Index

Who’s running this ship, anyway?

This is a response to Ed Finn’s article in the July/August, 2009, issue of the CCPA Monitor, “The Left Is Left Behind.”

“If the left is right, politically, why isn’t it more popular?

Richard Priestman

“Most voters still don’t see socialism as a preferable alternative, either economically or politically. But that’s a failing of socialist leaders, not of socialism itself.” – Ed Finn

There is, broadly speaking, a division between those who support a society led by elites who command or control most of society’s wealth and use it in their own interests, and those who prefer a society led by progressively-minded individuals who want society’s wealth used in the interests of the members of society as a whole. Use of labels such as socialist, conservative or neo-liberal do not always help a discussion because they can mean different things to different people. I try to avoid their use where possible.

In my experience campaigning for the NDP, the explanation I most often heard at the door for not voting NDP was very straight forward, namely: “the NDP (and by extension all ‘left’ parties) don’t know how to handle money and would bankrupt us.” In the 2004 election, after years of letter writing and speaking at conferences by some members of COMER (the Committee on Monetary and Economic Reform), the NDP platform included a simple statement that the NDP would use the Bank of Canada (the Bank) to carry some of the public debt as it used to do (prior to 1974). The NDP General Secretary wrote to me on May 12/04 to say that “the platform had been set in February/04, and use of the Bank of Canada was not included and would not be.” The next day the NDP Finance Critic, Judy Wasylycia-Leis, wrote to thank me for the information I had sent on the Bank and said it would be included in the platform – and it was, but nary a word about it passed the lips of Jack Layton during the campaign. Nevertheless, because it was in the platform I felt free to talk about it while campaigning.

The area in which I was campaigning had many Liberal supporters and usually voted Liberal. However, in 2004 many of the Liberal supporters I spoke to were in a quandary; they didn’t want to vote for Paul Martin because of the sponsorship scandal and would not vote for Stephen Harper. They did not know what to do so I said, why not vote NDP? When they replied that the NDP didn’t know how to handle money and would bankrupt the country doing all the things it said it would do, I referred to the NDP platform plank on use of the Bank of Canada explaining that the Bank was owned by the government and that all the interest paid into it was returned to the government minus a small amount for administration. In this way an NDP government could do the things it said it would do without building a huge interest-bearing debt.

In contrast I told them how Liberal and Conservative governments had increased the federal debt over 3,000% ($18 billion to $588 billion) between 1974 and 1997 during which time the government did not use the Bank to carry public debt as it had prior to 1974, and that we were paying over $63 billion a year on interest as a result. (I also mentioned that $63 billion is 630 times the $100 million sponsorship scandal that was getting so much attention, and briefly talked about reinstating the statutory reserves to control inflation. I was pleasantly surprised at how quickly the basic concepts were grasped and, later, that the results for that poll showed a marked increase in NDP support.

What this says to me is that the “left” could get a lot more support if it showed how it could achieve its goals by using the government’s own bank to finance public investment. There is much irony in the NDP’s neglect to implement, or even talk about, the resolution adopted at its 1995 leadership convention to increase Bank of Canada funding of public debt. We have to ask, who is running this ship; who is pulling the strings? Why do political leaders appear to be afraid to even talk about using the Bank to finance public debt? Why aren’t more economists talking about it? What are they afraid of? Why aren’t unions demanding that the Bank be used to finance massive public infrastructure development and investment in education and health services? Surely the jobs so created and increased skill development would dramatically reduce unemployment!

It is ironic that the chase for power has not yet brought the NDP to power while the resolution on the Bank, which would show Canadians that the NDP does understand money and how to control it’s supply, is ignored. More ironically the Liberals and Conservatives, who are responsible for putting the nation into a deep, deep financial hole, have shown that they do not know how to control the supply of money.

Other organizations which also shy away from discussing use of the Bank to finance public investment include the Council of Canadians (the Council), the Federation of Canadian Municipalities (FCM), the Canadian Labour Congress (CLC) and the Canadian Centre for Policy Alternatives (CCPA).

At its 1994 Annual General Meeting, the Council of Canadians resolved to carry out “an education and lobbying program on economic issues including the links between economic policy and social and environmental issues and the need to reassert control over our financial sector.” Among other things the resolution referred to the “explosion of debt” resulting from “loss of public control over the Canadian financial system,” linking the attack on social programs to the demands of the financial sector.

However, like the NDP, the Council has ignored its resolution. While the Council has campaigned on issues of economic policy and its relationship to social programs, employment, the environment and public pensions, how tax cuts undermine the ability of our governments to provide social services, protect the environment and stop the growing polarization between rich and poor, it has avoided the one step which would remove the influence that private money has over government decisions namely, use of the Bank of Canada to finance public debt – not only for the federal government but for provinces and municipalities, too. The government is up to its eyeballs in debt, is taking on more and crying about how this will be a burden on our children and grandchildren, but continues to borrow as usual from the private sector.

