What Does a Prudent Budget Look Like in these Uncertain Times?
I have been trying to sort out why I so dislike the recent federal budget. The loudest critics – the Conference Board, bank economists, much of the mainstream media – have complained about too much spending in this time of continuing inflation, about deficits and debt. How long will we have to wait to see a balanced budget, ask some. This is not the path to prosperity, declare others. My friend, Kevin Page, insists that prudence is imperative in these uncertain times.
So what does prudence mean when we confront the prospect of devastation from climate change and nature loss, when we know that the world is in the midst, however slowly and reluctantly, of a transition to a net zero future, when inequality, colonialism, racism, gender inequality and bigotry create human suffering and undermine social trust and the solidarity necessary to solve our shared challenges, when our commitment to democracy continues to erode? How does the desire for a balanced budget – which frankly most economists recognize is a misguided fiscal anchor – outweigh our commitments to social and environmental justice, to sustainability and equity and inclusion and democracy and peace?
How did fiscal health, so-called, come to trump human health and well being? Our fiscal health frankly stacks up pretty well against other advanced economies. Our debt to wealth ratio is in pretty good shape. Inflation, the result of a toxic mix of the consequences of climate change, the pandemic, fragile supply chains, terrible housing policy, war and greed will not be fixed by higher interest rates and restrained spending.
So what’s prudent? Surely it’s not a return to the costly and failed politics of austerity. But neither is it half measures in addressing our greatest challenges.
First, we need to help people now. What some see only as an inflation problem is better seen as an affordability problem, especially for those at the bottom of the income pyramid. That means we need – now – better income supports and universal access to essential services (pharma and housing, for example) and strengthened collective bargaining and labour rights. And to attack inflation we ought to be attacking its real causes in the real world rather than what is set out in some 1960s economics texts. We need to be attacking the financialization of housing, the fragility of global supply chains, the unconstrained and relatively untaxed rise in corporate profits and accumulated wealth.
Second, (first really) we need more than half measures on climate and nature. As Seth Klein reminds us, if we really mean that we face a climate emergency, perhaps we should act like it. Public investment in a green future is not overhead or a drag on the economy. Quite the contrary. As Mariana Mazzucato has shown us, mission driven government investment has always been the key driver of economic innovation and opportunity.
Third we will not make progress if we fail to make equity and inclusion a top priority. Reversing growing inequality is the right thing and necessary to build social trust and solidarity.
Finally we must stop treating democracy as a side issue. We are seeing the dangers of taking democracy for granted.
In sum, what better mission – for society, for the planet, for the economy – than to invest in a just transition to a sustainable, equitable, inclusive, democratic, and peaceful future.
In that context I am reposting a piece I wrote a while back on what I think a prudent budget would look like in these uncertain times.
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Alex's Blog 
Hi Alex, I read this blog with great interest and agreement. I hope it will convince readers to support your ideas and articulate them in public fora.
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Thanks Rieky!
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I have nothing complex or sophisticated to say – just thank the universe that someone is talking sense! and thanks for cutting to the quick in strong, plain language, Alex!
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Thanks Toni
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I agree with your thesis, but I’ll add that we need to move towards a solid plan of Wealth Tax for everyone earning over $400k CDN. Moreover, the central banks cannot balance their books and cannot even taper their outsized borrowing in light of the rough estimated Dark Pool Derivatives Universe which is roughly estimated at around $3.2 quadrillion all denominated in USD. Additionally, the top five Wall Street marquee Bank Holding Companies hold 87% of the entire derivatives universe counterparty risk between them and thereby pose a systemic risk to all G-7 & G-20 nations.
Geopolitically, we are faced with yet another worldwide conflagration via NATO
insistence of maintaining U.S. centric hegemony via World Reserve Currency which has already been declared semi-defunct via Debt-to-GDP ratio level data
whereby paying off the national debt is impossible given that for the USA it’s $31 trillion and counting on the intractability side of the equation.
