Welcome to the jukebox economy
NationalPost.com – FPComment
Posted: March 04, 2010. By Terrence Corcoran
No government has ever willingly admitted to wasting a dime, let alone $164.2-billion — which is the total increase in the national debt that Ottawa has now accepted as an immovable number. Not only is this a figure that will not be reduced. It’s now a target to be proud of, a symbol of discipline. Nothing will now stand in the way of Finance Minister Jim Flaherty’s budget plan to hit that minimal target, raising the national debt to $622.1-billion, or 31.9% of GDP, by 2014-15.
In the economic culture of our time, in which government is seen as the engine of growth and prosperity, maybe it is too much to expect anything more. We live in what veteran Vancouver investment advisor Bob Hoye has called a jukebox economy. “Jukebox economics,” he wrote recently, “is a suitable description of the notion that the economy can only be kept going if the government feeds it quarters.”
So long as jukebox economics is the dominant economic ideology in Canada and elsewhere, the orthodoxy that guides our politicians and the conventional wisdom our media feeds off, we will continue to get budgets like the one Mr. Flaherty delivered on Thursday. In his speech he kept pumping quarters into the machine, calling the spending “investments” and describing the outcome as “jobs.”
Quarters in, jobs out. “We are in the middle of the largest federal investment in infrastructure in over 60 years. We are putting Canadians to work.” Are these good investments producing worthy jobs? Will they boost productivity and real economic gains that will actually generate what Canada desperately needs, which is greater wealth and progress that actually increases the standard of living for Canadians?
Nobody’s really counting. The word “productivity” didn’t cross Mr. Flaherty’s lips, even though it is universally acknowledged as Canada’s single greatest weakness. Even in the best of times, Canada falls behind. In the 424-page official Budget 2010 document assembled by scores of economic experts, the productivity problem is studiously avoided. The case is never made that the massive multi-year spending plans could really generate productivity gains, most likely because Finance Canada officials know they don’t exist. Of about 15 mentions of productivity gains, most are associated with a few tax cuts and the tariff reduction on manufacturing equipment imports — one of the few worthy measures in the budget.
As for the spending, no discussion of what productivity gains might flow from the long, long list of corporate handouts, R&D subsidies, economic cluster stimulus, billion-dollar giveaways to forest companies, agriculture programs, slaughterhouse subsidies, ehealth programs, nuclear power grants, regional grants, carbon capture technologies, green infrastructure funds, renewable energy grants.
The non-corporate spending is an even more unlikely source of productivity gains. The billions allocated to social housing, infrastructure projects, urban transit too often ends up creating high-wage union jobs at taxpayer expense. The budget takes no account of the productivity-draining effects of equalization payments, federal transfers, union and government control over key sectors such as health care and public services. Indeed, the budget encourages continued government control. Even the federal civil service will not be touched in any significant way by the tentative control measures mentioned in the budget.
When all spending is an investment in jobs, the jukebox must be continually fed lest the theoretical jobs stop materializing. The budget document trots out the usual Keynesian economic calculation techniques, using “multipliers” to argue that government spending creates more benefits than the losses that come from maintaining high taxes. It even cites U.S. President Barack Obama’s economic advisor, Christina Romer, who claims that $1 of government spending produces $1.40 in economic growth.
Also following the Obama line, the budget produced a “Job Impact” analysis that claims that by the end of 2010, Ottawa’s Economic Action Plan has “created or maintained” 220,000 jobs. The government said, for example, that about 52,000 jobs are being “protected” in the auto sector as a result of the $14.6-billion Canada-United States auto bailout. But has the productivity of the auto sector improved? Possibly, but not likely. The contribution of government handouts and spending to productivity — net increases in growth and prosperity — is at best suspect and likely non-existent. Some of this is obvious. The transfer of $1-billion to help companies bury carbon emissions creates jobs, no doubt about that, but the productivity gain can only be negative. Nothing is added to the economy.
Carbon capture is a new productivity-reducing cost that is now being added to the national tax burden and claimed as a source of growth.
The jukebox is in full swing, but is that really economic music we’re getting?
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