Accountability, Canada, Inequality, Political economy

Scrooge in Paradise: Why Private Wealth is a Public Issue

Scrooge

As global inequality grows to “extreme levels” — as revealed in the just-released World Inequality Report — it is hard not to wonder what it bodes for the health of liberal democracy — around the world and here in Canada.

Even though our growing levels of inequality may not come close to those in the United States, recent conflict-of-interest stories about both Liberal and Conservative MPs, a growing reliance on tax havens, and cash for access scandals all raise serious concerns about the influence of the wealthy in Canadian politics.

If money talks, then the rich are now deafening the democratic system. As economist Branko Milanovic explains, “the higher the inequality, the more likely we are to move away from democracy toward plutocracy.”

One of my favourite recent New Yorker cartoons shows two men in business suits looking out from a lavish corner office, as one says to the other, “Part of me is going to miss liberal democracy.”

Although we’re not quite there yet, the dark tone of the cartoon reminds us that the economic “haves” can be just as likely to become disaffected with democratic politics as the “have-nots” often singled out as the source of populist pressures (in fact, elites have historically been the most important factor behind de-democratization, as Charles Tilly notes in a recent book).

Reading that New Yorker cartoon, it is hard not to imagine that at least one of those businessmen is likely to be a good friend of President Trump’s. He’s turning conflict of interest into performance art, talking up his daughter’s clothing line and getting national park gift shops to sell Trump branded wine.

Yet, while Trump and entourage demonstrate a particularly brazen willingness to blur the line between public office and private gain, the problem is a much wider one — with echoes here in Canada.

The Paradise papers revelations, the cash for access scandals, and the use of “loopholes” in ethics screens are all legal strategies for giving the wealthy an unfair advantage in a system where we are all supposed to be equal as citizens. Each of these strategies works in a different way to undermine the democratic culture that makes our political system work. In the process, they further blur the line between public good and private gain, eroding the trust that makes democratic politics viable.

Cash for access is the most straightforward. It takes the existing informal advantage that the wealthy have to ensure that their voice is heard politically and weaponizes it. Why bother voting as an ordinary Canadian when politicians will spend their time listening to someone paying $10,000 for a rubber chicken dinner?

The “loopholes” in ethics screens that various Liberal cabinet ministers have admitted to using, as well as the failure of certain Conservative MPs to disclose business ties to China, work more subtly. They create the possibility that public office holders will be swayed by their private assets as they make decisions designed to serve the public good. Why bother being an engaged citizen when you don’t know whether those making the decisions are pursuing their own interests or ours?

The Paradise papers tell us that many of the public figures who speak and act in the name of the public good use tax havens to avoid paying their fair share. Why bother buying into a democratic system requiring that we all do our part by paying taxes when those with the most power are actively avoiding doing so?

Of course, the line that we draw between public and private in a liberal democracy is always something of a fiction. Liberal political thought tells us that everyone is an equal citizen in the public domain, with an equal right to participate politically. Liberalism is also based on the premise that we should be free to pursue wealth accumulation in our private lives, meaning that we will often be quite unequal in economic terms.

In theory, this private inequality should not affect our formal public equality as voting citizens. In practice, things are rather different, as wealth often translates into a greater political voice — as any government that has tried to put a halfway house into an affluent neighbourhood or to reduce tax advantages for doctors incorporated as small businesses will tell you.

To keep a democracy alive, and to ensure that everyone has a meaningful voice and stake in the political system, we must do two things. We must work to keep those private inequalities from getting too large (via public education, social programs, a progressive tax system, etc.). And we must work to minimize the ways in which private inequalities translate into unequal influence (via election financing laws, conflict of interest provisions, etc.).

In Canada, we have made progress on some of these measures, but we have also fallen behind in many respects. As recent census data shows, earnings inequality has continued to grow in Canada over the last decade, while the top 1% increased their share of total income in 2015.

When trying to figure out how we got here, there is blame enough to go around. The Chrétien Liberals began the trend towards growing inequality when they gutted transfer payments for social programs in the 1990s. Inequality grew under the Harper Conservatives, who also eroded some of the other bulwarks against buying political influence, notably through reversing changes to election financing laws, making parties more reliant on private donors once again.

Although the Trudeau Liberals have clearly stated their desire to reduce inequality, and have begun to tackle some of these problems, their own recent conflict of interest scandals suggest a very long way to go before the political culture in Ottawa starts to change.

