What to do about a recession--Part I

A common government response to a recession is to cut taxes (and consequently, spending, wherever it is deemed politically acceptable). Tax cuts, however, in addition to depleting the government's resources, benefit only those who have incomes large enough to be taxed, and ignore many of those most in need of support. Instead, the government should ensure that the purchasing power of those with the lowest, and/or the most jeopardized, incomes is maintained or even augmented. The Federal Government should, for example, make access to Employment Insurance much quicker, easier, and last longer (the fund has generated enormous surpluses while only 40% of those who have paid into it are able to obtain benefits from it; this number should be materially increased); introduce a negative income tax, and a refundable tax credit for volunteer work; and invest significant funds in affordable housing, public transit, local agriculture, and alternate sources of energy. These investments would not only address immediate needs, but also form part of changing the basic concepts and practices of our economy.

The Federal Government should also increase purchasing power by granting the provinces funds to increase welfare rates. These grants should be protected by contracts which stipulate that these funds are to be added to provincial payments, and expressly forbid the provinces from using them as a substitute for their own welfare funding (which would keep recipients on the same inadequate stipend). As a federal taxpayer (except for equalization payments), I don't want the provinces handed my tax dollars to spend as they wish (on a tax cut, for example, instead of welfare), but to receive them for specific purposes protected by contract. If a province, be it B.C. or Quebec, or any other, doesn't like the conditions, it can refuse the money and face the consequences from their respective taxpayers.

The policies suggested above would not only address people's immediate needs, but would also be effective in stabilizing the economy. When people's incomes are adequate for their basic needs--shelter, food, mobility, and communications--they are in a position to benefit from low prices on the expense side of their budgets, even though they may suffer from them on the income side.

From a certain perspective, it doesn't matter whether the interest rate or the dollar is rising or falling; or whether the price of wheat or gas or housing is falling or rising; whether we are in an inflationary phase, or a depressing one, or whether it is my price and your cost, or your price and my cost--these are all opposite sides of the same coins. This means that, whatever is happening, some people are going broke, while others are amassing fortunes--in either case, often through no particular fault or virtue of their own. Therefore, regardless of what the government may do to 'correct' the economy, some people will benefit, and others will be hurt. Usually, under present circumstances, it is too often the well-off who benefit from a tax cut, while the less well-off--particularly low income earners and the chronically un- or under-employed, who generally have the fewest monetary resources to cope with economic adversity--suffer from cuts to government services.

In the long run, however, taxpayers also suffer from service cuts, because social problems, when unattended to, don't go away, but grow worse and more expensive--witness the growing number of homeless people, and their associated growing costs, because governments simply will not fund sufficient affordable housing, or raise welfare rates to adequate levels. (To digress a bit, in this province, the B.C. Liberal Government's penny-saving/dollar squandering habits have led to the offer to buy out homes along the Tsawwassen power line for $70 million when the line could have been buried for $18 million, and the whole long, expensive wrangle with homeowners, and its even more expensive outcome, avoided.)

The economy does not need the government's attention and care; people do, and when their needs are addressed, the economy will improve. 'Trickle up' is the key; not 'trickle down', for not enough resources ever trickle down to make a real difference to those at the lower end of the income scale.

Beyond such immediate short term concerns, however, is the larger issue of humans learning to live within the finite restrictions of the earth's resources. In my next blog, "What to do about a recession--Part II", my starting point will be an article by Peter G. Brown and Geoffrey Garver called "Don't Fix The Economy - Change It", published in the Toronto Star in December, 2008, which suggests a number of concepts which need to be brought into play to bring about the fundamental changes required for humans to live within the carrying capacity of the planet.