Social Policy in Ontario

How to survive a slow-growth recovery

Posted on August 6, 2014 in Debates

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TheStar.com – opinion/editorials – New study from the C.D. Howe Institute says Stephen Harper is on the wrong economic track
Aug 05 2014.   By: Carol Goar Star Columnist

For six years Prime Minister Stephen Harper has promoted himself as a “steady hand on the tiller” to steer the nation through turbulent economic waters.

But we don’t have turbulent waters. We have stagnant waters. The economy isn’t producing jobs, isn’t generating investment and isn’t improving people’s lives.

The Conservatives call this a recovery. They insist growth will pick up with a mixture of spending cuts and prudent fiscal management. The last thing the nation needs, Harper warns, is a high-risk amateur at the helm.

But as the government heads into the last year of its mandate, even the prime minister’s ideological allies are beginning to question his judgment. The latest to call for a course change is the C.D. Howe Institute, a fiscally conservative think-tank supported largely by businesses.

In a study released last week, the 56-year-old research organization called on federal policy-makers to recognize Canada is experiencing a slow-growth recovery that requires different tools than the fiscal and monetary standbys of the past. “A significant rebound in Canadian private demand is unlikely in the near future,” says author Christopher Ragan, a professor of economics at McGill University. “Policy-makers should recognize the challenges that emanate from a slow-growth recovery: longer unemployment spells, more part-time employment and increased incidence of long-term unemployment.”

Harper cannot dismiss Ragan as a left-wing radical or meddlesome amateur. He has a Ph.D in economics from the Massachusetts Institute of Technology. He taught a course in macroeconomics and monetary policy to senior staff at the Bank of Canada. He spent a year as Clifford Clark visiting economist at the federal finance department.

Nor can the Prime Minister deny that Canada is experiencing an unusually tepid economic recovery — and has been since he won re-election in 2011 promising to create jobs and growth.
Ragan begins his 27-page commentary with an analysis of where Canada is now, what the government is doing, and why it isn’t likely to work.

His depiction of the current state of affairs — presented in language a non-economist can easily grasp — matches what Canadians see around them: a dearth of jobs, a precariously high level of household debt, a hyper-charged housing market, a risk-averse business climate and sub-par growth.

None of these trends is likely to change in the short term, Ragan argues. Cutting interest rates won’t juice growth; they’re already as low as they can go without harming the economy. And stimulative spending is out; Harper refuses to carry a deficit into the next election.

Ragan agrees the budget should be balanced (although he questions the urgency of doing it by 2015.) His overarching point, however, is that in a protracted global slump neither fiscal nor monetary policy is of much use. “We need to recognize that slow growth is an inevitable part of our near-term future,” he concludes.

This doesn’t mean policy-makers are helpless, Ragan emphasizes. It means they need to switch tactics. Their priority should be to protect the small segment of the population that is bearing the heaviest burden of the nation’s slow recovery. He points to four groups: young job seekers who can’t get an economic foothold; laid-off employees who’ve taken a sizable pay cut to get back into the workforce; involuntary part-time workers; and the long-term unemployed.

With carefully targeted interventions, he says, Ottawa could alleviate their plight and prevent a deterioration of the nation’s human capital. To keep matters simple, he proposes three measures:

• A new income support program for unemployed workers. Unlike employment insurance, which covers less than half of Canada’s jobless workers, the temporary unemployment assistance that Ragan recommends would be a loan repayable, contingent on income, when the individual found work.
• An all-out effort to eliminate barriers to labour mobility. On Ottawa’s part, the primary impediment is EI, which discourages individuals in high unemployment regions from moving. On the provinces’ part, it is incompatible certification procedures for skilled trades and professions.
• A renewed effort to improve job training. Ottawa’s last attempt, the Canada Job Grant, was undercut by provincial hostility, wildly exaggerated estimates of skill shortages and a massive influx of temporary foreign workers.

None of these measures would compromise Harper’s goal of balancing the budget, he says, although they might require a deadline extension.

That is deal-killer for Harper. His plan is to ride into next year’s election as a deficit slayer offering tax cuts.

But it is a useful blueprint for Canada’s next government. If public officials can’t rev up the economy, the least they can do is limit the human damage.

< http://www.thestar.com/opinion/editorials/2014/08/05/how_to_survive_a_slowgrowth_recovery_goar.html >

Tags: budget, economy, ideology, standard of living

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