Abandon neoclassical orthodoxy, it is confused
Every once in a while there are crises large enough that even the reality-ignoring neoclassical orthodox economists can no longer explain away the problems with their theories. Now is one of those times, but for the left to take advantage of this time to advance a more rational and humane economic program, we must first identify the neoclassical theory's crisis points.
There are several places neoclassical orthodoxy is currently (somewhat) acknowledging flaws:
- Spending that broke through their "upper bound" of GDP-to-debt ratios has not caused the (until now) theoretical cataclysmic collapse of economies through inflation. Even the IMF is looking for changes to their understanding of this.
- High employment, low inflation that existed before a decade before the pandemic hit is now transitioning to low employment, low inflation. In doing so, mechanism for orthodoxy's explanation of rate of employment's relationship with inflation/growth is broken. To the point that central banks are all but abandoning inflation fears of keeping interest rates low and trying to pump-up unemployment.
- It now seems clear the world was sliding into a recession before the pandemic hit even though massive amounts of liquidity was being pumped into the financial markets. This was unexplained (and mostly unacknowledged) because of the bubble-levels of growth in tech stocks. But, this recession is hard to ignore now looking back at all indicators in the months leading to the pandemic.
- The never ending (promises of) spending to save financial capital has not helped workers, expanded financial profits into bubbles, and has not helped capital re-invest those profits into production or productivity increases. All contrary to theory.
- The trade and supply chain system broke too easily, and is now acknowledged to be too susceptible to even small crises. In a world of increasing rates of crises this is – only now – being identified as maybe a problem for society.
- The climate crisis and the inability to price-in the "externalities" of the risk of greenhouse gasses. The effect of climate change on profits (especially of major carbon-intensive energy companies) is now clear and yet there is still no mechanism to make this transition not so jarring as to disrupt whole economies.
These are important problems to answer around governing economic policy. The organized left must present alternatives explanations and solutions that work based on the materialist understanding of capitalism. Socialists have those answers and there is now clear open space to fight for those solutions.
Canada, privatization, and taxes
The zombie cries of neoliberal orthodoxy will continue long after they have died, implemented by government officials who believe in this nonsense irrespective of the realities. The Alberta government, it seems, is going to be the place where those zombies are not limping forward, but running.
In spite of the lack of revenue to support it, Alberta has adopted a budget that leans on the neoliberal program entirely. Without the money to pay for it, they have even put out tenders to construction, contractors, and design groups for the public expansion subsidized and privatized infrastructure. While the rest of the world has noticed things have changed, the Alberta government is keen on seeing the neoliberal project through to its bitter end, no matter the ongoing consequences to its own economy.
The move to take overtime pay away from workers and attacking unions – not exactly powerhouses in the province as it is – almost seems petty by comparison to their broad attacks on social supports and good jobs of the population.
But, Alberta is just the most out-front. Recent calls in the Globe and Mail and other publications who are defenders of the neoliberal faith have already started to push "solutions" to what they see as the rising debt crisis from dealing with the pandemic. Privatization is their first and last solution to the crisis along with requisite tax cuts for business.
Beyond privatization, the return of regressive taxes and direct user-fees should concern the left. These include:
- Increased taxes on fixed income (in a way that is really just regressive transfer of pension earnings to the state).
- Further changes from defined benefit to target-benefit/define contribution pension plans.
- Reductions in the rate of expansion of employer-linked benefits plan coverage to new drugs (or, rather, the non-expansion of benefits to include new phara products like expensive biologics/biosimilars).
- Small business transfer taxes (direct taxation of basic consumption and anti-local businesses).
- Fees, especially income-contingent loan supported fees, for broader public services.
- Regressive property tax increases (if people move out of the city, taxes are going to have to be re-distributive geographically).
- Health-specific (or any other directed) tax surcharges.
- Raiding income support funding processes (such as EI) for other means.
Responsibility for paying for the debt created by spending during the periods of reduced revenue needs to be moved-up levels of government (from municipal to federal) to make the process fairer and cheaper. Even keeping responsibility of taxation and spending at the same level as before the pandemic is going to lead to regressive impacts because of the way taxes are collected in Canada.
Production: public and directed
In addition to protecting public services, public ownership of productive assets by the state is going to be more important than ever. This should be rather straightforward these days given the amount of failure in the private sector resulting from the lock downs and the underlying recession.
Productive assets include:
- property ownership
- public housing ownership and management
- energy infrastructure (electricity production and storage)
- high-speed data infrastructure
- health products production
- childcare space
- retirement and old-age support service and homes
- the effective use of logistics enterprises and their warehouses (post, liquor, etc)
These are all essential to stop unnecessary increased costs to the state to provide basic necessities to rebuild the economies.
Even things like owning (and leasing) space to small businesses in downtown areas could counter some of the collapse of the local tax base and stop predatory mortgage profiteering. Some municipalities already do this in Ontario, but the expansion of ownership of space could be supported provincially and through the CMHC.
The ownership of the space that the state uses to provide services should be a focus of anyone who is concerned by "efficiency" of (read "where") dollars spent. For example, almost as important as providing new and expanded public childcare services is owning the childcare space/property (and not leasing it from private actors). Efficiencies from this model can be found even in the inefficient distributed non-profit service model.
The first step to supporting the transition to "Building Back Better" has to be expanding the productive capacity of the public sector and democratizing the prioritization of the care economy and social economic production. Once this starts to expand, the way forward will become clearer for the rest of the economy.