…
… but no arguing about the “engine”: private
capital accumulation.

27.
What’s Gone Wrong
• Businesses are investing too little.
– Not even reinvesting their cash flow.
• Businesses are channeling excess cash
back into the financial system.
• Financial innovation, speculation, and
credit creation become a sideshow.
– Irrelevant to real production at best,
destructive at worst.
• Consumers become the default engine.
– Fueled by rising consumer debt.
• Government stimulus can only do so much.

28.
GDP by Domestic Sector
120
Government
110
Consumers
100
Cycle Peak = 100
90
Business
Investment
80
70
2006 2007 2008 2009 2010 2011

29.
A Growing Hoard
$600
$550
$500
Cash and Short-Term Assets ($bil)
Non-Financial
Corporations
$450
$400
$350
$300
2006 2007 2008 2009 2010 2011

30.
Signs of a Structural Problem
• Profit-driven private capital accumulation
cannot generate enough work to fully utilize
our human resources.
• Long-run consequences:
– Chronic labour market weakness
– Sluggish innovation, productivity growth,
competitiveness
– Excess financial capital
• Canada is not alone: U.S., Japan, others
• Where’s the engine???
• Need to go “beyond stimulus” to address this
bigger structural economic problem.

31.
Job Creation Strategies
• Without recovery, deficits will remain.
• Traditional engine of growth (private
sector investment) is not working.
• Labour needs visionary, credible
alternatives:
– Avoid spending cuts; expand public services.
– Longer-run capital / infrastructure spending.
– Targeted sector strategies.
– Other novel ways to channel investment:
• Government as venture capital funder??? [Shiller]
• Social sector / co-ops / other non-profits???

32.
Our Economic “To-Do” List
• Explain where this crisis came from
– It wasn’t caused by workers
– It was caused by finance
– It wasn’t a random accident
– It will happen again, if rules aren’t changed
• Reclaim the value & legitimacy of real
work and production
• Resist attempts to make us pay
• Fight for an alternative economic vision
that puts production ahead of finance

33.
Taking Back Credit
1. Regulate finance:
• Ban dangerous, unproductive activity.
• Require safer practices (leveraging, quality of debt,
firewalls, globalization).
2. Tax finance:
• Tobin tax?
• Corporate income tax: 3% = $1.5 b/yr.
• Eliminate tax subsidies.
3. Take back finance:
• We can create money out of thin air as well as a
private bank can.
• Use that power for production, not speculation.

34.
Watch Out…
WE are Now the Target
• Conservatives have exploited fear, confusion,
and power over media to blame workers (esp.
public sector) for crisis caused by private
finance.
– “Shock Doctrine” (Naomi Klein)
• Now they will try to make US pay for a crisis
THEY created.
– Especially union members
• Foster inequality & envy among workers.
– “Divide and conquer.”
– “Misery loves company.”

35.
Declare “War,” End
Recession
• 1939: Recession ended immediately
– Enormous social challenge
– Side-stepped profit motive for initiating
work and production
• 2011: Do it again:
– Declare war on pollution, poverty

36.
We Produce… …They Don’t
We Didn’t Cause the Crisis…They Did

37.
www.policyalternatives.ca
“Canada’s Incomplete, Mediocre Recovery”
www.economicsforeveryone.ca
Twitter: @JimboStanford
Facebook: Jimbo Stanford

38.
Canadian (Non)Exceptionalism:
Crisis, Recovery, Austerity
Presentation by Jim Stanford
Economist, Canadian Auto Workers
CLMR Conference, Ryerson U., March 2012