An Austere Quebec? If Only
Español FrançaisDepending on whom you listen to, the people of Quebec are living in dark days. Huffington Post bloggers are unanimous: “unbridled” austerity imposed by the Liberal government is destroying hard-won “entitlements” acquired in the past 55 years.
There’s just one problem: Quebec isn’t facing austerity, but fauxsterity. As I’ve previously demonstrated, there have been no spending cuts in Quebec. In fact, the latest official economic update confirms it: spending is set to increase by 1 to 2 percent annually for the next five years. Despite Treasurer Martin Coiteux’s wish to cut government programs, the tendency towards fauxsterity rather than far-reaching reforms will only be reinforced thanks to Liberal tax increases. Indeed, if past trends are any indication, spending is likely to increase even higher than forecast levels.
This won’t be the first time that North America has witnessed fauxsterity. In the United States, the period between 1929 and 1944 was characterized by huge spending and tax increases, alongside a devastated economy. Policy makers should hardly be surprised that economic policies favored by far-right leaders during that same era failed to bring prosperity.
But fauxsterity seems to be back in vogue. After the government-induced housing bubble burst in 2007, Presidents Bush and Obama increased spending to massive levels to “save” the economy they both wrecked.
Obamacare alone includes 20 new or increased taxes. As a result, US labor participation is at its lowest since March 1978; debt has increased by 70 percent since 2009 — its nominal amount more than doubled — employment growth is at its slowest since 1945; and most poverty indicators are going through the roof.
Genuine Austerity Works
If Obama, or indeed any political leader, truly wants to help a faltering economy, he simply has to apply a libertarian’s favorite French expression: laissez-faire, laissez passer. In other words, by applying genuine austerity measures — spending and tax cuts — the economy will recover in no time.
There are numerous examples of austerity being applied successfully. In 1920, the US economy was in a deep crisis. However, it didn’t become a Great Depression because President Harding applied austerity measures, cutting spending by over 80 percent. Treasury Secretary Mellon, meanwhile, lowered taxes because he knew that government needed to “create conditions under which every one will have a better chance to be successful.” Despite the tax cuts, government revenues greatly increased, proving Laffer right before his time. More recently, Canada under Prime Minister Jean Chrétien also put austerity to good effect. Despite rampant corruption in many departments, Chrétien’s government rescued the country from relegation to Third-World status by cutting spending. The result: the debt burden was greatly reduced, and investors were attracted to the country once more. Likewise, the loonie was no longer nicknamed the “Canadian peso.” Sweden, the preferred country of statists the world over, has also taken the austerity route. True, government spending is still at 53 percent of GDP, albeit lower than that of France and Greece. However, it’s greatly reduced from 20 years ago, when spending was over 70 percent of GDP. In addition, the Scandinavian country has deregulated industries once monopolized by the government, opening them up to competition. The Leviathan has lost a few pounds, and is more efficient as a result. Just across the Baltic, Estonia is also an austerity success story. Tallinn’s fiscal policies since 2008 have proved so successful that the country has gone from one of the worst Eurozone economies to one of the strongest. In short, Huffington Post columnists should resist crying wolf before real austerity bites. What Quebec is undergoing is fauxsterity: a slowing down of spending increases rather than “drastic” spending cuts. Should real austerity come to pass, we can expect a temper tantrum from big labor, whose influence and pay packets will be negatively affected. However, taxpayers will rejoice. Quebec’s heavy debt burden, with annual interest of nearly US$11 billion, is hitting the pockets of ordinary citizens hard. Edited by Laurie Blair and Fergus Hodgson.