For the sake of argument
We’re being deceived by the recession
When I last ventured to utter a few heresies in this space the Canadian nation was nearing the peak of its greatest boom. My argument then (or rather my impression, for these things can never he measured or demonstrated) was that the boom had done us a deal of harm as well as a deal of good. I contended, with ignorance’s usual temerity, that the boom had eroded, softened and distorted the Canadian spirit, temporarily at least, and asked what would happen to that spirit when the boom was over.
Well, the boom was soon over. We realized that fact, incredulously, last autumn — but we have hardly yet begun to realize certain other facts more important.
Why we're bewildered
They are at once political, economic and spiritual. In combination they mean that we are now living in a new system of society for which our collective mind, as distorted by the boom, is by no means prepared.
Therein—as the Canadian mood swings from excessive optimism to excessive pessimism—will be found the true explanation of our present bewilderment. In short, we don’t understand the system we now inhabit and therefore haven't learned to manage it.
It is only a platitude, I agree, to say that we inhabit a new system. Everybody knows that vaguely if he is more than twenty years of age and remembers what every generation is pleased to call the good old days. But a general notion that things have changed falls far short of understanding, and shorter still of sound social management.
The resulting confusion can he seen in every aspect of our national life and most vividly, of course, in politics because the politicians attempt to express the collective mind.
In accommodating themselves to a new system the politicians com-
monly use the language, catchwords and mythology of the old. often with a derangement of speech which would make the builders of Babel sound as clear, clipped anti factual as a CBC news report.
Thus we have a government styling itself Conservative though it is actually the most radical government in our history; a government always extolling the virtues of free enterprise while interfering more in private business every day; championing the sovereign powers of the provinces while concentrating ever more power in Ottawa; and advocating the virtues of oldfashioned economy while spending more money in peacetime than we ever spent in wartime.
We have an opposition styling itself Liberal but quite unrecognizable by that name as it has always been defined, intellectually at sea and often urging the very policies that it refused to follow in office.
We have private enterprisers praising the merits of competition but trying desperately to avoid it, especially from foreigners; labor unions dedicated to the welfare of the working man but frequently injuring his real interests; and a public which has so long regarded an abnormal boom as a norm that it now regards a necessary readjustment almost as a tragedy or aberration of nature.
Nevertheless, through this muddle runs one clear vein of logic, a social proposition on which virtually the whole nation seems to agree. It is that the central government must somehow end the recession, restore full prosperity for everyone and assure an everrising standard of life. No matter what is wrong, the government can fix it.
The Maritimes have suffered great disabilities under the economic arrangements of Confederation; the national government must relieve them. Some other poor provinces cannot collect enough taxes; the federal government must subsidize them. The farmers cannot get high enough prices for their products; Ottawa must pay them from the public treasury. Some manufacturing industries cannot compete with cheap imports; the government must raise their tariffs and the consumer must pay them bonus prices. People need more houses, more old-age security, better medical attention and a higher culture; the government must finance them. A railway strike is threatened, a strike occurs in the Pacific coast steamship business; the federal government is expected to settle them if necessary. And behind all these specific problems stands an army of half a million unemployed; the government must put them to work.
continued on page 46
For the sake of argument continued from page 8
Now, I am not arguing that these claims upon government are unjustified or even unattainable, but only that we should understand what we are doing when we make them — that in making these claims on government we are really making them on nobody but ourselves.
Every provincial government, demanding more money from Ottawa, blandly assumes that some mysterious taxpayers outside the provinces will pay the bill, though there are no national taxpayers outside the provinces and the national territories of the north. Every municipality, demanding that the national government relieve its financial burdens, apparently forgets that most of Ottawa’s taxes will come out of the municipalities where most of the taxpayers live. An industry demanding higher tariffs seldom mentions that they will be paid by the consumers. A labor union demanding wage increases larger than any increase in productivity seldom admits that the resulting price increase will be paid mainly by the working people.
