Thursday, 24 March 2011
Ontario's Crumbling Finances - 3 1/2 Scenarios
Despite its faults and weaknesses, the main one being the squeaky, bleating emotional pleas to idealism in many of its editorials, the Toronto Star does have a few staff members who produce quality columns. I believe the work of such creative and esteemed individuals as Chantal Hébert, Royson James, and Joe Fiorito (not to mention ultimate Leafs authority Damien Cox) contributes to the small renaissance at the newspaper (which turned a profit last quarter). It is in the nomination lead for the upcoming National Newspaper Awards. I saw an example of this work today in this Martin Regg Cohn column, which should (but won't) dispel the popular belief in some quarters that the broadsheet is an official Liberal Party of Ontario organ. The competition, Quebecor (Sun) and Canwest (national post) are actually much more loyal and unconditional supporters of their man Harper than the Star could be accused of with its small p-progressive affinities, and this article is a perfect example.
It is a damning and sobering collection of 800 words that is staggering in its description of how badly this province is overextended and to what behaviour it has been reduced to stay afloat. The McGuinty government has presided as the financial brain of the provincial equivalent of an insolvent person, and resorted to the same ineffective tactics: multiplying sources of credit, fudging the numbers, having a shitty backup plan, and crossing its fingers. It has also seen the same consequences: downgraded credit rating, bruised ego, berating at the hands of all those familiar with its situation for being a financial basket case, and ultimately a denial-driven mentality. Did your heart not palpitate a bit at the evocation of an emergency $20 billion contingency fund in case the government “runs out of cash to pay the bills”? Well, based on what we read here it seems like a foregone conclusion that they will, so the real question is what happens at the end of that fund, which at current spending rates will be blown through in less than two months?
Before getting into that, allow me first distance myself from whoever places the blame for this sorry state of affairs squarely at the feet of the Premier and launches into wistful laments about how he single-handedly made this a “have not” province. The deck was stacked much deeper than anything that goes at Queen's Park, and the province will pay dearly for it, and to go on nostalgia-driven rants about the fall from grace is to demonstrate true ignorance of larger forces at work – higher levels of education, off-shoring of jobs, rising commodity prices, and socialization of risk/privatization of profits dynamic now at work everywhere. The things we could soften the impacts of these with are not here; we are still told they are unattainable, and to place our faith in the status quo. That is why instead of rapid transit, localized agriculture, and post-industrial workforce, which weren't even on the radar when we had the resources and means available to modernize into them, we have an aging, rotting, redundant industrial society. Unproductive industries like auto have been “bailed out”, accelerating the province's economic decline. The manufacturing and agriculture sectors intend to continue like its 1975 (with their worker populations who mostly were in their prime in that year), and the province's underfunded and overcrowded universities continue to duly pump out 120,000 new graduates every year to fill an ever diminishing number of diminishing wage “white collar positions”. This may continue until the futility of these endeavours outstrips value they could provide (I'm all for educating yourself, but doing it for the sake of the dollar alone is a sad and fortunately soon to be outdated reason for doing it), but it looks like the debt bell may toll before that. And this is about what we would be looking at whether a conservative, an NDP, or a cocker spaniel had been sitting in that premier desk for the last eight years, since these three entities are all equally unfamiliar with the laws of economics and finance so astutely outlined by Mr. Cohn; if you can remember one thing about modern politics, remember that in three hundred years, no party or government anywhere has ever reduced spending..
What does a society that experienced financial failure look like? I think the easy answer is that everyone will continue to get on as best they can. More difficult to determine is the role of the rich and powerful and the vast amounts of private wealth they preside over in a credit deprived, payment defaulting, ground to a halt Ontario.
Scenario One – Greecification
The government rides the demand and spending of a bloated public sector and tourism for decades, fudging its books and hiding its gets to get into a powerful monetary union. When this gets discovered, it is forced to take a massive bailout from the IMF. I have a hard time seeing the healthy, aging population of these sun-soaked islands suddenly taking up the thankless and brutal activities that constitute what this bailout is no doubt contingent on: economic productivity.Did the IMF and ECB have visions of Greek factories churning out product, demanding raw materials, and squeezing every last of physical and economic blood out of armies of hungry and desperate workers? Because I have to tell you, that sounds like one or two countries on Earth right now, but I don't see (and wouldn't want to see it happening) in Greece. Chance of happening here: Highly unlikely. Public Sector is dominant but economy is more diversified.
