Continued… but I don’t even want to think about the political aspect of this – this disgrace — which seems to be a race to the bottom… Below the fold are some more very rough remarks about economic stimulus, carrying on from my previous discussion about economics-as-being-about-more-than-money.
Andrew Coyne at Macleans came out of a period of blog-remission and started going a bit wrangy on Sunday. Making very good points here (I probably don’t have to say it: Coyne is being very sarcastic):
… Notwithstanding the hundreds of column-inches attacking the Tories for their intolerable affront to opposition sensibilities, it is important to remember that the opposition’s sudden lurch for power had nothing to dowith the impending loss of public funds. No, the reason they are absolutely forced to defeat the government this time, having declined to do so over Afghanistan, or global warming, or budgets 2006, 2007 ot 2008, is on account of the fall update. Nothing bespeaks the fierce urgency of now so much as an annual statistical review.
Again, the commentariat is as of one maddened mind. How could the government be so blind? Can it not see that unemployment has soared to 6.2%? Why, that’s four-tenths of a percentage point above its recent, thirty-year low. And what about Canadians’ fears of losing their home, what with the proportion of mortgages more than 90 days in arrears standing at an all-time record 0.2%? Okay, it’s an all-time record low, but still. When will it realize there’s a Depression on? Or coming? Or quite possible, certainly, in other countries.
While this laissez-faire, do-nothing government contents itself with spending more than any government in the history of Canada — 25% more, after inflation and population growth, than at the start of the decade — and pumping tens of billions of dollars into the banking system, what Canadians demand is “stimulus.” And stimulus, we all know, in a sophisticated, 21st century economy, can be delivered in only one way: by hiring large numbers of unionized men to dig holes in the ground (see “infrastructure.”) Loosening monetary policy doesn’t count. Tax cuts don’t count. It only counts as “stimulus” if the government spends it.
Also see the latest from Stephen Gordon on possible infrastructure programs:
But just who is supposed to build this new infrastructure? As I noted earlier, unemployment in the construction sector is at an all-time low. And in the comments in this post, Alex Plante makes an important contribution to this debate:
I’m a civil engineer in Montreal. I design road and municipal infrastructure projects for a large diversified engineering firm. Montreal is so far still in the midst of the construction boom that began in 2000. Several recent tenders our firm prepared for infrastructure projects went no bid or had very few bidders, which is something none of the most senior engineers had seen in over 30 years experience. Construction firms tell us they have too much work.
Now I don’t have much faith that those numbers will hold up much longer. Consumer confidence has already plummeted, I expect a drop in housing prices (not nearly as drastic as in the US — not nearly a collapse), Ontario’s manufacturing sector is entering a troubled phase, and natural resources… well, who knows about those.
We’ve been in a boom and it’s ending. In relation to that, we’ll think things are pretty bad, but some things will simply be returning to normal (or as normal as normal can be).
What frightens me is that during the boom the government has been spending and tax-cutting as if it was a recession. This is certainly true of the US since 2001, and in Canada at least under Harper. Nobody has explained to me yet why it was a good idea to cut the GST (for example) when times had never been better (unless you were a prime minister with a minority government… oh, now I get it).
Other things that concern me: a) high employment being composed significantly by part-time, service-related jobs, b) minimal to non-existent earnings increases for average individuals during the boom years, and c) low savings rates (not to mention negative savings rates in the US).
Compared to past cycles, what we’re dealing with now is more like an ‘economics of abundance’ — or at the very least a psychology of abundance. [Update: Good little article by Tim Harford on the differences between this and past recessions: "Because consumers were already borrowing heavily in the good times, both credit constraints and a long-overdue realism are likely to bite all the more deeply."] People aren’t as prudent as we used to be. There’s been a lot of surplus spending by individuals that most of us can trim. I worry that any extra help we get from the government will just be taken and not spent. A lot of people may be content to make-do with a 1990′s or 1980′s quality of life in order to save a little more. We’ve got more stuff than we know what to do with, what we people lack more than anything now is peace of mind.
Even if we haven’t been running a fiscal deficit, we’ve been running a deficit of human energy and attention. The economy has been riding consumers pretty hard for the past decade, many people have literally been spending as much money as fast as they possibly can years-on-end. I have a feeling we’re going to have to rest for a year or two – regardless of whatever rebates and deals are dangled in front of us.
I’m not necessarily talking about back-to-basics epiphanies, I’m just talking about getting a little more lazy and tired – tired of early morning stampedes at Wal-Mart, tired of upgrading our cell phone every 18 months, tired of getting excited about fashion and decorating fads every month, tired of the cutthroat competition in a seller’s market for housing. We’ll still want stuff but instead of needing it we’ll go back to saying, “that would be nice” and then moving on, waiting a little longer – at least a little more often.
Not everybody will slow down, but just enough people to slow the economy, and no stimulus will change that until the crisis around the world begins to turn around.