The myth that any cost handed on to Ottawa will be paid by someone else and
not by the ordinary man is palpably absurd to any child who knows first-primer arithmetic. Yet it has become, by constant repetition, one of the basic operating principles of our society. Ottawa, we assume, can fix everything if it wants to.
“We assume Ottawa can fix everything.
This is palpably absurd”
In these pages I argued a few months ago that Ottawa could not fix everything, and specifically could not of itself fix the recession, since it stems primarily out of world conditions beyond Ottawa's control. The prime minister, in a remarkable evolution of thought, has lately come around to the same view. However, I don't intend to go over that ground again. My point here is simply that a profound, organic and revolutionary change has occurred in our society’s attitude toward government and itself.
The all-important Paper
While the change has been under way for a long time, for centuries indeed, we can fix the date arbitrarily for our present purpose as the spring of 1945, when the great social watershed was officially recognized and crossed.
We didn’t note it particularly at the time. The government's White Paper, pledging the state to assure full employment, to keep the economy in balance and generally to fix everything by the methods of Lord Keynes was almost ignored in the excitement of the war's end and the founding of the United Nations.
Still, that neglected document was second in importance, I believe, only to the pact of Confederation itself, for it codified the new society long agrowing, it raised expectations that no Canadian government could possibly deliver singlehanded, it ratified a new social state of mind, it confronted all future governments with vast and completely new responsibilities. Since the United States
had reached the same decisions earlier than Canada and proclaimed them by statute, both countries had spelled out a brave new world in North America.
Like many historical documents, the White Paper was a slow political time bomb, temporarily ignored but never ceasing to tick and certain to explode with the arrival of any serious recession.
Its far-reaching implications could easily be ignored after the war because Canada was then entering on the big boom to supply the needs of a famished world. Government had plenty of troubles, domestic and international, hut it didn't have to provide prosperity. It didn’t have to fix anything fundamental. Looking backward, however, with hindsight's customary wisdom, we can see that in two preliminary tests the new North American system fell fiat on its shiny face.
The first test occurred in the autumn of 1945 as government prepared to forestall a sharp postwar deflation and depression with appropriate fiscal policies, only to find, within six months, that the real danger was a virulent inflation which is still with us (in another form) today.
Here a serious flaw in the foolproof system of Keynes could he detected— no matter how sound the predictions and plans of government might be in theory, they were always unreliable in fact because they could never calculate the most decisive factor of all. namely, the public mind, its habit of spending or not spending. That habit is quite incalculable.
The second test, so far as Canada is concerned, occurred about two years ago and it was the exact opposite of the first. In this case government accurately foresaw an inflation leading to a bust as markets, both domestic and foreign, resisted rising prices. Government therefore applied the brakes, rather late and gingerly. At once there emerged the crux of the practical political problem long embedded in the economic theory of the new system.
Though it is true that the government enforcing an anti-inflation policy of sorts was defeated for many other good and sufficient reasons, it is equally true that its policy in this respect was highly unpopular. perhaps suicidal.
The Canadian people were willing to enjoy the boom. They were unwilling to accept the inconveniences, taxes and restraints necessary to prevent the boom becoming a bust. (One is bound to add. in fairness to the people, that a complacent, corpulent and tired government made a shockingly bad job of explaining what it was trying to do. and why.)
Ensuing events, the boom turning into a recession as the Ottawa experts had expected, isolated a phenomenon that cannot be explained in merely partisan terms. While both boom and recession were enthusiastically exploited—and misrepresented — for partisan purposes on all sides of politics, we can discern here a dilemma more important and durable than any election campaign or any government.
The dilemma is the proven fact that the Canadian people are not yet ready to face the disagreeable necessities of the new system, to take the rough with the smooth. They intend to eat Keynes' cake and have it. too.
This is just as impossible in economics as it is in physics. The system of perpetual prosperity cannot hope to work permanently until the public understands what the system involves in the ordinary man's private life and accepts its own responsibilities to that system, it certainly cannot work if the public continues to imagine that government alone can manage the system painlessly, without inconvenience to anyone.
