by Michael Matthews If economists needed a case study to illustrate the choice between austerity and stimulus as the solution to the world’s debt crisis, then they could do worse than take a close look at Powell River. Our current major issues, the new Powell River Public Library and the fate of Catalyst Paper Corporation Powell River mill, are excellent examples of the argument that elsewhere has brought down governments, influenced election results and prompted street riots.
Those advocating austerity have the most tempting soundbites: “You can’t spend your way out of debt,” or “In times of hardship you have to cut your spending.” They sound so obvious, and when applied to a household budget they make good sense. However, large scale economics is not that simple. The monetary system is based on confidence: before spending our money, we need to know that others will also be spending their money, so that money and goods circulate. The thinking behind a stimulus program is that it will help jumpstart that benign cycle of confidence.
The mill is an excellent example. A strict market-based approach would have allowed Catalyst to go under if it could not compete, with no tax relief or other state support given. I have not heard that anybody in the community advocated that approach, and while there was (and is) debate about the proper level of support, it is clear to everyone that the mill’s role in the Powell River economy is such that it only makes sense for the city to make every possible effort to help Catalyst to keep operating, even at the cost of a lower tax base.
I have yet to see the same analysis applied to the library debate. The only argument has been about the accuracy of the cost projections, currently $9.5 million. However, the important question is not the cost itself, but how much of that cost ends up being spent outside the community and how much would simply add to the economic health of Powell River.
At one extreme, the whole $9.5 million might be taken from the city budget and paid to contractors and suppliers outside Powell River, so that it represented a significant real cost to the community. At the other extreme, much of the expenditure might end up in the pockets of local taxpayers. Furthermore, up to $6 million may come from external grants, in which case a new library could represent a major (i.e. multimillion dollar) net inflow of money to the community.
Reality will lie between these extremes, and the economic impact cannot be judged until two questions can be answered:
How much of the proposed $6 million in grants will materialize?
What proportion of the building costs will be channelled back into the community through local contracts?
Once this information becomes available the austerity and stimulus camps can renew their argument, but until then I recommend that both sides declare a time-out and enjoy summer on Willingdon Beach (or, of course, another preferred location.)
Michael Matthews is a library user, a reader of books (both paper and e-) and taxpayer.
