Tories consider ending public funding to political parties?

This story suggests that Flaherty is considering ending the public subsidies parties receive each year from the taxpayers. I wonder how the opposition parties are going to deal with this. Perhaps a game of political chicken?

Such a move would have considerable impacts on Canadian politics for the next few years.

1. It means the end of the BQ. The Bloc is highly dependent on public funding to run its operation. One could even argue that without those funds, they may not have been able to survive the last election. You see, fundraising is very much contingent on a party's popularity. For the last two years, the Bloc's popularity has down - that is until Harper started talking arts cuts. With such poor polling numbers, the party needed the funding from taxpayers. Cut the subsidies. Cut the Bloc. Win for the NDP and Tories in Quebec.

2. The ditch the Liberals are currently in with fundraising will become a canyon. The only thing keeping the Liberals solvent right now is the public funding. Take that away and we won't be seeing an election for another four years. Why? The party won't be able to afford it.

3. The NDP won't spend the max again. During the last election, for the first time in its history, the NDP spent the maximum allowable amount for its national campaign. It was a risk surely, but one based on the premise that the party would receive subsidies from taxpayers for the next two or three years. Taking away taxpayers' money and keeping union contributions illegal is a potent cocktail for the New Democrats.

What does this mean?

Potentially, the Conservatives will be the only party able to afford to go all out during the next election. Add to that the possibility that once they win their majority, they will eliminate spending limits during the election period.

Unlimited Conservative spending may be coming.

A Progressive Economists' View of the Global Economic Crisis

A very smart friend of mine has some interesting things to say about the causes and solutions to the economic crisis. The article originally appeared here. Progressives should take note...

Causes and solutions to the global financial crisis

Suggestions about where to find the light at the end of the tunnel.

Dateline: Tuesday, November 25, 2008

by Henri M Sader

The current global financial meltdown provides an opportunity to challenge and begin to change the status quo of the past three decades. The magnitude of this crisis has exposed a global economic system that has preyed on the weak while shifting wealth thus widening the gap between rich and poor. This is a time for bold leadership and resolve — anything less could precipitate a global economic meltdown and resulting human suffering on a scale unprecedented in recent memory. As some of the Chinese say, crisis can be defined as "opportunity riding the dangerous wind."

For years, many good economists of the Keynesian and Galbraithian school have warned that the path chosen by the financial and policy establishment was unsustainable and would cause massive damage to society and the public good. These voices have been marginalised by the same ideology that allowed for deregulation and the explosive growth of derivatives within the financial sector worldwide.

The trigger of the crisis was the collapse of the sub-prime mortgage market in the United States. The collapse happened because of over-speculation on worthless mortgages massively transformed by the financial system into wholesale products and ranked by some of the best rating agencies as 24K investments. These products were then disseminated across the world, leveraged and fed by an underestimated frenzy of technically-orchestrated greed, infecting international markets. When mortgagees defaulted, the collapse of the scheme detonated the global financial crisis.

There are, however, financial and structural roots within the current crisis that reach back to policies over twenty years old. The general deregulation of the economy pursued by the G8, starting in the 1980s and accelerated in the 1990s, set the stage for disaster.

Furthermore, a decade of low interest rates, while helpful to consumers and workers, reinforced the lax conditions under which cheap credit was provided to support the expansion of securitization and derivatives markets.

The deep, structural factors behind the financial crisis are mortgage loans granted on commissions — with shady credit-worthiness rules — and then an off-balance sheet securitization and the expansion of the derivatives market.

The role of financial deregulation

In Canada, the New Democratic Party (NDP) has long been concerned with financial deregulation and other policies that created the structural problems within the financial system. The NDP warned in 1998 that "Canadians should be particularly concerned about the explosive growth in derivative products and off-balance sheet liabilities." New Democrats warned that accelerating deregulation would only serve to put the financial system at risk by allowing banks and other financial institutions to engage in and leverage financial activities that carry a credit risk that is not based on real economic activity.

As predicted, the gap between growth in the real economy and the financial sector has increased dramatically since the 1980s and 1990s. Canadian Economist Jim Stanford was one of the first to warn about this problem in his book Paper Boom, published in 1999. Pillars that once separated insurance, investment and commerce, built to prevent the spread of risk from one category of financial institution to another in another 1929-style crash, were collapsed during the great wave of deregulation of the 1990s. The deregulation wave also encouraged speculation over well measured and productive investment, as Stanford pointed out.

It was only a matter of time before human nature followed its course. Greed, amplified by the system, overpowered unregulated markets. Root causes of the problem lie in the unsustainable nature of credit to the growing masses of working poor and an increasingly impoverished middle class.

Easy credit sustains wage stagnation

Real wage stagnation since the 1980s has made it impossible for US consumers to keep up with the cost of living and sustain aggregate demand. Household debt there has ballooned, exceeding 100 percent of disposable income.

The crisis was spurred by a distorted capitalist system. It extracts the highest profit from the poorest, while giving them access to credit to continue to buy the goods that growth in their real income alone cannot support.

The more "egalitarian" distribution of credit is not sustainable, unless supported by a truly egalitarian distribution of real income. Advancing credit to low-income households to help them acquire property is commendable, but unless their incomes rise as well, a day of reckoning is inevitable. Speculation sustained by loose credit bought some time for the economy, but ultimately the financial system can no longer defy with impunity the laws of economic gravity.

G20 governments are now feverishly consulting to find solutions to the crisis. Their recent summit was followed by a flurry of calls to rein in the global financial system, making many Bush-era ideologues into near closest Keynesians. It will take time to see if these world leaders are able to move past rhetoric to deliver urgently needed reform.

