The 2008 recession remains with us, economically and politically.
Economically, growth remains slower – and will remain slower – than before the recession. Unemployment is higher, and will remain so for at least a while. Stocks remain depressed. Interest rates are at record lows which, at least in Canada, have contributed to higher personal debt levels.
Almost everywhere, governments are struggling with deficits. That struggle is among the manifestations of the deeper political cleavages that are evident in many Western countries, including Canada.
To oversimplify, political debate now swirls around the role and size of the state, because economic growth remains sluggish and deficits have grown. The combination of slower growth and higher deficits raise the question for many whether the state is a friend or enemy of more growth and deficit-reduction.
On what we might loosely call the political left – NDP in Canada, socialist parties in Europe and, to a lesser extent, Democrats in the United States – the state is looked to as the engine of growth. For the left, now is the time to expand government, even if it means more borrowing: to assist those most in need, spur economic growth, lessen inequalities between rich and poor that were widening before the recession and have yawned wider since 2008.
It makes no sense, runs this argument, to inflict a weakened economy with spending cuts that will drive down growth, hurt vulnerable people, and push up unemployment. Growth, engineered by government spending, is the elixir needed to produce the virtuous circle of less pain, more opportunities, higher revenues for government and, eventually, lower deficits.
On what we might loosely call the political right – Conservatives in Canada, conservative or Christian Democratic parties in Europe, and Republicans in the United States – the state itself is the problem. For the right, the state’s size gets in the way of private-sector job-creation. The state sucks up too much money from the private economy, thereby weakening the capacity of individuals and companies to save and invest.
It makes no sense, runs this argument, to expand the size of government when government itself is a major part of the problem. Expanding government will increase deficits, which eventually will have to be reduced through higher taxes which “hard-working” (the right’s favourite cliché) taxpayers cannot afford. The welfare state, on which the left relies to support the economy and lean against injustice, is for the right, part of the problem of slow economic growth.
Of course, left and right analyses and prescriptions come in various shades. But the acuteness of the recession and the duration of sluggish recovery have widened the political gap between left and right, witness to which is the rise of the NDP in Canada (replacing the Liberals), the strength of the Tea Party on the U.S. political right and the anti-austerity positions of left-wing parties in Europe.
The two prescriptions – left and right – leave large unanswered questions. The left is so worried about today’s economic frailties that it remains unclear when and how even larger government deficits would be ever paid down, as eventually they must. And the right is so fixated on the ills caused by government that it remains apparently oblivious to the short-term hurt its restrictive policies are having – or would have – on growth, jobs and recovery.
There is, too, a stale smell about both sides’ analysis. For the left, the best that can be offered is more of the same: more spending on social programs, more infrastructure spending, more regulations, with very little thought about how to stimulate private-sector activity or where the money would come from. For the right, the best that can be offered are lower taxes and government cuts that are supposed to produce a balanced budget.
This theory has not produced this result in the United States, where Republicans forgot about spending restraint. As applied in Britain today, the theory is driving the country back into recession.
In Canada, the debate over the state has placed the centrist Liberals with a gap difficult to bridge, casting the party to the margins of the discourse. The NDP, with its now impressive base in Quebec (where state-driven solutions remain deeply popular), is now the preferred political alternative for those who reject the Conservatives.