Harper, Mulcair and Trudeau unprepared for economic crisis

Canada’s main political leaders have much to say about the ailing economy. None has yet produced a plausible fix.

Thestar.com
Aug. 25, 2015
By Thomas Walkom

Canada’s main political leaders have much to say about the ailing economy. None has yet produced a plausible plan to fix it.

This week’s stock market chaos served only to illustrate how ill-prepared the Conservatives, Liberals and New Democrats are when it comes to dealing with economic crisis.

All responded with campaign bromides to the unsettling news that China, the world’s number two economy, is in trouble.

Conservative Prime Minister Stephen Harper urged voters to stick with his recipe of tax cuts. Liberal Leader Justin Trudeau talked of the need to build the middle class.

New Democrat Leader Tom Mulcair, meanwhile, repeated his pledge to solve the crisis by lowering taxes for small business.

These ideas aren’t necessarily stupid. But in terms of dealing with an unusually stagnant economy, none of the parties’ economic platforms - so far at least - is even remotely sufficient.

First, look at where we are. The world economy has been weak since 2008. Europe and Japan are in trouble. The U.S. is only starting to pull out of its funk.

For a while, China led the pack. But as this week’s stock market scare demonstrated, China can be a slender reed to lean on.

Former U.S. treasury secretary Larry Summers refers to what’s happening now the world is going through now as “secular stagnation.” It’s as good a term as any.

In practical terms, it means the economy is creating jobs - but not good ones. It means that consumers are relying on credit cards rather than wages to buy what they need. It means that entire sectors of the economy are out of whack.

In Canada, this expresses itself as a reliance on notoriously volatile commodities such as oil.

When oil and other commodity prices are up, Canada does OK. When they fall, as is happening now, the reverse occurs.

In his stump speech, Mulcair rightly criticizes the Harper Conservatives for failing to pay enough attention to manufacturing.

He is also correct when he says that too many of the jobs created are low-wage and part-time.

But his solution to date - give tax breaks to small business and manufacturers - is singularly inadequate.

Small businesses, almost by definition, require low-wage, part-time, non-union workers. Encouraging small business may create jobs. But most will be of the precarious variety that Mulcair decries.

Tax breaks to manufacturers, meanwhile, may encourage them to expand production - but only if they have customers willing to buy.

As Mulcair correctly points out, too many corporations are refusing to reinvest their profits. Logically, that means government should take up the slack - even if this leads to fiscal deficits in the short term.

But Mulcair pledged Tuesday that an NDP government would not run deficits.

Trudeau is less categorical. He says a Liberal government would balance the books over the long haul. But, wisely, he has not ruled out deficit spending in the short run.

Trudeau’s real problem is that his solution to the crisis is also insufficient.

He says his Liberals would take money from the very-well-to-do and give it to those earning between roughly $50,000 and $200,000. Trudeau refers to this as helping the middle class.

Making the rich pay is not a bad idea - although the economy would get more of a boost if the poor, who spend most of what they earn, received the money instead.

But how would Trudeau lessen Canada’s reliance on oil? How would he protect us from the kinds of shocks that roiled the world this week? How would he promote manufacturing or high-wage, new-technology industries?

So far, the Liberals haven’t said.

Finally, the Conservatives. Harper’s party does not fit the cartoon stereotypes. It hasn’t embraced the harsh austerity favoured in Europe.

Rather, the Harper government has followed a kind of austerity-light regimen.

It has penalized the unemployed but left welfare and medicare alone (although the Conservatives have said they will cut health spending if re-elected).

Both opposition parties criticize the Conservatives for having run deficits since 2008. But given the weakness of the economy, it was the right thing to do.

Arguably, Harper’s real sin on this front was to move too quickly to balance the books.

Still, the prime minister has much to answer for. One example: His government used the temporary worker program to suppress wages, relenting only when the politics became impossible.

But his biggest mistake was to rely on oil. When petroleum prices were high and China booming, this was sufficient to hide the economy’s fatal flaws. Now it is not.