Scenario Two – New York-ification
The once mighty capital of capitalism, the “jewel” of the “empire state” is no longer the mecca heard in Sinatra's voice. The holy of holies of success, the top of the mountain of finance and commerce, has taken a beating in the media since the arrangement in which the nine bank cartel it houses funnels money out of the US treasury and the fed has become a matter of public record, though you'd never know it by visiting there. Wall Street is still there, CNN and Fox are still at Rockefeller square, the boutiques on Fifth Ave continue to open their doors, but symbols of the failures of the once romanticized and idolized world city are popping up in the unlikeliest of places: Hollywood movies. One example is the Other Guys, a ridiculous but enjoyable comedy starring Will Ferrell and Mark Wahlberg as a pair of wuss-tough guy mismatched New York Cops who somehow bring down a huge white collar crime scam and look good doing it, That makes enough sense, but what to make of the charts and graphics that roll during the ending credits of the film showing income gaps, bank bonuses, federal debt, and all kinds of other useful and pertinent information? Twenty, ten, or even five years ago that part would have been thrown away on a soundtrack song and maybe some outtakes. And yesterday while watching Despicable Me, I noticed that when the main character, Gru, who aspires to be the greatest villain ever, goes into a “Bank of Evil” which is hidden inside a normal bank to try and get financing for his latest scheme, and it says – get this - “Formerly Lehman Brothers” on its sign. These things may seem insignificant or not worth mentioning, but try to imagine them happening at any other time. They haven't; pop culture has stripped the Big Apple of its big money and endless abundance having status. It's only a matter of time before the “extend and pretend” tactics of the federal administration stop working and catch up to this once fabled symbol of power and money.
Toronto, of course, has had no such taking down of a notch to undergo. Real estate has soared, and so have Bay Street's profits. I wonder what will happen to all those little dogs, all those multi-million dollar real estate values of midtown and downtown when the fiscal levees break. One thing is certain; the banks don't seem too concerned about being the pot calling the kettle black. Today TD said the public was not “fussed enough” about deficits, while the cartel they're a part of is backstopped to the tune of two hundred billion dollars on the taxpayer's dime. The concentration of wealth and exclusion of not just poor people, but anyone with limited means from a growing number of neighbourhoods has been underway in New York for some time longer than in Toronto, and how this will play out in both cities is a huge question mark.
Likelihood of this happening: High, and could it lead to?
Scenario Three – Russification
What happened when the Soviet regime collapsed? No private property and worthless currency; what were people in positions of power to do? Buy up all the country's infrastructure and useful assets at bargain basement prices, of course. In typical Russian cutthroat passion, all the oligarchs were expected to sit on their money and take their emotions out on whatever suited their fancy, until an alpha male rose up in 2000 and demanded that everyone march to his tune. Those who played ball with Papa Bear Putin are your homegrown Russian Oligarchs of today (Roman Abramovitch) and those who didn't are jailed (Mikhail Khodorovsky) or exiled (Boris Berezokovsky). I don't think North America's elite have the temperament or carnivore instincts to cannibalize amongst themselves until power in concentrated as it is in Russia, but this scenario is instructive in showing that people in positions of power in old systems are likely to slip into powerful posts in new ones. It is uncertain whether they feel entitled to the power, or whether it comes naturally to them to seek it out where it might work for them. We can see a phenomenon somewhat parallels with this system gaming at work in America, where the “Hope and Change” administration is made up almost entirely of people recycled from the late 1990s and the elite of Corporate America and Ivy Leagues. You'd think a nation of 300 million would have a larger talent pool, especially when this one hasn't shown any grasp of the challenges of our time at all.
We face many a crisis as humanity today – moral, ecological, environmental, existential – but none appear more threatening or more imminent than the fiscal crisis. It was disheartening today to learn how clear and present that is in Ontario, which is run by a man so weak-kneed he couldn't even stand up to a publicly funded religious school boards flouting of equality, let alone tackle an $18 billion structural deficit that is going to make our province default when interest rates rise.
Wow, that's depressing. Scenario 4 – Californication. Everyone becomes enlightened by devoting themselves to study of the Red Hot Chili Peppers. Just kidding; that's even more depressing.