Yes, the economy is deteriorating. For a while, it seemed that Canada had somehow avoided the fate of the U.S. and Europe. Now it’s clear we are not exempt.
Let's set the stage right off the bat. Austrians recognized that Canada wasn't going to avoid shit. When interest rates are set artificially low, price signals are distorted and malinvestments are made. Of course on the ride up it's a fun wealthy boom but eventually reality rears its ugly head. The recession comes not because of a “lack of consumer spending” or a “fall in aggregate demand” but because expanding credit is unsustainable. When producers and consumers start clashing over scarce resources, it becomes apparent that some of society's wealth is just funny money.
And yes, there is a way to ease the stress through concerted government action. But it’s not clear that our politicians — either federal or provincial — are willing to take the risk.
If the recession is the cure to reckless monetary policy, then a further addition of deficit spending and expansion of credit will only prolong the correction. As the boom was unsustainable, displaced workers and owners of capital goods now need to take time to discover new ways to serve consumers. Government and central bank meddling will only prevent this process from taking place, thereby continuing the unsustainable practices that led to this recession in the first place.
Conventional wisdom holds that economic recovery depends upon the private sector. But last month, almost 21,000 private-sector workers lost their jobs — particularly in construction.
I'm glad the Star is willing to admit that recovery depends on the private-sector, because the next paragraph seems to contradict that statement... Regardless, the loss of 21,000 workers in construction shows that a) building homes and condos is becoming unprofitable and b) the stimulus money allocated to widening highways is drying up. The best option, as painful as it may sound, is to allow each 21,000 individual workers to use their skills and talents to find jobs in more productive sectors of the economy - without the aid of central planning.
Ironically, the only good news was the result of government spending. Jobs in the public sector rose by 22,000 in August, particularly in areas like health care and education. I say ironically because the same conventional wisdom that extols the private sector argues that government jobs are a drain — that nurses and teachers are somehow unproductive and that anyone on the public payroll is grossly overpaid.
Walkom, like everyone at the Star, lacks basic reasoning abilities. If there is irony here, it's in the fact that both sectors (public and private) are valued by consumers. Walkom mixes up value and wealth-creation. Whereas individuals in the private sector generate wealth by voluntary exchange, investing and risking personal capital and ultimately allocating resources to what consumers demand, the public sector runs a little differently. Guaranteed revenue destroys the profit-and-loss incentives present under capitalism. Anything nationalized by the government must operate according to a hierarchy of rules and regulations without economic calculation. In other words, socialism breeds bureaucracy.
In addition, the government can only raise its funds through taxation. When private sector workers are accumulating capital and adding to the production of goods and services, nothing helps deviate this process better than government mandates. Removing wealth from the voluntary sector of the economy and transferring it to where the central planners deem more urgent is not helping anyone.
In the face of today’s harsh reality, a logical government would continue spending public money to support jobs.
Well considering that government isn't a logical organization to begin with... I guess Walkom is right. But in face of a historically harsh reality, logically, a government cannot create productive jobs. The tools of taxation and inflation destroy a nation's prosperity. If all jobs were government jobs Canada would differ no more than the former Soviet Union.
Furthermore, Walkom mixes up the very reason we have jobs. Jobs are a mean to an end, not the end itself. It's the production of goods and services that count, not the labour expended.
But this is not a logical era.
You're telling me.
Provincially … Andrea Horwath’s New Democrats do propose wage subsidies for employers who create new jobs. And Dalton McGuinty’s Liberals do have, on paper at least, a scheme for long-term green jobs.
Wage subsidies are another interventionist policy that prolongs real recovery. McGuinty's “Green Economy” is more reminiscent of a “green bubble” which is on the verge of popping.
Tim Hudak’s provincial Conservatives, however, rely on the traditional right-wing nostrums of tax cuts and deregulation, both of which are largely useless in the current crisis.
Hudak is not the fiscal conservative Walkom is trying to make him out to be. If he were, massive tax cuts and complete deregulation would set the correction on the right course. We'd be out of this mess within months instead of years.
Federally, the opposition New Democrats and Liberals are near-irrelevant. In the context of a majority government, they can have little impact.
Well at least there's one argument for a Conservative majority government.
And the governing Conservatives? They, too, have promised a wage subsidy for businesses that hire new workers — although so far it is tiny.
More proof that even Conservatives are Keynesian Socialists.
As well, Prime Minister Stephen Harper has warned his caucus that Ottawa must remain “flexible” to deal with the “fragile” economy. It’s not clear what this means in practice. But recall that Harper can run counter to his own ideological grain, as he did when he boosted government spending in 2009 to deal with the first stage of this slowdown.
Further proof that Harper is a Keynesian.
But he has also promised to quicken the pace of cutbacks so as to balance Ottawa’s books by 2014. In light of the quickly deteriorating world economy, will the Prime Minister be flexible enough to delay deficit reduction and boost that very necessary government spending instead? I’m not optimistic.
I'm not optimistic either, but for an entirely different reason. I fear Harper will continue deficit spending, if only because of a massive outcry of constituents. But realistically it will come from lobbyist groups and powerful interests. There's no way Harper would let the CMHC go bankrupt, our “stable” banking institutions will be bailed out (again) and more make-work projects are bound to litter the country to keep an angry unemployed from rioting.
In addition, I can almost guarantee that the Bank of Canada will keep interest rates low, or even cut them further.
And there's the real irony of this article. For a column about economic crisis, recovery and government interventions, Thomas Walkom never brings up the Bank of Canada and the role they played (or can play) in this collapse of crony capitalism.