Wednesday, November 26, 2008

Liberals Need to Provide Leadership in Economic Crisis

There's too much controversy over Canada running a deficit, and not enough discussion of what form the fiscal stimulus will take. The deficit discussion was appropriate during the election, when the Harper Conservatives were claiming they wouldn't run one. Now that the election is over and the economic crash has hit, we need a big stimulus and it's going to result in a deficit. There is nothing controversial about it. The OECD is reporting that nearly every western country is already in a severe recession, including Canada, and it is calling on countries to implement stimulus packages. Britain, Europe, Japan and China have already announced them.

But when it comes to manipulating the economy, the devil is in the details. Look at the Paulson bank bailout, now known as TARP. Originally Paulson proposed that the entire $700B be spent buying up toxic assets. Lots of economists pointed out that that wouldn't work and Paulson gradually changed his plan until last week, when he announced that none of the money would be spent on toxic assets.

Originally Paulson and senior Republicans said they would absolutely not allow any bailout money to go to the citizens whose mortgages were defaulting. After weeks of argument and pressure, Paulson recently announced another $800B (if I read the story right) for just that purpose.

The original Paulson bailout was a giant giveaway to Republican friends. I don't think that Harper-Flaherty are corrupt like Bush-Paulson, but I do expect that their proposed stimulus package will be influenced by their right-wing ideology. The opposition needs to scrutinize everything they propose and be prepared to provide pressure to change it. Wasting time on senseless partisan griping is exactly what Canadians don't need. The Liberals should have (if they don't already) a team prepared to provide that scrutiny and pressure. Ideally, Ignatieff and Rae will be a part of it. Ideally, they are ready to marshall economists and other influential thinkers to ensure that an effective package is designed.

A lot of money is on the line, and it's all coming out of taxpayers' pockets. A lot of personal prosperity and well-being depends on how well the stimulus and bailout money is spent. If we work together, we can achieve the best outcome. This is as serious as a war. I'm afraid that many politicians, media commentators, bloggers and others have their heads up their butts and think this is all about who wins the next by-election. Meanwhile, the OECD has predicted that hundreds of thousands of Canadian jobs will be lost. People will end up living in cardboard boxes. Children will have to live in shelters. It's not politics-as-usual.

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