Accountability is key to an effective bailout

The fundamental issue is not that the financial markets must be kept functioning to allow their masters to uphold their obligations to the citizenry. A complete collapse of the financial markets would destroy the jobs, property and savings of tens of millions of working families. The real question behind any bailout, through the IMF or central banks, is ultimately accountability. The massive injection of stabilizing funding cannot be a sort of unconditional release of money through the banks or government supplementary borrowing which amount to a massive transfer of wealth from the poor to the rich. It is very revealing that the US government did comparatively very little to rescue households who were trapped and needed higher incomes to maintain their hold on their property.

The conditions for the reimbursement of the money and accountability mechanisms for institutions receiving public funds are therefore as important as the actual money itself. Greedy institutions being bailed out by the public's money should not become a further burden to the citizenry and working families. Regulators and legislatures must seize the opportunity and obligation presented by the crisis for greater accountability and restorative economic justice.

Additionally, it is absolutely necessary to re-regulate the financial sector. The very idea of credit has been dangerously perverted by an explosion in derivative products that no longer serve the legitimate purpose of reducing productive business risk. The sale of Ponzi scheme derivatives allowed a few people to become very rich while contributing nothing but a potential disaster to society. These schemes must be eradicated and criminal charges laid.

Tight-fisted regulation by authorities has proved its worth during this crisis. In Lebanon for instance, despite a severe political situation and a heavy amount of public debt, the banking system has rested completely insulated from the worldwide meltdown thanks to the foresight of the governor of the Lebanese Central Bank. He prohibited Lebanese banks from engaging in the derivatives business. Compare this to Iceland, a vanguard of the orthodox approach, where the banking system has fallen apart precisely because of deregulation and the systematic exposure to derivatives.

In this context, the NDP's 1998 recommendation is just as relevant today as it was ten years ago: simply prohibit or highly regulate the financing of derivative products through bank credits. Once accomplished, it will be necessary to explore the idea of creating a mandatory reserve requirement for certain types of lending which do not target the creation of wealth in order to help prevent or mitigate the risks of speculation.

Institute the Tobin tax, with the IMF as back office

Also, the time is right to explore once again the concept of a Tobin Tax, which would target international financial speculation. A modest fee levied on international transactions is not only a method to discourage currency speculation and fund development. It would also create an insurance fund for sheltering more financially vulnerable countries from currency meltdowns. Perhaps the principle of a Tobin tax could also be in line with the necessity of implementing a capital gains taxation policy that would target each transaction rather than aggregate income, while protecting the investments of retirees and working families.

A Tobin Tax should dovetail an increased and redefined role for the IMF: from a draconian and loathed institution to a trusted coordinator, partner and consultant to the international community in crisis management and finance. Perhaps it is also the time to revisit a question dear to John Maynard Keynes: could a redefinition of the job description of the IMF be constructed in conjunction with the creation of an international bank with a mandate to provide compensatory credit to countries experiencing destabilizing trade gaps?

Finally, the issue of income inequality must be dealt with by promoting a new international strategy for sustainable investment. A key component is an income policy targeted at reducing income inequality, setting fair wage standards for all, to increase domestic demand in the larger economies of the world. There must be a concerted international effort to end the Predator State — the legacy of the Bush administration — and promote economic policies that prioritize the sustainable growth of domestic demands, the counterpart of sustainable investment policies.

This is even more a fundamental issue now that there seems to be an appetite in Obama's Washington for incorporating labour and environmental safeguards in the NAFTA, for example. The political dimension of this crisis has been generally ignored by most of the parties involved, a legacy of the government's hands-off approach up to this point. Since the market has dramatically proved its inability to govern itself, there is no other justification required for an immediate, aggressive and fair government intervention in the economy, to bring the kind of sweeping and substantive change that can only be achieved through political and legislative means.

In reality, China seems to be leading the way towards this type of Keynesian resurrection with the announcement of a $586 billion public investment package on infrastructure including housing, healthcare and disaster relief. The package comes in response to a faltering demand for Chinese exports from the West, a direct consequence of the meltdown taking its toll on global demand. The Chinese government has highlighted the fact that a solid domestic economy will be their contribution to the stability of the international economy. This is good news for the western manufacturing industry.

To broaden the participation of the international community towards a global agenda of growth renewal, the millennium goals for the cancellation of debt of the poorest countries — shamefully behind schedule — must be accelerated and broadened. This is a prerequisite for the successful implementation of a new strategy for financing sustainable development, which would be based on the Make Poverty History movement's platform. This includes the expansion of Fair Trade with an egalitarian solution to accessing international credit.

Canada's government is winging it

In the end, much will still depend on the new Obama administration's will and ability to break with the ideological establishment of the American financial system and push through urgent and appropriate reform. In Canada, it is clear that the Harper minority government is fitfully attempting to adapt its policy on the fly, grasping at a political solution to an economic crisis. The middle road proposals enunciated by Harper at the G20 summit, may have afforded the Conservatives an opportunistic venue to save their ideological face.

The ease and eagerness of governments to come up with a trillion dollars very quickly when their stability is threatened, in contrast to their reluctance to pour aid and sustainable credit into impoverished and devastated nations, is shockingly inhumane, and irresponsible. While blame and solutions are being passed around like cheap currency — in the worst sense of the word, given the crisis that is before us — government must show leadership by acknowledging not only the initial causes of the current crisis, but the longstanding failures of the neo-liberal economic model that lead to the suffering we currently experience.

Henri M Sader was born in Lebanon. He holds a PhD in Economics and is a member of The Progressive Economics Forum.