As that New Yorker cartoon reminds us, unless we start taking the problem of inequality much more seriously now, we may soon find ourselves thinking nostalgically of the “good old days” of liberal democracy.

This blog post originally appeared on the CIPS Blog on December 19, 2017.

Canada, Economics, Inequality, Political economy, Theory

Rebuilding the middle class: The Liberals have a chance to rectify their past economic mistakes

As the new Liberal government starts to put its economic plan into action, its commitment to paying attention to the evidence (unlike its Conservative predecessors) should provide them with both comforting and cautionary tales.

On the one hand, there is ample evidence to support the Trudeau government’s plan to allow for short-term deficits in order to reinvest in infrastructure and rebuild the middle class. On the other, the data also points to a rather more inconvenient truth: the trend towards growing inequality actually started on the Chrétien Liberal government’s watch.

A recent report by TD Economics notes that while the top 20% of income earners have gained 30% since 1976 (most of that since 1994), the middle 20% have only seen an increase of about 5% in that time. More tellingly, the report suggests that it was only in the mid-to-late 1990s that the level of inequality in Canada began to take off “when governments stopped leaning against income inequality.”

During the campaign, Justin Trudeau demonstrated his willingness to take on board new economic thinking and break with the old Liberal Party’s obsession with paying down the debt at any cost. Although the Trudeau Liberals’ willingness to run a small fiscal deficit in the short-term was ridiculed by the Conservatives and challenged by the NDP during the election campaign, it is actually entirely consistent with much mainstream economic policy thinking today.

A recent discussion note by economists at the International Monetary Fund (not exactly known as a bastion of left-wing thinking) warned governments like Canada against imposing austerity measures in order to pay down their debts more quickly. The authors note: “While debt may be bad for growth, it does not follow that it should be paid down as quickly as possible.” In fact, “If fiscal space remains ample, policies to deliberately pay down debt are normally undesirable.”

Or, to borrow former NDP leader, Jack Layton’s, well-known phrase (as noted in a column by Andrew Coyne last March) there is little point in paying down your mortgage faster when your house is falling down from badly-needed repairs.

This reminder of Layton’s common-sense wisdom should tell us two things. First, and most obviously, the NDP lost its way in its efforts to seem economically credible enough to govern. While there is no question that the party had far less political leeway than the Liberals to challenge what has become a Canadian obsession with balanced budgets and debt-reduction, by setting aside the more hopeful ambitions of Layton’s NDP, Mulcair and his advisors ended up in the odd position of being more conservative than the IMF (not to mention Andrew Coyne).

Second, we need to remember that it was the Chrétien and Martin Liberals, not the Conservatives, who made debt reduction a centrepiece of their economic policy in the 1990s and early 2000s.

The first cuts made in the 1990s were designed to reduce what had become a genuinely unsustainable deficit. Back then, Canada faced a milder version of Greece’s recent dilemma, with bond markets increasingly suspicious of the government’s credit-worthiness.

Yet what started as a strategic response to external pressures soon became an end in itself: the running of surpluses to pay down the debt became a mantra—part of the brand of the Liberal Party itself.

As we now know, that policy had its own very serious human costs.

I remember well the moment when the Liberal government stopped leaning against inequality and started to dismantle the same social policies that Pierre Trudeau’s government had built. I was a parliamentary intern in the House of Commons from the Fall of 1994 to the Spring of 1995 (in fact, one of my fellow interns was Arif Virani, who has just been elected as a Liberal MP for Parkdale-High Park). I watched a Liberal party that had campaigned on the left move sharply right. I watched smart, progressive politicians like Lloyd Axworthy overseeing the erosion of our social infrastructure, and I tried to understand why.

That experience shaped the rest of my career. I decided to go back to university and become a professor of international political economy in order to try to understand why countries like Canada could believe that they had to destroy their social fabric in order to survive economically—and how we could prevent this happening again.

In the twenty-plus years since I first sought to understand how Canadians can foster a caring and just society in a competitive and often unstable global economy, I have not come up with any easy answers.

But I do know that a Liberal government that is genuinely open to learning from the evidence, and committed to paying attention to inconvenient truths, will not reproduce the same mistakes that it once made.

Rising inequality hurts all of us. Recent research has shown that more unequal societies don’t grow as quickly, as many members of society find themselves unable to invest in their education and training, decreasingly overall productivity.

