Economists' Open Letter Calls For Active Response to Economic Crisis



    OTTAWA, Oct. 8 /CNW Telbec/ - Ottawa: Today, 85 economists released an
Open Letter criticizing the federal government for its inaction in light of
the deepening global financial crisis, the growing probability of a worldwide
recession, and structural weaknesses in the Canadian economy. The letter
challenges government claims that Canada's "fundamentals" are strong, and
highlights the significant deterioration in Canada's economic performance over
the last two years. Despite recent government statements, there remains a wide
disconnect between the appropriate policy response to the looming downturn,
and the "stay-the-course" approach still being enunciated by the
Prime Minister.
    The Open Letter calls on government and its institutions to show
leadership and play a more active role in stabilizing financial markets,
stimulating real investment, and maintaining employment and incomes in the
face of the worsening financial and economic downturn.
    Signatories include: four chairs of economics departments, two former
Presidents of the Canadian Economic Association, a former federal Secretary of
State for Finance and a former Quebec Minister of Industry

    The letter is signed by:

    Arthur Donner, Economic Consultant
    Marc Lee, Chairperson, Progressive Economics Forum
    Martha MacDonald, Chair Department of Economics, St. Mary's University
    Fiona MacPhail, Chair, Economics Department, University of Northern
    British Columbia
    Mike McCracken, President, Informetrica Ltd.
    Lars Osberg, Chair, Department of Economics, Dalhousie University, Former
    President, Canadian Economics Association
    The Hon. Douglas Peters, former federal Secretary of State for Finance
    Mario Seccareccia, Economics Department, University of Ottawa
    Brenda Spotton, Economics Department, York University
    Rodrigue Tremblay, emeritus professor of economics, University of
    Montreal, former president of the Canadian Economics Association, and
    former Quebec Minister of Industry.

    ...and 75 other economists. To access the Open Letter and the full list
of signatories go to:

    http://www.progressive-economics.ca/2008/10/07/open-letter/

    For further information or comment, please contact:
    Marc Lee (Vancouver): 604-801-5121 ext.228
    Marc Lavoie (Ottawa): (819) 770-4306
    John Loxley (Winnipeg): 204-474-9769
    Lars Osberg (Halifax): 902-494-6988 or 902-455-9486
    Mario Seccareccia (Ottawa): 613-562-5800 ext 1691

    The Open Letter was conceived and prepared by the Progressive Economic
Forum, a network of Canadian economists that promotes alternatives to
conservative economic theory and policy.

    Open Letter from Canadian Economists on the Current Economic Crisis and
    the Appropriate Government Response

    The deepening global financial crisis, the decline in world commodity
prices, and the growing possibility of global recession are exposing worrisome
weaknesses in Canada's economy. Complacent expressions of faith in our
"fundamentals," and other varieties of economic denial, will not protect
Canadians from the coming storm.

    Canada's Economic Fundamentals are Anything but Strong

    Macroeconomic performance has weakened dramatically since the current
government came to power at the beginning of 2006. Economic growth has largely
stalled. Productivity has declined. The recent expansion was largely propelled
by high commodity prices and a housing bubble - both of which are now ending.
    Labour markets have weakened, and employment is poised to decline further
as the slowdown takes hold. Some sectors have already been badly hit. Over
300,000 jobs in manufacturing have been lost. Yet less than 40% of unemployed
workers qualify for Employment Insurance benefits.
    Excluding petroleum and minerals, our international trade performance has
deteriorated. Incomes for corporations, governments, and some households have
been inflated for a time by record global commodity prices. But over-reliance
on resource extraction is not a sustainable basis for our future economic
progress. Meanwhile, in large part as a consequence of this growing resource
reliance, Canada has failed miserably to do its part in the urgent global
effort to limit greenhouse gas emissions.
    Although Canadian financial institutions did not engage as aggressively
in risky practices as their U.S. counterparts, the Bank of Canada has already
had to step in to provide many billions of dollars in short-term liquidity.
Credit conditions in Canada are becoming more uncertain, restricted, and
costly, and this will inevitably constrain spending and output in the months
ahead.
    Canadian households are more indebted than ever, with $1.25 of debt for
every dollar of disposable income. Amid gloomy headlines, falling stock and
housing prices, and precarious household finances, Canadians are starting to
cut back on consumer spending.
    Many Canadians did not benefit much during the good times: poverty rates
in Canada did not meaningfully decline and real wages have hardly increased at
all, even while corporate profits surged to all-time highs. But the prospect
of recession now threatens all of us with hardship - whether we shared in the
good times or not.

    Crisis Demands an Active Government Response

    The general approach of Canadian economic policy in recent years has been
to reduce the scope of government (through tax cuts, deregulation, and
privatization), ratify the growing resource orientation of Canada's economy,
and squander the chance to use revenue from the resource boom to enhance
long-run productivity, prosperity, and stability. Some politicians wish to
further reduce the size and influence of the public sector.
    The dramatic events of recent weeks have destroyed the idea that markets
are best left to their own, unregulated devices. The enormous costs of this
complacency have been clearly demonstrated. Government and its institutions
must now show leadership and play a more active role in stabilizing financial
markets, stimulating real investment, and maintaining employment and incomes.
    The spreading downturn in both the financial and the real sides of the
economy is likely to undermine spending and employment levels in many regions
and sectors of Canada's economy. Income support measures, employment insurance
in particular, should be strengthened. In addition, public infrastructure
projects, including those aimed at reducing Canada's greenhouse gas emissions
and expanding affordable housing, should be ramped up to maintain employment
and production (as private-sector activity declines).
    The federal budget is narrowly balanced, and may slip into deficit
(especially if real GDP begins to decline). The current government has pledged
to prevent such a deficit at all costs, and this will mean significant cuts to
public spending as the budget balance deteriorates. But that course of action
would worsen the economic downturn and job losses. It is far better to
maintain public programs to support employment and incomes, even at the cost
of a cyclical deficit.
    The Bank of Canada must continue to support the financial industry with
liquidity, and should reduce interest rates to stimulate borrowing. But the
government must also explore other avenues (including the use of public
institutions, like the Canada Mortgage and Housing Corporation, the Business
Development Bank of Canada, Export Development Canada, and other conduits) to
expand lending to households and businesses. At the same time, the financial
industry must be re-regulated to prevent the unproductive speculative excesses
that caused the current crisis.
    The global economy is heading into a challenging, dangerous period -
perhaps the worst crisis since the 1930s. Canada cannot expect to be immune
from those global developments. Economic history teaches us that government
intervention is essential in times of crisis: both to stabilize markets and to
shorten downturns with counter-cyclical measures.

    Signed by: 85 economists

    http://www.progressive-economics.ca/2008/10/07/open-letter/




For further information:

For further information: Anthony Salloum, Programme Director, Rideau
Institute, (613) 565-9449 ext 23, Cell. (613) 724-1070, Fax (613) 249-7091,
asalloum@rideauinstitute.ca

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