The beneficial possibilities of the system are clear enough—increased wealth and leisure for the ordinary man. a fairer division of wealth, better social services, expanded public works of every kind and, above all, the assurance of steady, uninterrupted growth. But we had better begin now. on the grey morning after the boom, to reckon the costs of the system also.
The most obvious cost, the visible cost, is written on the citizen's tax bill. For the moment we may ignore and postpone it by financing on deficits and thus priming the economic pump, but there can be no doubt that we are now committing ourselves to costs that will require higher taxes later on and we are simultaneously piling up debts that will have to be repaid, with interest.
Already that theoretical person, the average Canadian, is working about a third of his time for the state, or a day and a half of the forty-hour week. He will work in this collective fashion more yet under our present plans.
Either that, or we shall pay the gigantic costs we are now assuming by the easier, invisible accounting system known as inflation. We shall pay through higher prices by which government legally repudiates its debts, debases the coinage, robs the saver and fools the wage earner, as it has done already to the extent of more than fifty percent in the last decade or so.
There can be no doubt either that in its current borrowings the state will quietly install more inflation in the monetary apparatus and this explosive material will be detonated in due time if we fail, as we failed before, to extinguish it by disagreeable methods.
Apart from these clear financial necessities, the new system imposes other
unpleasant sanctions not yet made clear.
When business, for example, expects the state to underpin the economy and arrange a climate of prosperity, then business must expect and certainly cannot avoid more and more interference by the state in its formerly private affairs. When labor unions become powerful enough to twist the economy and damage the nation at large, they need not be surprised if the state increasingly interferes in their business. When farmers demand state subsidies for their crops they will find the state eventually regulating the size of those crops, as has happened in the United States. When the ordinary man expects the state to guarantee him a job he will find his freedom of choice and movement impaired, his life increasingly regulated, taxed and controlled.
Such is the system, under a hundred different disguises, denials and pretenses, that we are rapidly erecting. 1 do not pretend to pronounce upon its merits or strike a balance between its debits and credits. It is far too early to pronounce upon anything so rudimentary, changing and young.
1 submit only that we have not begun to grasp what we are about and are behaving at the moment somewhat like children in a candy store when, through their own follies, the shelves are temporarily depleted. There, it seems to me, is the most interesting aspect of our contemporary situation — the state of the public mind as distinguished from the state of the state itself. The public mind, as I suggested here before, was gravely misled by a boom which seemed natural. Now it is newly deceived by a recession which, though inevitable, seems unnatural. Hence, instead of facing the immediate need to readjust our economy in our new circumstances, and clearing the littered ground for another period of sound growth, we are trying on all sides to maintain unsound, artificial and impossible arrangements.
We are trying to live beyond our immediate means, or the means of our foreign customers, which is the same thing. We expect a rich and wonderfully successful economy to distribute more than it can possibly produce until it is readjusted and repaired. We seem to think we can contract out of a slightly depressed continental economy though we are joined to it organically and forever. We are attempting to climb a steep hill in high gear when we should change to second until we reach level road again.
Canada has lived so long as the beaming boy of fortune that if things turn downward, even a little, we complain that the world can't do this to us, and we greatly exaggerate our troubles, though most of us are still exceedingly well off as things go in this world. Fortune may punish other peoples now and then, but not Canadians.
This attitude reverses of a sudden all the instincts, habits and history of a hard-headed, tough-nerved and pragmatic race which lived most of its live in thrift, hardship, danger and continual experiment.
The reversal is so sudden, indeed, and so uncharacteristic, that it surely must be temporary. The Canadian nature cannot have changed that fast.
The system, however, is changing very fast and all the inherited wisdom of the Canadian people — above all. their instinctive reasonableness, moderation, patience and ordinary horse sense—will soon be needed to manage it. ★