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Drummond recanted on his own advice last June at economics meeting

Despite self-confessed ignorance, bank economist is calling the shots on cruel and counterproductive cuts in Ontario.

Dateline: Tuesday, February 21, 2012

by Mel Watkins

"It's the economy, stupid." So said, famously, a Clinton aide late in the last millennium who knew not how profoundly he had spoken. For those four words turned out to be the beginning of The Truly Stupid Times in which we are still stuck where the rule of the economy is absolute and efficiency as defined by cost accountants trumps everything else.

Now, here in Dalton McGuinty's middling Ontario, the phrase has morphed into "It's the economist, stupid." An ex-bank economist, Don Drummond, got an essentially one-person commission to tell the provincial government how to get rid of its deficit.

 

Why don't we have a code of ethics like most professions do?

There's nothing wrong apparently with being, or having been, a bank economist. Even our public broadcaster regularly goes to one when in presumed pursuit of a value-free statement about the economy. (Economists working for unions don't qualify: they have a point of view.) To be fair, bank economists have the skills, so scarce in the academy, of speaking in words and of deigning to converse with the unwashed.

But value-free they are not, such a state being unachievable. They are, in this case, creatures of the conventional wisdom to use John Kenneth Galbraith's brilliant phrase — of their profession and their class and their times. (They are, whatever they may imagine, the unprogressive, regressive, economists of our times.) They supported the conventional wisdom that brought us these problems and now they appeal to the same conventional wisdom to solve them. This is not helpful.

Deficits are bad, right? They've happened anyway, what with politicians pandering to the public that votes. If we don't do something quick, things will get really bad. Rather than wait, we must, as of now, make things worse, even much worse, for a lot of people.

You can't get what passes for wisdom more conventional than that, nor more hurtful.

So it is that Mr Drummond in his report to government becomes Dr Austerity, insisting on death by a thousand cuts. As they say to our south, someone has to ride in and clean up this town — and who better than an orthodox economist, that quick-draw specialist in pain management who understands the necessity to have losers for the greater good.

The mantra of orthodox economics is "efficiency" and in this case efficiency in the delivery of public services. That public services might have other goals escapes the attention of Drummond's report with hardly even a passing reference to "equality" and "community" and "sustainability." The crudity to which economics has been reduced is stunning and sickening.

Simple arithmetic says that you can reduce a deficit either by cutting back expenditures or increasing tax revenues. McGuinty told Drummond he couldn't recommend raising taxes, even on the super-rich and the corporations. To his great discredit, Drummond accepted that constraint, thereby guaranteeing that programs had to be cut, cut, and cut again.

There's an interesting ethical issue here. Should economists let one hand be tied? Why don't we have a code of ethics like most professions do?

That question was put after the recent fiscal crisis that was so aided and abetted by economists. Asked in a film interview the Chair of Economics at Harvard was rendered speechless before he finally began blubbering about how that was ridiculous and terminated the interview.

As for Mr. Drummond, having done only half the job needed, should he now return half his fee, whatever that was? That would, incidentally, help reduce that deficit he was supposedly curing by all cuts possible.

I was actually surprised that Drummond let himself be used in the way he did and even that McGuinty had chosen him — because he had just in the past year made a remarkable and honest admission of costly error on his part.

At the meetings of the Canadian Economics Association last June, Drummond confessed that years of research on his part, and advice to governments, about how to increase Canadian productivity had been wrong. Free trade, deregulation, promotion of foreign ownership, lower taxes on profits the whole basket of neo-conservative policy — were advocated and mostly implemented and, said Drummond, to no avail. Canadian productivity had not improved, it had weakened. In a print version in the International Productivity Monitor in the Fall of 2011, Drummond candidly confesses: "If asked today what policy changes should be implemented to improve productivity growth I would need to say I do not know."

After such a fulsome confession, forgiveness might seem in order. That would be easier if Mr. Drummond had slunk away to rethink his economics. Instead, here he is taking on another equally big and complicated problem and coming up with a long list of every conventional and predictable and unimaginative answer possible.

So why should we believe he can do better on advising on the deficit than he did on productivity? He's not exactly batting 1.000.

I admit, as an unorthodox progressive economist, that I never bought Drummond's advice on productivity. Nor do I buy his advice now.

My guess is that at some point in what I hope is the not too distant future before too much damage has been done Mr Drummond will be doing another mea culpa on how he got it all wrong on the deficit. Meanwhile, one gets a sense of why so many people in Greece have resorted to the streets, burning effigies of the Drummonds of our world.

Mel Watkins is a Professor Emeritus in Economics and Political Science at the University of Toronto. He serves on the Straight Goods Board of Directors and also the Board of the Rideau Institute.

Website: http://www.progressive-economics.ca/author/mel-watkins/


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