Why Harper’s ringing economic alarm bells
TheStar.com – news/canada/politics
Published On Fri Sep 23 2011. By Thomas Walkom, National Affairs Columnist
Stephen Harper used British Prime Minister David Cameron’s Ottawa visit this week to stage a photo op for fear. Harper did so on purpose. And while it’s not yet crystal clear what his purpose was, Canadians would be wise to expect the worst.
First, remember how unusual it is for a prime minister to stoke fears about the economy. To do so is considered counterproductive. That’s why the standard Conservative mantra from both Harper and Finance Minister Jim Flaherty has been deliberately muted.
Usually, they emphasize the relative solidity of Canada’s economy, avoid any reference to recession and prefer euphemisms like “fragile recovery.”
On Thursday, however, Harper and Cameron operated as a tag team for alarm.
“The most immediate test confronting us all is to avoid the devastating consequences of a return to global recession,” Harper said as he introduced Cameron to a special joint session of Parliament.
At a news conference later, the Canadian Prime Minister described the world economic situation as having reached “extremely dangerous levels.”
For his part, Cameron spent most of his half-hour address to Parliament on what he called a “once-in-70-years” debt crisis that he said could be resolved only through extraordinary government belt-tightening.
So why the unusually inflammatory language? The kindest interpretation is that Harper is just being frank. The more realistic one is that he is trying to prepare the country for an unpopular change in course — specifically for a retreat from his election promises.
That’s what Harper did in November 2008. After winning power on a promise to balance the budget, he made a series of speeches explaining that — in order to avoid a 1930s-style depression — he would no longer be able to honour that pledge.
Instead, he said then, Ottawa would have to spend more in order to boost consumer demand and keep workers employed.
While Harper hasn’t yet openly tipped his hand, indications are that his new approach to any economic slowdown will be the precise opposite — that the Conservatives will use fear of debt to make spending cuts that, during the spring election campaign, they promised to avoid.
In other words, the Prime Minister appears to have finally abandoned his short-lived flirtation with Keynesian economics and returned to the orthodoxy of the 1920s, which held that only if governments balanced their books would business feel chipper enough to invest.
Indeed, it was Cameron who may have best articulated the new Canadian position. Noting that he and Harper “share the same analysis of what is wrong and what needs to be put right,” the British prime minister dismissed measures, like interest rate cuts and increased government spending, that were used by Canada and others in 2008 to boost employment.
“It is not simply a question of using conventional fiscal and monetary levers to stimulate growth,” he said. “When governments are accumulating huge stocks of debt, the economic situation is much more dangerous . . . Yes (consumer) demand matters, but boosting it by undermining financial stability is self-defeating and damages the confidence upon which economic growth depends.”
Instead, the British prime minister said, governments must “get to grips with the debt and restore credibility and confidence” even if this involves tough decisions on spending cuts.
During the spring election campaign, Harper promised his cutbacks would target only the growth of government spending in selected areas, without affecting fundamental services like health, education, welfare and payments to the provinces.
On Thursday, however, he praised Cameron’s ability to make far more severe spending cuts. Chillingly, he called the British prime minister a “leader by example.”
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