As the TD Economics report notes, the factors that allowed us to avoid the more radical hollowing out of the middle class seen the United States in recent years can no longer be counted on, as the commodity boom comes to an end and the hot housing market starts looking increasingly like a bubble about to burst (or at best deflate). Without creative government action, we are at risk of falling into a vicious cycle of lower growth, cuts to programs, further inequality and even lower growth.

While some might argue that the Bank of Canada’s recent downgrades to the economic outlook should push the Liberals back into their old austerity mode, that zero-sum game no longer holds water. As middle-class jobs come under even more pressure, leaning against inequality can help us all.

This was originally posted on the CIPS Blog.

Banking, Canada, Finance, International development, Risk, Uncertainty

Canada needs to do a better job of managing financial uncertainty

Published in the Hill Times, May 25, 2015

As Canadians, we pride ourselves on how well our financial regulations coped with the 2008 financial crisis. Given this attitude, it’s not surprising that Canadian policymakers have avoided a major overhaul to our regulations in response.

Yet we need to make sure that this pride in our system does not lead to complacency. Rather than just looking backwards to how the Canadian financial system performed in the last crisis, we also need to look forwards and recognize how much the global economy is changing.

Those changes take two key forms. First, the economy has become much more uncertain since the crisis. And second, a number of other countries have raised the bar for financial regulation. If Canadians don’t catch up with these two major shifts, we may well find ourselves in trouble.

Whether we look at the International Monetary Fund’s latest Global Financial Stability Report, or the Bank of Canada’s recent Financial System Review, it is clear that both the global and national economies have become increasingly uncertain. That uncertainty defines some of the most important aspects of our economy, whether we look at the likely medium-term impact of the decline in oil prices, the potential for a hard landing in an overheated housing market, or the possibility that Canadians will wake up one day and realize that their household debt level is unsustainable.

This environment of profound uncertainty poses serious policy challenges.

In the good old days of the so-called “Great Moderation” from the mid-1980s to the financial crisis, policymakers were able to focus on what Donald Rumsfeld famously described as “known unknowns”—the kinds of risks to which policymakers could assign definite probabilities. Today, we are faced instead with a great deal of “unknown unknowns”—the kinds of uncertainty that resists formal modeling, as Bank of Canada Governor, Stephen Poloz noted in a recent paper.

How should we regulate financial markets in the face of this kind of uncertainty? Very carefully. As it becomes increasingly difficult to predict what kinds of complex risks the economy might face, we need to err on the side of caution.

As good Canadians we might assume that we already have some of the most cautious financial regulations around. Yet this is no longer the case.

Yes, Canada has implemented the capital adequacy standards set out in the Basel III accord very quickly. Yet our government has treated those requirements as the gold standard, when they were designed to be a bare minimum. On the other hand, the United Kingdom and the United States are in the process of implementing more demanding standards, including adopting higher and stricter leverage ratios. While Canada was one of the only countries with a leverage ratio requirement before the crisis, we now starting to look relatively lax.

Even more striking is the fact that Canada, unlike every other major country, has no central body responsible for coordinating efforts to manage systemic risk. The Canadian regulatory universe is fragmented, with important pieces of the regulatory puzzle managed by half a dozen agencies plus a multitude of provincial authorities. The Bank of Canada does an admirable job of identifying potential sources of systemic risk, but they have few tools for acting on them.

Canadian authorities have engaged in macroprudential regulation in recent years—most notably through their efforts to cool the housing market down. Yet, as a recent IMF report points out, those efforts have unintentionally encouraged those who no longer qualify for prime mortgages into the under-regulated world of “shadow lending,” potentially increasing systemic risk. In order to manage an uncertain economy, someone needs to be able to look at the system as a whole: to connect the dots that link regulations governing consumer credit, mortgages, interest rates, big, small and “shadow” banking institutions.

What about the usual financial sector response that more regulation will cost Canadian financial institutions, and thus the economy, more generally? We should have learned by now that the cost of another crisis would be much greater still. Given the triple threat of uncertain oil prices, a volatile housing market and rising consumer debt, another crisis would likely hit us harder than the last one. It’s worth being well prepared for that kind of risk.

Posted on the CIPS Blog June 5, 2015. 

