The minister of finance has made his Fall Economic Update. We wanted to hear what he had to say about government spending -- but we didn't. Why? Because the real story is one of austerity.
The federal finance minister promised Canadians a look at what is happening with the economy. On the surface, the job is fairly straightforward. James Flaherty has to say whether the economy is growing, or not; and he has to say what he intends to do about it.
Expect the minister to fudge the first question. The economy is not accelerating along nicely, but he cannot admit it, so he will say the Canadian economy is improving. Compared to what, you ask? The minister will say: compared to others, who are not doing as well as Canada.
The real economic update would measure the current economic performance against the potential performance. What interests the vast majority of Canadians is first jobs and then incomes. Canada has an eight per cent unemployment rate: it should be three per cent.
Point one, too many people are looking for work, and the unemployment gap needs to be closed.
The unemployment rate goes down because people quit looking for work, or because more part-time jobs are being created.
Point two, how many full-time jobs do we need so that everyone who wants paid work can find it?
About 250,000 Canadians come into the job market looking for work each year. In the past year, Canada did not create enough jobs to put the people back to work who lost their jobs in the last two years, and to put the new job seekers to work, so the number of unemployed went up by 355,600, compared to two years ago, according to Canadian Labour Congress calculations.
The economy advances when business invests, and governments invest. Despite past corporate tax cuts, and with more to come, business has not been investing. The federal government stimulus spending package is ending. Without evidence of substantial new business investment, we will live in a stagnating economy.
Point three is the economy is going nowhere.
Once we have a economic snapshot, we will get a policy update: here is what we are doing given our situation. The minister is going to say since everything is fine, we are going to continue doing what we intended to do: nothing new, except more of the same: corporate tax reductions.
The real Canadian economic outlook starts with Canadian families. While prior to the recession governments ran up surpluses, families took on record levels of debt. Now, families are trying to pay down debt, so consumer spending is lagging. Household consumption, the biggest component of economic activity, has slowed as families pay down mortgage, and consumer debts.
Point four expect no economic recovery based on family consumption.
Since business can also read Canadian family debt statistics, point five is do not expect businesses to invest in producing consumer goods which no one is planning to be buy.
World price indexes show major increases in commodity and resource prices, including for basic foodstuffs. Since many of these price increases are for products businesses and families need every day, increasing their prices reduces the amount spent on other items.
Point six is that rising commodity prices limits the amount of discretionary spending business and households can undertake.
In addition to spending by Canadian families and businesses, the rest of the world buys from Canada. Through short-sighted policy, Canada linked itself to the U.S. which is currently in slump. To get out of the slump, the U.S. is trying to devalue its currency. Canada is helping them by raising interest rates, and pushing up the Canadian dollar.
Point seven is that slumping U.S. spending on Canadian goods will not help create jobs in Canada.
Point eight is that a cheaper U.S. dollar leads to more Canadian spending in the U.S. instead of Canada which kills Canadian jobs.
Luckily, we have one other sector: government. Point nine is that government spending on goods and services, public investment, and transfer payments is likely to be the only source of job creation. Cutting back and restricting government spending kills public service jobs first, then slows the economy, killing private sector jobs. As a follow up, government austerity bankrupts companies, as the economy recedes.
Point ten is that Canada will be a real country when the Bank of Canada agrees to lend money to the provinces and the municipalities to make the public investments needed for rapid transit, greening the economy, improving social services, and enhancing educational opportunities. Another round of austerity cuts by cities, counties, village administrations, the provinces, and the federal government will worsen the economy not make it better.
When the minister of finance makes his update and the opposition has its say, what we want to hear is what they have to say about government spending. Austerity will make things worse in Ontario, and everywhere across Canada that's the real economic update.
Duncan Cameron writes weekly on politics and is president of rabble.ca.
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