Stephen Harper and Joe Oliver like to pose as economic gurus. They claim that, when it comes to running the nation's economy, they know what they're doing. But, Jim Stanford writes, they should review they're notes from Economics 101 -- assuming they took notes:
The Conservatives need to dust off their first-year college macroeconomics textbooks. Overall economic activity is determined by the spending power available to buy what we collectively produce. There are four major categories of spending, and hence four main engines that can potentially lead growth: business investment, exports, consumer spending and government.
Unfortunately, the first three are all currently headed in the wrong direction. Business capital spending was sluggish even before oil prices fell (despite large corporate tax cuts) and now it’s shrinking fast. Exports have fallen steadily through the year, producing record trade deficits. And consumers, finally tapped out after years of record debt, are sitting on their wallets: Retail sales fell in April. At any rate, consumers can’t usually lead the growth parade, anyway, since they need jobs before they can go out shopping.
In the face of such multi-dimensional weakness, what good does it do to eliminate a deficit in the remaining sector of the economy? In a best-case scenario, absolutely nothing. And more likely, the austerity imposed to attain balance (for the federal government, this includes $15-billion annually in cumulative spending cuts and nearly 50,000 lost jobs since 2011) only further undermines demand, both directly and indirectly, by further chilling consumers.
Still, Harper and Oliver keep insisting that a balanced budget is what Canada needs to jump start its economy. They are obsessed with a balanced budget because that's what they promised in the last election. But the budget really isn't balanced:
Mr. Oliver’s budget isn’t really balanced, anyway. His apparent triumph was achieved through accounting gimmicks: reallocating contingency funds, selling off public assets, raiding the EI surplus, even prebooking the value of expected cost savings from labour contracts that haven’t even been negotiated yet. Now, with growth falling well below his 2-per-cent budget assumption, another multibillion-dollar hole has opened up in his budget.
Harper and Oliver would make great case studies in a psychology course. Each provides ample evidence of what happens to someone whose life is driven by obsession. But, when it comes to economics, they both illustrate why people fail Economics 101.