Canada, Failure, International development, Measurement, Risk, Theory

What counts as policy failure — and why it matters

When things go wrong in politics, the word ‘failure’ gets bandied around a lot. In recent weeks, we’ve heard about the failure of Canadian drug policy (as admitted by Stephen Harper), the failure of Canadian diplomatic efforts to get Barack Obama on board for the Keystone XL Pipeline (as declared by his critics), and the failure of European leaders and the ‘troika’ to find a long term solution to the problems posed by the Greek economy (as acknowledged by most sensible commentators).

These declarations of failure, of course, are not uncontested. In each case, there are those who would challenge the label of failure altogether, and others who would lay the responsibility for failure on different shoulders. Labeling something a failure is a political act: it involves not just identifying something as a problem, but also suggesting that someone in particular has failed. These debates about failures are crucial ways in which we assess responsibility for the things that go wrong in political and economic policy.

The most interesting debates about policy failure, however, occur when what’s at stake is what counts as failure itself.

When we say that something or someone, has failed, we are using a particular metric of success and failure. Formal exams provide the clearest example of assessment according to a scale of passing and failing grades. In most cases, such metrics are taken for granted. (Even if some students might not agree that my grading scale is fair, I am generally very confident when I fail a student.) But sometimes, if a failure is serious enough, or if failures are repeated over and over, those metrics themselves come into question. (I did once bump all the exam grades up by five percent in a course because they were so out of line with the students’ overall performance.)

In politics, these contested failures force both policymakers and the wider community to re-examine not just the policy problems themselves but also the measures that they use to evaluate and interpret them. These moments of debate are very important. They are very technical, focusing on the nuts and bolts of evaluation and assessment. Yet they are also fundamental, since they force us to ask both what we want success to look like and to what extent we can really know when we’ve found it.

In my recent book, Governing Failure, I trace the central role of this kind of contested failure in one particular area: the governance of international development policy. Policy failures such as the persistence of poverty in Sub-Saharan Africa, the Asian financial crisis and the AIDS crisis raised very serious questions about the effectiveness of the ‘Washington Consensus’, and ultimately led aid organizations ranging from the International Monetary Fund and the World Bank to the (then) Canadian International Development Agency to question and reassess their policies.

The ‘aid effectiveness’ debates of 1990s and 2000s emerged out of these contested failures, as key policymakers and critics questioned past definitions of success and failure and sought to develop a new understanding of what makes aid work or fail. In the process, they shifted away from a narrowly economic conception of success and failure towards one that saw institutional and other broader political reforms as crucial to program success.

International development is not the only area in which we have seen a significant set of failures precipitate this kind of debate about the meaning of success and failure itself. The 2008 financial crisis was also seen by many as a spectacular failure. The crisis produced wide-ranging debates not just about who was to blame, but also about how it was possible for domestic and international policymakers and market actors to get things so wrong that they were predicting continued success even as the global economy was headed towards massive failure.

In the aftermath of that crisis, there was a striking amount of public interest in the basic metrics underpinning the financial system. People started asking just how risks were evaluated and managed and how credit rating agencies arrived at the ratings that had proven to be so misleading. In short, they wanted to understand how the system measured success and failure. Many of the most promising efforts to respond to the crisis—such as attempts to measure and manage systemic risk—are also aimed at developing better ways of evaluating what’s is and isn’t working in the global economy, defining success in more complex ways.

Of course, not every failure is a contested one. Many have argued that the reasons for the failure of Canadian drug policy are less contested than Harper has suggested. Critics note that the Conservative government’s unwillingness to take on board the lessons of innovative policies such as safe injection sites goes a long way towards explaining this policy failure.

On the other hand, some failures—such as the failure not just of Greece but also of much of Europe to restart their economies—should be more contested than they currently are. The International Monetary Fund did begin opening up this kind of deeper discussion when its internal review of its early interventions in Greece suggested that the organization had been too quick to promote austerity. Yet the narrow terms of the troika’s conversations about the future of Greece suggests that there is an awful lot of room for more creative thinking about the path towards policy success, not just in Europe but around the world.

These kinds of debates about how we define and recognize success and failure can be crucial turning points in public policy. They force us, at least for a moment, to set aside some of our easy assumptions about what works and what doesn’t, and to ask ourselves what we really mean by success.

This blog post first appeared on the CIPS blog on March 6, 2015.

Canada, Finance, Measurement, Political economy, Results, Risk, Uncertainty

Why we need to take economic uncertainty seriously

If you have been reading the financial press over the past week, you know that the global economy’s chances are looking a lot more uncertain these days. What you may not know, however, is that this more recent upswing in uncertainty and volatility is part of a much broader pattern in the global economy—one that poses some real challenges for how policymakers do their job.

