Monday, 20 August 2012
"Fiscal conservative" should be a dirty word
|The government must, at least in bust years, invest|
money to keep aggregate demand afloat.
Modern Monetary Theorists (MMT) are a bit more radical,
but this one the right idea in this economic context.
Image Source: MMT Wiki
The problem is that the government budget is not a personal or household budget.
It's spending decisions can affect the overall economy. In a downturn, government deficits rise because tax revenues fall (businesses/individuals make less money during downturns and so pay less into the government, furthermore sometimes taxes are deliberately cut to stimulate the economy - though this is generally less effective than direct public investment via spending). In some particularly bad cases, cutting government spending can worsen the budget balance by hurting economic growth so much that tax revenues fall further.
|Prime Minister Harper.|
As Leader of the Official Opposition,
he argued against budget surpluses during
the boom years - claiming they were
He's cutting programs in a global
downturn under the notion his government
can't afford them. Perhaps boom year
surpluses would've been useful, eh?
Image source: Wikipedia
The correct fiscal policy is a counter-cyclical fiscal policy: running deficits in bust years and moving towards surpluses during the booms. This is not, however, the fiscal policy of "fiscal conservatives".
Rightwing Republican former US President George W. Bush claimed that the Clinton surplus, generated in the boom years, showed that Americans were "overcharged" and deserved a "refund". Dubya's tax cuts, of course, were very generous to the rich.
Stephen Harper himself argued against the Paul Martin surpluses, generated in boom years, as being "overtaxation".
The government [Paul Martin Liberal Gov't of 2005] continues to overtax Canadians and run multi-billion dollar surpluses...Is it any wonder why the Federal Government - which has a lot greater fiscal capacity than the provinces - claims to be in such a pinch? Our PM starved the government of revenue in the boom years and is failing its job to help the jobless in the bust years. Macroeconomic context doesn't matter to fiscal cons, the government mustn't "overtax" (generate surpluses) or "overspend" (generate deficits) ever, even if the health of the economy depends on it.
("QUESTIONING INCOME TRUSTS PUTS SENIORS AT RISK." Stephen Harper (October 26, 2005). National Post.)
Fiscal conservatism has always been a shallow political buzzword. It's meant to draw parallels between "conservative" in politics (i.e. pro-plutocracy policies that favour the rich with tax cuts and corporate welfare) and "conservative" in household finances (cautious, prudent). There is, however, no such connection.
"Fiscal conservatism" has always been context-blind fiscal stupidity. It's bad policy and deserves to be a dirty word.
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