Expect more economic trouble; just don’t expect Ottawa to help
TheStar.com – News/Canada
Published On Wed Oct 06 2010. By Thomas Walkom, National Affairs Columnist
The good news is that Ottawa has acknowledged the economy remains in deep trouble. The bad news is that it doesn’t plan to do anything about it.
“We’re in a different world today,” Finance Minister Jim Flaherty told reporters Monday, after admitting that the Canadian economy won’t bounce back soon. “There needs to be some adjustment of expectations.”
That’s a different story from the one we’ve been hearing.
For months, Prime Minister Stephen Harper’s Conservative government has been congratulating itself on how well Canada weathered the recession. And, compared to the United States we did look pretty good.
Our banks didn’t fail; our housing market didn’t collapse.
True, unemployment rose – but not to U.S. levels.
As a result, Ottawa treated the recession as a short-term problem.
Wisely, it did spend billions on so-called stimulus programs to counter the slump.
But it always treated this particular remedy with distaste.
The Harper-Flaherty game plan was to wind down stimulus spending early next year, followed eventually by an election in which (Conservatives hoped) the country would reward their economic management with a majority in Parliament.
That in turn would allow Harper to focus on his real passion – refashioning Canadian institutions along more conservative lines.
So sure was the prime minister about the short-term nature of the slump that he spent much of the G20 summit this summer lobbying other leaders to cut back their spending too.
But now, belatedly, Ottawa has recognized that this country is not immune from a crisis that still roils the industrial world. In particular, it is not immune from a crisis ravaging this country’s biggest market, the U.S.
Canada’s economy may not sink back into technical recession. But neither is it expected to prosper.
Few forecasts are optimistic. Economists at the University of Toronto’s policy and economic analysis program don’t expect the national jobless rate to drop to pre-recession levels until at least 2016.
Bank of Canada governor Mark Carney has mused that so-called structural problems may keep U.S. unemployment high indefinitely, with predictable and negative effects on Canada.
Flaherty, meanwhile, insists the government will stick with its flawed game plan. The world may have changed but the Conservatives, it seems, have not.
There are ways in which Ottawa could counter this protracted slump.
The Bank of Canada could follow Japan’s lead and intervene in foreign exchange markets to drive down the unduly high Canadian dollar.
That would make Canadian manufacturing exports cheaper in the U.S. But it might also rile an already protectionist American Congress and lead to retaliation.
Or Ottawa could support the domestic economy by continuing stimulus spending past its arbitrary March 31 cutoff.
But even if the Conservatives want to do this (which they don’t), such a move would leave them open to charges of reckless spending from the equally confused Liberal opposition.
All of this may help explain why Flaherty wants Canadians to make an “adjustment” to their expectations. Here’s what that means.
Young people should not expect good jobs when they leave school. The unemployed should not expect any work at all.
The sick should expect health care to be cut back. The poor should expect to get poorer.
The old should not expect the pensions they worked for.
In effect, the finance minister says, expect very little from this government. Take him at his word.
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