Stephen Poloz, the Governor of the Bank of Canada, just released a working paper in which he suggests that the economic climate has become so profoundly uncertain since the global financial crisis of 2007-2008 that it resists formal modeling.

Because of this, the Bank will no longer engage in the policy of ‘forward guidance’, in which it provides markets with a clear long-term commitment to its current very low interest rate policy. The Bank is changing this policy not because it is any less committed to low interest rates in the medium term, but because it does not want to give the markets a false sense of security about the predictability of the future. Instead, Poloz suggests that policymakers should do a better job of communicating the uncertainties facing the economy and the Bank itself as it formulates its policies.

Why should we care about this seemingly minor change in the Bank of Canada’s policy? Because it underlines just how much our governance practices are going to have to change in order to cope with the increasing uncertainty of the current economic and political dynamics.

It’s ironic that this warning is coming from the Bank of Canada. Central banks do not like change. They are just about the most conservative government institutions around.

Since the late 1970s, central bankers have been wedded to the idea that the most straightforward monetary policies are the best—ideally taking the form of a simple rule that can be expressed as a quantitative target, like the Bank of Canada’s inflation target. Economists argue that such policy rules are stabilizing because they avoid giving too much discretion to central bankers, thus reducing uncertainty about the Bank’s plans and increasing the credibility of their commitment to low inflation.

Yet these simple rules are effective only as long as the models that they are based on can accurately capture an economy’s dynamics and needs. If the economy is too complex and uncertain for such straightforward forms of quantification, then simple rules are at best misleading, and at worst destabilizing.

Poloz’s recent paper suggests that he recognizes some of these dilemmas—and the importance of coming to terms with them quickly in the current period of economic volatility.

The Bank of Canada’s Governor is not alone in recognizing these uncertainties. Janet Yellen, the current Chair of the United States Federal Reserve Board, has also pointed to the limits of simple rules in guiding central bank policy in the current context. Her predecessor, Ben Bernanke, referenced Donald Rumsfeld’s concept of ‘unknown unknowns’ to describe the extreme uncertainty that faced market participants during the recent financial crisis.

Yet, with this paper, Poloz seems to go further than his American counterparts in recognizing the implications of these unknown unknowns. In the same speech cited above, Bernanke argued that the failures of the global financial crisis were failures of engineering and management, and not of the underlying science of economics.

Poloz, by contrast, describes the work of monetary policymaking as a “craft” (not a science), and suggests that it is too complex to be treated as a form of engineering. The uncertainty that we are dealing with today, he suggests, “simply does not lend itself as easily to either mathematical or empirical analysis, or any real sort of formalization.”

This is a remarkable departure from the kind of numbers-driven rhetoric that we have heard from the Harper government in recent years.

The Canadian government has been increasingly preoccupied with measuring results, in health careinternational development, and across government-funded programs. Last May, when announcing additional funds for the health of mothers and children in developing countries, Stephen Harper argued, “You can’t manage what you can’t measure.

Poloz’s paper suggests that, on the contrary, because of the sheer complexity and uncertainty of the current global order, we have no alternative but to find ways of managing what we can’t measure. As I argue in my recent book, rather than using ever-more dubious indicators and targets to drive policy on everything from health to the economy, we need to find better ways of assessing, communicating and managing the true complexity of the policy challenges that we face.

This will not be an easy task, either technically or politically. It will take time to educate a public—not to mention a market—that has become used to simplified pronouncements.

The less we can rely on objective measurements and simple rules, the more careful we have to be about ensuring democratic accountability for policy decisions—through the political process and through an informed and active media.

And perhaps the biggest challenge that this new reality presents is the need for our politicians to heed Poloz’s suggestion that they not only recognize the inescapability of “uncertainty, and the policy errors it can foster,” but that they wear them “like an ill-fitting suit . . . that is, with humility.”

Humility tends to be in scarce supply in political circles these days. That too will need to change if we’re going to develop the kinds of creative policy tools that we need to manage the uncertain times to come.

First posted on the CIPS Blog.

Canada, Political economy

The austerity trap

As the prognosis for the global economy gets darker by the day, we are hearing one word over and over: austerity.  The British government has announced that it will extend its austerity measures past the next election in 2015. In Canada, Finance Minister Jim Flaherty has reiterated that the solution to the current economic crisis, both here and in Europe, is more “belt-tightening.”

