Dr. Roger Gibbins, President and CEO, Canada West Foundation
It is rare for Canadians to approach the beginning of a new year with such a pervasive sense of anxiety, even foreboding, but it's hard to be festive when surrounded by bad economic news on virtually every front.
If we use the language of president-elect Barack Obama, we have moved from a financial crisis on Wall Street to a recession on Main Street, and Canadians are left with no idea as to how long and deep that recession will be. All we know for sure is that our personal wealth, the value of our homes, investments and RRSPs, is falling and the bottom is not yet in sight.
The overriding question for the holiday season, therefore, is what can and should our governments do to lend a helping hand.
My organization sought guidance on this question from 25 public economists from across the West, individuals who responded with both frankness and a welcome sense of optimism.
Their frankness came from the recognition that there are very real limitations on what the government of Canada can do to turn the economy around. Canada is a trading nation, and our governments have little influence and certainly no control over American and global demand for what we produce, or the price we receive.
As one of the participants in our study observed, if they're not buying, we're not selling, and if commodity prices are low, there is nothing that our governments can do to stimulate the economy through raising prices. We're stuck in a global mess that was not our making and is beyond our capacity to fix.
What the government can do is to protect Canadians as much as possible. This means using and enhancing existing programs, such as Employment Insurance and the Child Tax Benefit, to support the most vulnerable Canadians. We can use selective tax cuts to put more money into the hands of Canadian consumers, and thereby stimulate local economies. We can create a stimulus package that is aimed more at Main Street than at Bay Street, that helps the little guy first.
The economists we consulted supported a stimulus package that would be broadly national in scope, that would use existing monetary policy and fiscal tools such as EI, that would be more than a hodgepodge of wish lists cobbled together from particular regions, industrial sectors and firms.
Here the jigsaw puzzle provides a good analogy. The primary responsibility of governments is to establish the borders, getting all the straight pieces aligned rather than trying to build up from the middle, from the jumble of well-intentioned pleas for special attention.
Even going this far, however, will mean deficit spending in the short term, and no one pulled back from this necessity. Rather, the hope is that if we're smart and disciplined enough, which is a big if, we should not fall back into structural deficits for the long run.
There is also broad support for increased infrastructure spending as part of the stimulus package, but for spending on projects that are "shovel ready," that do not require years of planning, environmental assessments and zoning approvals. This means putting new infrastructure funds into the hands of municipal governments who are perpetually shovel ready but cash poor.
Above all else, the advice we received stressed the need to align short-term stimulus with long-term economic policy objectives to ensure that when we come out of this mess, and we will, the Canadian economy will be more productive and more competitive.
This is where the note of optimism slips into an otherwise rather gloomy discussion. There is a chance the current economic crisis can provide the opportunity to get some things right for the long haul. We could, for example, direct infrastructure spending to increasing the stock of affordable housing or strengthening our trade infrastructure. We could seize the opportunity to make real progress on the reduction of interprovincial trade barriers or on tax reform.
Ultimately, our goal must be to do more than keep individual firms and industries afloat; it must be to keep the Canadian economy afloat in the long haul, and in very choppy global seas.
We have to do what we can, do it well, and avoid panic. With effective political leadership, there is a reasonable chance that when we offer a toast to 2010, we will have more sparkle in our eyes and more jingle in our jeans. With that hope, here's to 2009!
