Open Letter from Canadian Economists

The Progressive Economics Forum’s open letter is now making the rounds. Signatories include four chairs of economics  departments, two former Presidents  of the Canadian Economics Association, a former federal  Secretary of State (Finance), and  a former Quebec Minister  of  Industry.

Here’s the text and the 88 signatories:

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 barely increased, 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,

Abraham Rotstein, Professor Emeritus of Economics and Political Science, University of Toronto

Allan Moscovitch, Professor, School of Social Work, Carleton University

André Joyal, Professeur associé, Département des sciences économiques, Université du Québec à Trois Rivieres

Andrew Biro, Associate Professor and Canada Research Chair, Department  of  Political Science, Acadia University

Andrew Jackson, National Director, Social and Economic Policy, Canadian Labour Congress

Andrew Sharpe, Executive Director, Centre for the Study of Living Standards

Armine Yalnizyan, Senior Economist, Canadian Centre  for  Policy Alternatives.

Arthur Donner Ph.D, Economic Consultant

Bernard Élie, Professeur associé, Département des sciences économiques, Université du Québec à Montréal

Brenda Spotton Visano, Professor, School of Public Policy and Administration, Economics, York University

Brian McLean, Professor, Department of Economics, Laurentian University

Bruce Campbell, Executive Director, Canadian Centre for Policy Alternatives

Bruce Wise, Research Director, transportationcentre.com

Cécile Sabourin, Professor, Université du Québec en Abitibi-Témiscamingue

Charlotte Yates, Professor of Political Science and Labour Studies, McMaster University

Daniel Drache, Professor of Political Science and Associate Director, Robarts Centre for Canadian Studies, York University.

Donald Swartz, Associate Professor, School of Public Policy and  Administration, Carleton University

Edward Shaffer, Professor Emeritus, Department of  Economics, University of Alberta

Eric Pineault, Professor, Department of Sociology, University of Québec at Montreal, Département des sciences économiques

Ernie Lightman, Professor of Social Policy, Faculty of Social Work, University of Toronto,

Fiona MacPhail, Associate Professor and Chair, Economics Department, University of Northern British Columbia

Fletcher Barager, Associate Head, Department of Economics, University of Manitoba

Gabriel Ste-Marie, Économiste, Chaire d’études socio-économiques de l’UQÀM et Cégep régional de Lanaudière à Joliette

Gordon Laxer, Professor of Political Economy and the Director, Parkland Institute University of Alberta

Greg Albo, Professor of Political Economy, York University

Gustavo Indart, Economics Department, University of Toronto

Harold Chorney, Professor of Political Economy and Public Policy Graduate program in Public Policy and Public Administration, Concordia University

Hassan Bougrine, Department of Economics, Laurentian University

Heryk Flakierski, Professor Emeritus, Economics department, York University

Hugh Armstrong, Professor, School of Social Work and Institute of Political Economy Carleton University

Ian Hudson, Associate Professor, Department of Economics, University of Manitoba

Iglika Ivanova, Researcher, Canadian Centre for Policy Alternatives – BC

Jesse Vorst, Senior Scholar, Department of Economics, University of Manitoba

Jim Sentance, Chair, Department of Economics, University of Prince Edward Island

Jim Stanford, Economist, CAW

Joan McFarland, Professor of Economics, St.Thomas University

Joëlle J. Leclaire, Assistant Professor, Department of Economics and Finance Buffalo State College, SUNY

John Brohman, Associate Professor, Department of Geography Simon Fraser University

John Calvert, Associate Professor, Simon Fraser University, Health Sciences Faculty

John Loxley, University of Manitoba, Economics Department

Josée Lamoureux,  Économiste, Service des relations du travail-Recherche Confédération des syndicats nationaux (CSN)

Karen Grant, Associate Professor, Department of Sociology, University of Manitoba

Lars Osberg, Research Professor and Chair, Economics Department, Dalhousie University

Louis Lefeber, Professor of Economics (emeritus), York University

Louis-Phillipe Rochon, Department of Economics, Laurentian University

Lynne Fernandez, Acting Director, Canadian Centre  for  Policy Alternatives-Mb

Manfred Bienefeld, Professor, School of Public Policy and Administration, Carleton University

Marc Lavoie, Professor, Department of Economics, University of Ottawa

Marc Lee, Senior Economist, Canadian Centre for  Policy Alternatives; Chair, Progressive Economics forum

Marina Morrow, Assistant Professor, Faculty of Health Sciences Co-Director, Institute for Critical Studies in Gender and Health, Simon Fraser University

Mario Seccareccia, Professor, Economics Department, University of Ottawa

Marjorie Griffin Cohen, Professor, Political Science/Women’s Studies Simon Fraser University

Martha MacDonald, Professor and Chair, Economics Department, Saint Mary’s University

Mathieu Dufour, University of Massachusetts, Amherst, and Dalhousie University, Economics

Maurice CAREL, Professeur titulaire d’économie rurale et développement Université Laval

Mel Watkins, Professor Emeritus of Economics, University of Toronto

Michael Goldberg, Retired Research Director, Social Planning and Research Council of BC

Michael A. Lebowitz, Professor Emeritus, Economics Department, Simon Fraser University

Mike McCracken, President, Informetrica Ltd.

Neil McLaughlin, Associate Professor, Sociology, McMaster University

Pat Armstrong, Professor, Sociology, York University

Paul Bowles, Professor of Economics, University of Northern British Columbia

Paul Leduc Browne, Professeur de Science Politique, Université du Québec en Outaouais

Paul Tulloch, Livingwork.ca, Labour Economist

Pierre-André Julien, Professeur émérite, Institut de recherche sur les PME, Université du Québec à Trois-Rivières

Pierre Laliberté, Economiste, Fédération des travailleurs et travailleuses du Québec

Pierre Paquette, Dept. Political Science and Economics, Royal militiary College of Canada

Radhika Desai, Professor, Department of Political Studies, University of Manitoba

Ricardo Grinspun, Associate Professor, Department of Economics, York University

Richard Lobdell, Professor of Economics, University of Manitoba

Rob Moir, Associate Professor of Economics, University of New Brunswick, Acting Chair of Social Science, President of the Atlantic Canada Economics Association.

Robert Chernomas, Professor, Department of Economics University of Manitoba

Rod Hill, Professor of Economics, University of New Brunswick

Rodrigue Tremblay, Emeritus professor of economics, Université de Montréal,

Salimah Valiani, Doctoral Candidate, Department of Sociology and Anthropology Carleton University

Seth Klein, Director, BC Office, Canadian Centre for Policy Alternatives

Shauna Butterwick, Department of Educational  Studies, University of British Columbia

Sid Shniad, Research Director, Telecommunications Workers Union

Simon Black, PhD Candidate, City Institute, York University

Stephen McBride, Professor & Director, Centre for Global Political Economy, Simon Fraser University

Sylvie Morel, Department of Industrial Relations, Université Laval

Terry Heaps, Associate Professor (retired), Dept of Economics, Simon Fraser University

Honourable Douglas D Peters PhD PC Retired, Former Chief Economist Toronto-Dominion Bank, and former Secretary of State (Finance)

Theo Meijer, M.Ed. (Brit.Col.), Ph.D., Retired Senior Secondary Business Educator

Thierry Roy, Department of Economics, Cégep de Sherbrooke

Toby Sanger, Economist, Canadian Union of Public Employees

Trevor Harrison, Chair, Department of Sociology, University of Lethbridge

William Rees, Professor, School of Community and Regional Planning University of British Columbia