The consequences of a slow-growth era

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In a report that will bring only scowls to the faces of Conservative party operatives and their masters in Cabinet, a McGill University economics professor argues that the time has come for a kinder, gentler hand at the tiller of the national economy.

It’s not that the HMS Canuckistan is in any real danger of sinking under the weight of the jobless hordes its ferrying from one unpromising corner of the country to the other. Indeed, both the Bank of Canada and the International Monetary Fund predict that the Canadian economy will, in fact, grow marginally by 2.2 per cent this year and 2.4 per cent in 2015.   

It’s just that politicians and policymakers have fired up the engines about as much as they can, and there’s not much more they can do to speed the pace. They, and we, must face facts: This boat is permanently puttering.

“Canadian monetary policy has little ability to further stimulate Canadian growth. Given the large amount of uncertainty now faced by Canadian firms, further reductions in the policy interest rate are unlikely to be effective in stimulating aggregate demand,” writes Christopher Ragan in a commentary for the C.D. Howe Institute.  “In addition, the ongoing problems associated with very low interest rates cannot be ignored and may soon present the Bank of Canada with a compelling case for rate increases.”

Yes, “Canadian fiscal authorities have more room to manoeuvre than their counterparts in many other developed countries.” Still, “there remain solid arguments for budgets to be brought back to balance in the next few years.”

Since neither monetary nor fiscal instruments are likely to leverage faster economic growth, and since the private sector remains as jittery as a cat in roomful of rockers when it comes to parting with its money for capital investment and skills development and training, slow growth is here to stay, at least for the foreseeable future.

So, then, what’s a prudent government to do?

“Canadian policymakers should accept the continuation of Canada’s slow-growth recovery for the next few years. Slow growth has undesirable consequences, however, including longer unemployment spells, more part-time employment, and a greater incidence of long-term unemployment. Policymakers should focus on addressing the associated burden by enhancing income support for the unemployed, increasing the mobility of workers and improving incentives for labour-market training.”

Put it another way: Politicians in bad times have a duty to observe the progressive natures of their souls and care for the underprivileged, relieve the burdens of the downtrodden and disenfranchised and, in general, act like human beings for once in a very long while.

In fact, none of this has been part of the job description, at least in the western political canon, since Margaret Thatcher and Ronald Reagan ran away with the keys to the democratic system’s castle some 30 years ago.

Still, it’s high time that those we elect to public office recognize that fierce individualism and the frontier spirit of so-called free-market capitalism carry with them certain drawbacks – one of which is the tendency to blow the world’s financial systems to kingdom come every so often.

In this lies pragmatic reasons for Prof. Ragan’s prescriptions. In his commentary, he identifies four specific groups on whom the “burden of recessions and slow economic recoveries is likely to fall disproportionately.”

The first is comprised of people who lose their jobs as a direct result of economic blows. Then there are those who are new to the labour market (young people and immigrants) and can’t find gainful employment despite their often valiant attempts. “Third are those who find a new job but only one that is of lower quality than what they desire,” he writes. “Empirically, this group is often identified as involuntary part-time workers. The final group includes individuals who remain unemployed for an extended period of time, unable to find any job or one appropriate to their skills. Their burden is both the loss of income they experience as well as the likely degradation of their skills and reduced employability that often accompany long-term unemployment.”

If governments turn a blind eye to these individuals, they are essentially ignoring all but the comfortably affluent and the very rich. And alienating most of the voting public makes for mighty poor politics only a bit more than a year out from an election.

Scowl as they might, but those who currently stand at the helm of the economy ought to consider that when managing public expectations, kinder and gentler can also mean smarter.

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