The Federation of Canadian Municipalities (FCM) adopted a resolution in 2001 on using the Bank to finance municipal infrastructure, but then rescinded it in 2005. This back-peddling carries an interesting and revealing tale. In April, 2001, the City of Kingston adopted a resolution supporting use of the Bank to finance public infrastructure and to pay off public debt. About the same time, the District of Squamish in BC adopted a similar resolution in addition to those earlier adopted by about a dozen other BC and Ontario municipalities including the City of Toronto. The Squamish and Kingston resolutions, and possibly some of the other BC resolutions, were forwarded to the FCM for consideration by their board of Directors in September, 2001. The FCM adopted resolution FIN01.2.06CA:

“That the Federation of Canadian Municipalities urge the federal government to:

“(a) instruct the Bank of Canada to buy securities issued by municipalities and guaranteed by the federal government to pay for capital projects and/or to pay off current debt; and

“(b) refund to municipalities any interest paid by municipalities to the Bank of Canada.”

Weeks and then months went by. Follow-up letters were sent to the FCM by some COMER members. Then, in September, 2005, the Board of the FCM rescinded its earlier resolution by re-categorizing it as “not within municipal jurisdiction,” adding that the government was “Providing municipal governments with additional financial resources, starting with refunding 100% of the GST…and sharing a portion of the federal gas tax…key elements of the New Deal.” It further stated that, “In FCM’s most recent discussions with the Bank of Canada, the Bank clearly stated that it is not a commercial lending institution…. Does not act as a lender to governments except in the most unusual of circumstances…and…While the Bank could conceivably make a loan to a municipal government, it could only do so through a provincial government and only for short periods….”

As a member of the FCM board remarked on hearing that the resolution was “not within municipal jurisdiction.” “If getting loans for its infrastructure is ‘not within municipal jurisdiction,’ what the hell is!” As for the statement ascribed to have come from the Bank:

– No one has suggested that the Bank is a commercial lending institution;

– The Bank has consistently purchased government securities, ranging from a low of 3.7% in 1936 to a high of 20.8% in 1975, and continues to do so today;

– The Bank’s admission that “while it could conceivably make a loan to a municipal government, it could only do so through a provincial government ….” serves to confirm that financing for municipal governments through the Bank can be done. Furthermore, the Bank of Canada Act, section 18(c) does not limit loans to short periods.

Regarding the “new deal,” the FCM calculated that up to and including 2005-06 the two initiatives had provided about $1.87 billion to municipal governments, adding that both initiatives would continue to at least 2009-10 while the gas tax transfer would continue for two years beyond that. Contrast this amount to the more than $123 billion municipal deficit, reported in the November, 2007, “Municipal Infrastructure Report” which shows the deficit increased from $60 billion in 2003 to $123 billion in 2007.

The Canadian Labour Congress represents 3.2 million Canadian workers. It has organized a campaign for change to “amplify the voices of the…victims of this crisis until our governments hear them and…give people an outlet for their anger and frustration.” Through its president, Ken Georgetti, the CLC has written extensively about the 1.6 million unemployed and part-time workers. It wants the government to “launch a major public investment program to create good jobs in infrastructure, manufacturing and public services, and link this program to a Made-in-Canada procurement policy” but there has been little impact to date from the federal government’s stimulus package on the unemployment numbers. Government funding for such a program is not sufficient to provide the massive investment needed for infrastructure renewal (e.g., $123 billion for municipal infrastructure). Added to this are the billions needed for education, retraining, health services and social support services.

The government has used the debt and interest as an excuse for not putting up more money. The current proposal of the government to run deficits to pay for these things will be financed by the private sector which will add to the interest we are now paying. The alternative to private financing is to finance public investments through the Bank of Canada at zero interest. Not only would this lower taxes for Canadians and Canadian business, it would also reduce the control of lenders and make it possible to do what needs to be done. So far the CLC has not supported use of the Bank to carry public debt.

Not too many years ago, the Canadian Centre for Policy Alternatives would include in its annual Alternative Federal Budget (AFB) a statement about using the Bank of Canada to carry some of the government’s debt. In 1999, for example, it spoke of the benefits from “refinancing of a share of outstanding debt (2% per year for 5 years) through the government’s own bank, the Bank of Canada, instead of relying on commercial lenders.” After 1999 I did not see any mention of this, so I wrote and asked why. The reply was that “There was lots of money in the system, and discussion of using the Bank of Canada would only confuse the issues.” This ignores the fact that the government uses the debt and the huge interest costs as an excuse for cutting more social programs – and is left vulnerable to pressures from banks and large corporations. The CCPA should get back on board.

When the government sells a bond it is borrowing from the purchaser of that bond; it is as simple as that! When the government borrows from the Bank of Canada there is effectively no interest on that debt because interest paid comes back to the government as a dividend. In this way, the government can borrow whatever is necessary to get the economy moving again without hanging a huge debt burden on the necks of future generations, while inflation can be controlled through reinstatement of the statutory reserves. We pay enough interest now on the debts of our three levels of government (over $63 billion a year or $175 million a day) for money borrowed privately instead of from the Bank of Canada. We don’t need any more privately financed public debt! This procedure can be used to provide cash for our three levels of government to invest in public services such as housing, infrastructure, education, research, the CBC, health care, recreation facilities etc. Investments of this nature provide big dividends, some of the biggest coming from education and research. Among others who support government investment in public works to get out of the recession is David Dodge (former Governor of the Bank of Canada).

So what to do? Press the organizations mentioned above to talk about this issue – and, vote only for candidates who support use of the Bank of Canada to carry public debt!

Richard Priestman

— from Economic Reform, December 2009

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