Hyper-Financialization via a fifty year bull run of Keynesian Macroeconomics via the USD denominated Dark Pool Derivatives Universe & World Reserve Currency-USD plus the imprimatur state has evidenced de-dollarization and now evidently de-Americanization writ large across the world in light of NATO inroads into Ukraine and soon to be Taiwan all due to the intractable debt & deficits of the United States of America which cannot be honoured.
I was born into Finance via Bay Street and a father that worked a lifetime as a Chartered Accountant in Senior Rulings National Revenue Canada Oil, Mines, & Resource Taxation. In my long experienced life of analysing Finance since the 60s
it’s now obvious that we need to redraw the parameters of Finance due to the fact that the Central Banks are literally trapped via the half century bull run of unchecked Keynesian Macroeconomic rapacious greed for wealth via deficits & debts based upon sovereign ability to borrow sums that cannot be paid back to foreign creditors.
Foreign creditors are already dumping U.S Treasuries at an incremental pace of late too.
Bottom line is that we now need a Wealth Tax on top of targeted spending for the lowest deciles on income. Working families are flocking to food banks at an exponential rate since the advent of Sars-2-nCoV-19 in 2019.
And war is out of the question due to cost alone.
Cheers, Robert
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I agree on the need for a wealth tax. If you read the piece I attached you will see that I talk about the need for fundamental tax reform, including but not only wealth taxes. Thanks for your comments Robert!
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I moved over to the NDP from Liberals because Trudeau is not really pushing for a Wealth Tax and Jagmeet Singh is much more adamant about it. I realize you are a strong proponent of Wealth Tax and didn’t write my comment to suggest that you didn’t mention it in your article. I’m just calling for a stronger plan of action on the Liberal side of Parliament when it comes to instituting legislation to introduce a Wealth Tax for all making over $400k.
The Conservatives will never accept a Wealth Tax. Liberals & NDP must institute it now before any Republican ever gets back in the White House.
Cheers, Robert
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Yes I figured you were not pointing that at me. My point was more that I’d like to see wealth tax as part of a fundamental reform of our tax system that also includes plugging the leaks, eliminating tax benefits that serve no demonstrable policy purpose and benefit those who need help least, bring in a financial transactions or activities tax, and,at this moment, an excess profits tax.
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Dr. Ian Lee of Carleton University’s Sprott School of Business is saying the same thing vis-a-vis ‘plugging the leaks’ on policy. He mentions the policy mismatch between the haves & have nots very frequently and is annoyed by it as you are.
Revenue Canada should up their game IMHO. The IRS is spending $80 billion
on new staff hires just on tax collections.
Cheers, Robert
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Good to know. Thanks Robert! And cheers.
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This was a good piece. Just a small note that before Mazzucato, Canadian economists Lipsey and Carlaw pointed out the fundamental connection of public mission oriented investment and innovation. See for example ‘Structural Assessment of Technology Policies : Taking Schumpeter Seriously on Policy’ (Ottawa, Industry Canada) 1998.
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Yes, thanks Steve. Good to be reminded of Lipsey and his critical “second best” critique of economic models.
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Thank you for this, Alex — succinctly put and in plain language. The only problem is: Who will take up calls such as yours and those of Klein and Mazzucato? The Conservatives will reject the whole premise and put us in reverse. The Liberals, even in a coalition with the NDP, will continue to tinker at the edges, perhaps even do a wealth tax but essentially, above all, defend corporate interests. (BQ: Who knows where they stand.) Ah, the Greens. To my reading, their climate change plan is the only one that confronts the reality, but who will take it seriously? I see little hope here and rather suspect that we’ll muddle on from crisis to crisis. It drives one to focusing on local action only and hoping for the best beyond that.
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Thanks Erwin. I know. I get it. I have written elsewhere that if we are to begin to turn this thing around we will have to start at the local level where trust and democracy and our collective goals seem less abstract and less hopeless.
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