But not everyone agrees about the virtues of austerity. Labour finance spokesperson Ed Balls called the British Government’s economic plans a “catastrophic error of judgment.” Two million British public sector workers are on strike over the effects of those austerity measures on their pensions. Closer to home, the former World Bank Chief Economist and Nobel-laureate, Joseph Stiglitz, recently told a Toronto audience, “Austerity is a suicide path.”

These critics are a diverse lot, including people affected by the cuts, Occupy activists, politicians of various stripes, and the leader of the International Monetary Fund. In different ways, they all point to some serious flaws in the current rush to austerity.  It’s worth looking at three of them:

1) The fallacy of composition (or: why Canadian debt isn’t just a bigger version of your family’s debt).

In a recent speech in Toronto, Flaherty noted that he’s applying to the federal government the same advice that he’s offering to Canadians: to tighten their belts and reduce debt. This sounds like it makes perfect sense. Except that it’s a classic error of logic that philosophers call the fallacy of composition: what is true of the parts is not necessarily also true of the whole.

Of course it makes sense for a Canadian family that has taken on too much debt to reduce it. But if all Canadian families at the same time reduce spending in order to pay off debt, then suddenly demand for goods drops, firms reduce production, and jobs are cut. As people lose jobs, it becomes much harder for households to reduce debt; in fact, they may have to take on more to pay the bills. And the risk to the economy is even greater if the federal government doesn’t step in to support demand but actually undermines it further by cutting back on vital services.

This same dilemma applies at the international level. Sure, Canada was able to get its act in order in the 1990’s through austerity measures (at great cost to our health system and infrastructure). But this was at a time when the Canadian economy and the global economy were in good shape.  And while we were cutting back, other countries were doing the opposite, taking up the slack. If everyone cuts back at the same time, there is no one left to keep the global economy going—making it likely that the outcome will be a deeper global recession and more, rather than less, debt in the long run.

2) The costs of austerity (or: why even the IMF thinks it’s a bad idea just now)

In a recent paper, IMF staff concluded that austerity measures do considerable damage in the short and longer term: “This conclusion reverses earlier suggestions in the literature that cutting the budget deficit can spur growth in the short term.” In other words, when someone tells you that austerity will stimulate short-term growth, they’re lying (or as Mark Blyth puts it in a brilliant short video on austerity, this is just about as believable as “a unicorn with a magic bag of salt.”)

What are the costs of austerity?  The IMF paper suggests that they include lower incomes in the short term and higher unemployment in the longer term. As more people become unemployed for longer, there is a real danger that unemployment will become entrenched. The costs of austerity are even higher in cases where a government can’t compensate by significantly lowering interest rates—as is the case today here and in Europe. Because of these very real costs, the IMF head, Christine Lagarde, is suggesting that countries like Canada and the UK not impose any immediate austerity programs while growth is fragile; instead they should be delayed until the economy is healthier. When even the IMF tells us not to impose austerity, and still the Conservative government insists on it, you have to wonder.

3) Inequality (or: whose belt are you tightening anyway?)

Not surprisingly, the IMF study also found that the costs of austerity are not equally borne by everyone. Reductions in wage income caused by austerity are three times larger than those from other kinds of income. It also notes that austerity will “add to the pain of those who are likely to be already suffering—the long term unemployed.” This means that working class people have to tighten their belts much more than others do, through job loss, reduced income and pensions, and the loss of services they rely on. As Blyth puts it: “This ‘common sense’ of austerity—of reducing public debt all at once through slashing services—involves a question of equity—who pays and who doesn’t. Those who made this mess won’t, while those who have paid for it already through the bailouts will pay again through austerity.”

Politicians proposing unpopular and foolhardy policies like to claim that ‘there is no alternative’. But there are alternatives, at least for those in Canada, the UK and other countries not struggling under the kind of crushing debt burden facing Greece. In his recent speech, Stiglitz proposed several suggestions, including investing in infrastructure and education (which would earn returns of 20-30%). The goal is not to reduce the amount that the government spends but rather to reduce government debt, which depends on the overall health of the economy. As Stiglitz notes, “Putting more people to work today means that over the next five to ten years the debt would be lower, GDP higher, the debt to GDP ratio immeasurably improved.”

Remember the unicorn next time you hear someone talk about austerity and growth in the same sentence.

First posted on the CIPS Blog on December 4, 2011.