Don Pittis: Canadian economy needs to get out of election mode

If Prime Minister Stephen Harper could wave a magic wand and make the Canadian economy boom, you'd think he would do it now.

It's well-known that one of the main barriers for an existing government to get re-elected is a sagging economy. And despite Conservative Finance Minister Joe Oliver's boasts on job creation and growth, there are plenty of signs that Canadians are hurting.

Oil and the loonie are plunging. And while Bank of Canada governor Stephen Poloz would prefer us not to use the word "recession" because it is "unhelpful," it seems clear that Canada is in or close to that.

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The fact that governments cannot snap their fingers and fix the economy is in some ways reassuring. It shows that the conspiracy theorists who think the world is being controlled by powerful cliques in smoke-filled rooms really are just wacky. 

Part of the problem is that politics is complicated. Despite his government's ability to pass practically any legislation, in so many ways, Harper's hands are tied by external forces and those created by his own party.

That is why an imaginary government that did not have to worry about politics might do things differently.

One of the most obvious things to do when an economy is weakening is to spend. While it may be smart to run surpluses when the economy is booming, you don't have to be a fanatical Keynesian to think it's good to spend that surplus when the private sector economy is shrinking.

In this case, Harper is partly restricted by his own ideology. Switching from a balanced-budget, small-government focus to Keynesian largesse would seem like a flip-flop and could alienate a neo-conservative core.

What about the evidence?

Perhaps more significant, the party was so confident in the success of its resource-dependent economic strategy that it made political sweeteners like income splitting and further tax cuts dependent on a balanced budget. That may be why against much evidence, the finance department keeps insisting there is no deficit.

On the other hand, even an apolitical federal government would be unwise to move too far toward a spending splurge.

Provinces are already over-borrowed. If both levels of government let go of the purse strings at the same time, the entire country would begin to look more like Greece.

Speaking of which, Rob Nicol, communications director at the PMO, recently raised the greatest election taboo  — the spectre of tax increases — in the context of Greece.

"Thomas Mulcair is offering the same high-tax, high-debt policies that created the type of chaos we see in Greece today," said Nicol.

What he failed to note was the problem in Greece was not strictly the spending but the refusal of the government to make its upper and middle classes pay enough tax. One of the solutions imposed on Greece is to double the country's value-added tax.

Rather than running up a deficit to be paid off by Harper's granddaughter, a government that did not have to play politics might look for places to get money that would help the economy more than hurt it.

Taxing so-called "dead money" sitting uninvested might be a way to stimulate new private sector investment while raising revenue for government spending. Finding a way to tax other passive or unproductive investments, including houses flipped within five years or purchased with foreign money, might help. 

Delayed result

Whether borrowed or taxed, spending to speed economic recovery has to be more than just a Keynesian injection. Fiscal spending, unlike interest rate cuts or the money printing of so-called quantitative easing, can be directed to infrastructure, education and scientific research while still providing Keynesian-style stimulation.

Of course, long-term investments, such as those for the better education of aboriginal people and immigrants, do not provide a benefit now in the crucial months before an election. Unlike newly cut child benefit cheques, that kind of spending won't show its impact until the election is long over, but the economic benefit to Canada would be real and long-lasting. 

Another long-term and probably unpopular way to help the economy would be to slow the growing flood of money into speculative land and housing. Making farmland more expensive does nothing to help Canada's agricultural productivity and could hurt it.

Larger and larger loans for a nearly unchanged stock of houses create nothing but asset inflation. It robs money from the kind of investments Canada needs to compete with our trade partners. And as The Economist reported recently, an economic decline based on the unwinding of consumer debt can go on hurting for years.

Using regulation to force companies to do more research in Canada is also a long-term, low-cost solution. Helping the provinces negotiate freer trade would also help. Freeing up immigration for educated people while restricting low wage workers might help Canada, though it could hurt businesses looking for lower-cost labour.

This economic prescription may not make Canadians feel good right now. But Canadians, especially those who vote, are not stupid. They know that there is nothing the government can do about global resource prices or global wage rates. And as BMO reminded us recently, the lag time between a fall in the Canadian dollar and the resulting economic benefits can be a matter of years.

Canadians know neither Harper nor any of his opponents can wave a magic wand. But maybe the thought that an important group of Canadians will vote for more than instant gratification will help them grant our long-term economics wishes.