Jack M. Mintz: “Modern supply-side economics” is still the same

0

The “modern supply-side economy” is based on the age-old notion that growth comes from state intervention rather than a vibrant private sector

Content of the article

Not just chit-chat for the hoity-toity, the annual Davos conference is also an opportunity for the plebs to hear what’s going on in the minds of the elite. The latest blast comes from Janet Yellen’s remarks on “modern supply-side economics” at last week’s “Virtual Davos Agenda” meetings.

Advertising

Content of the article

Changing course from the demand-side inflationary policies that drove its March 2021 COVID package, the Biden administration is now committed to “the modern supply-side economy,” with its infrastructure agenda. and blocked ‘Build Back Better’ plans paid for with higher taxes and deficits. According to Yellen, the approach “prioritizes labor supply, human capital, public infrastructure, R&D and investments in a sustainable environment.” This contrasts with the allegedly failed “old supply-side economy” approach, which “seeks to increase the potential output of the economy, but through aggressive deregulation coupled with tax cuts designed to promote private capital investment.

In fact, there is little “modern” here. On the contrary, “the modern supply-side economy” is based on the age-old notion that growth comes from state intervention rather than a vibrant private sector. Yellen’s view is consistent with leftist thinking that markets fail to optimize the use of resources, with winners taking everything and leaving others behind. The opposing view is that bureaucracies and featherbed politicians have focused on the short term and signed on to a slew of growth-killing tax and spending programs and regulations. If markets sometimes fail, it is clear that governments also fail.

Advertising

Content of the article

Canada’s economic history illustrates these points well. Prior to 1966, when Canada successfully waged two world wars and built physical and social infrastructure spanning a vast territory, governments captured no more than 30% of the economy’s resources. After that, brutal public intervention became the order of the day, especially after the oil shocks of the 1970s. Federal and provincial governments, which reached almost 45% of the economy in 1984, liberalized the assistance and unemployment insurance, increased business subsidies, and introduced regional development and supply management programs in agriculture, all in keeping with the “modern supply economy”. By exercising price and wage controls, restrictions on foreign investment, higher taxes, and the National Energy Program’s central planning approach to oil and gas, oversized bureaucracies have sought to “refine” the economic growth. The resulting inflation, perpetual deficits, slowing growth and even rising economic inequality led voters to reject a failing federal government.

Advertising

Content of the article

It took the Mulroney government, elected in 1984, to start disentangling government spending using “old supply economics”. Air Canada and CN Rail have been privatized (but not CBC, unfortunately). Corporate, personal, and sales tax reform resulted in lower tax rates and a tax structure that impinged less on the decisions of corporate boards. The Canada-US Free Trade Agreement was signed, the NEP was dissolved and foreign investment restrictions eased.

  1. The tax bias in favor of leverage increases with higher inflation.

    Jack M. Mintz: Inflation makes tax damage worse

  2. Pedestrians cross the intersection of Bay Street and Wellington Street West in the financial district of Toronto, Ontario, Canada, Thursday, March 25, 2021. Premier Doug Ford said further lockdowns could occur as a government agency tracking hospitalizations reported the biggest single-day jump in ICU patient admissions since the start of the pandemic, CBC reports.  Photographer: Galit Rodan/Bloomberg ORG XMIT: 775639811

    Jack M. Mintz: Weak investment is the number one economic problem

  3. Brine pools of a lithium mine, which belongs to the American company Albemarle Corp, on the Atacama salt flats in the Atacama desert, Chile.

    Jack M. Mintz: Latin America: The New Mining Middle East

The Mulroney government, despite its good work, having failed to cut spending sufficiently, in the early 1990s, Canada faced a deepening financial crisis. Governments of the day, including Jean Chrétien’s federal Liberals, downsized the public sector with deregulation (of airports, for example) and reforms to welfare, business subsidies and insurance -unemployment. Canada reversed previous personal tax increases and reduced corporate taxes to improve the investment climate. After 1999, per capita economic growth accelerated. Investment in Canada has even surpassed investment in the United States, in part due to a commodity boom, which Ottawa has supported rather than discouraged, as it has done more recently.

Advertising

Content of the article

This “old supply economy” paradigm was shaken by the 2008 financial crisis, the result of lax financial regulation in the United States and Europe. Although Canada largely escaped financial difficulties, deregulation became a dirty word as Western governments had to stabilize financial markets by bailing out troubled banks. At the same time, growing Chinese imports and new technologies have moved jobs to the heartland of North America. Faced with growing concerns about inequality – which in Canada remained more or less unchanged after 2000 – Canadian governments began to raise personal tax rates, especially after the election of Justin Trudeau in 2015.

The pandemic, which was an even more massive shock than the oil shocks of the 1970s, did not cause a major recession – thanks to both an aggressive political response and a private sector that quickly developed the technology that has enabled many people to work and help educate their children. of the house, as well as the vaccines which save the situation.

Advertising

Content of the article

Don’t be surprised to hear leftist finance minister Chrystia Freeland embrace “modern supply-side economics” in her upcoming budget. She has already reached the modern sky of supply, saying the federal child care program is the most important growth policy since free trade between Canada and the United States. In fact, its gargantuan 2021 budget was littered with new inflationary spending on child benefits, income supplements, green energy and housing subsidies, and an even bigger federal bureaucracy, though it has already grown by a quarter in the past six years. We should all cry.

And the worst is yet to come, with no less than $100 billion in new spending still expected in the next federal budget. What the budget probably won’t include, however, are deregulation and tax policies to stimulate the private sector and begin to shrink the public sector so that it no longer accounts for nearly half of the Canadian economy — as it does. This was also the case in the early 1980s, before the “old supply economy” shrunk it down to size and brought economic growth back to rates that steadily raised Canadians’ standard of living.

Advertising

comments

Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. See our Community Guidelines for more information and details on how to adjust your email settings.

Share.

About Author

Comments are closed.