A bit of a farce

David Rosenberg, who is the chief economist at Gluskin Sheff + Associates, says, in an opinion piece in the Globe and Mail, that “It is hard to believe, based on the country’s economic record of the past four years, that Canadians opted for four more years of centre-left policies. At the margin, with the NDP holding the balance of power, it may be more a shift to left-centre.

His assessment of the current economic landscape is bleak, to be charitable. He says that “Real gross domestic product (GDP) has expanded 1.4 per cent in the past year, but population growth is 1.5 per cent, so the Canadian economy, despite all the bravado, is actually contracting fractionally on a year-over-year per capita basis … [and] … Productivity growth is stagnant, whereas in the United States it is up 1.7 per cent in the past year. As such, unit labour costs in Canada, at nearly 3 per cent, compare to a more competitive 2.5-per-cent U.S. trend. This lack of domestic competitiveness is a key reason why Canada has not managed to run a current-account surplus since the third quarter of 2008 … [further] … Canadian household debt, while marginally off its all-time high‎, is still higher today as a share of GDP (101.3 per cent) than it was in the United States at the 2006-07 bubble high (98.2 per cent). Total principal and interest payments now absorb 15 per cent of personal disposable income, a record high back to 1990 when borrowing costs were double-digits. This is a pervasive dead-weight drag on Canadian cyclical consumer spending, as we have seen with flat year-on-year retail sales growth.” We heard a lot, during the election campaign about “middle-class Canadians” being only one paycheque away from financial ruin. Those numbers help to explain why.

harper-un-2013-lge-56a0e5913df78cafdaa62b42After the Great Recession of 2008, Canada (Stephen Harper’s Conservatives) used the fairly conventional Keynesian tools to spur a recover and, by 2015 Canada had dug itself out of the hole and the federal (but not provincial) budget was back in balance, despite Canada having been in a war, overseas, during the whole period. After the election of Justin Trudeau in 2015, taxes and spending have risen. Now, many economists will agree that when, as they have been, interest rates are at historic lows it is a good time to borrow (run deficits) in order to pay for the building or maintenance of important physical infrastructure ~ bridges, airports, electrical generating stations, harbours and seaports, etc. The theory (which I accept) is that the “return on investment” generated by better infrastructure (including the jobs created by the projects) will more than pay for the accrued interest. I, personally, am a firm believer in continuous infrastructure maintenance spending ~ it’s not sexy but it pays dividends over time. The Trudeau regime did borrow … but it didn’t invest in Canadian infrastructure; it spent billions “virtue signalling” around the world ~ glorified photo-ops to get more pictures of the prime minister on more front pages. There is no “return” on that … not for Canadians.

Now, as Germany appears to be entering a recession, and Singapore totters on the brink of one, Canadians should be worrying about the next, perhaps imminent, recession. But, evidently, most of us ~ at least those of us who live in St John’s, Halifax, Montréal, Greater trudeauchicago-e1518051554787Toronto and Greater Vancouver and who voted last Monday, for BQ, Green, Liberal or NDP candidates ~ believe that “Sunny ways” applies to the global economy, too. I’m sorry to say that those who did so are sadly mistaken. Prime Minister Justin Trudeau has, for four years, put Canada on exactly the wrong economic course. It is, as the headline in the article says, all “a bit of a farce,” but it’s the farce with which we are saddled until enough Canadians feel the pain of a lost job and a missed mortgage payment and impending bankruptcy. Canadians who don’t like what is happening to provincial spending in Alberta and Ontario will hate what will have to happen in all of Canada when, not if, the recession hits.

 

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