No Economic Geniuses

Scott Clark and Peter Devries write that the stated focus of Jim Flaherty's seventh annual "national policy retreat" was  job creation and economic growth. The Harper government likes to repeat that those two objectives are -- and always have been -- its reasons for being.

But all that talk has not yielded much of either:

The economy has been in a growth decline since 2010 — job creation has been dismal. In 2009, real GDP declined by 2.9 per cent and then bounced back in 2010 to 3.3 percent. Since then, growth as been decelerating: to 2.4 per cent in 2011, to 1.7 per cent in 2012 and to a forecast of roughly 1.6 per cent in 2013.

Growth is forecast to increase in 2014 to around 2.5 per cent — but economists have been forecasting a turnaround for the past three years and it still hasn’t happened. Why should it happen in 2014 when the global economy remains so weak?

Mr. Harper had a hand in weakening the world economy.  Martin Wolf recently wrote in The New York Review of Books:

Austerity came to Europe in the first half of 2010, with the Greek crisis, the coalition government in the UK, and above all, in June of that year, the Toronto summit of the group of twenty leading countries. This meeting prematurely reversed the successful stimulus launched at the previous summits and declared, roundly, that “advanced economies have committed to fiscal plans that will at least halve deficits by 2013.”

That was the summit Flaherty's boss, Stephen Harper, hosted. He pushed hard for his confreres to cut their deficits:

It was an attempt prematurely and unwisely made. The cuts in these structural deficits, a mix of tax increases and government spending cuts between 2010 and 2013, will be around 11.8 percent of potential GDP in Greece, 6.1 percent in Portugal, 3.5 percent in Spain, and 3.4 percent in Italy. One might argue that these countries have had little choice. But the UK did, yet its cut in the structural deficit over these three years will be 4.3 percent of GDP.

Yet Mr. Harper and Mr. Flaherty continue to trumpet their job creation record:

In promoting its job creation record, the government makes the claim that the economy has recovered all the jobs lost during the recession. Not bad when compared to some other G-7 counties, but certainly not good enough for Canadians. In February 2008, the unemployment rate hit a low of 5.9 per cent; in July 2013 it was 7.2 per cent. In February 2008, the labour force participation rate hit a high of 67.8 per cent; in July of 2013 it had fallen to 66.5 per cent — clearly indicating that many Canadians had simply withdrawn from the job market because of a lack of opportunities.

In other words, the “real” unemployment rate — including these discouraged workers — is much higher than 7.2 per cent. In February 2008, the ratio of persons employed, aged 15 and over, to the Canadian population aged 15 and over (the ‘employment ratio’), reached a high of 63.8 per cent. By July 2013 it had fallen to 61.7 per cent. The economy simply wasn’t growing fast enough to create enough jobs for a growing adult population.

The truth is that Mr. Harper's and Mr, Flaherty's economic record is dismal. It is true that Canadian banks are in much better shape than many others. But that was the work of the previous Martin government.

No, despite their claims to the contrary, Mr. Flaherty and Mr. Harper are no economic geniuses.

Grecian Formula

Almost a year ago, Stephen Harper travelled to Greece to encourage Greek prime minister George Papandreou to screw his courage to the sticking point and go further down Austerity Road. Papandreou has since departed in disgrace and -- if Michael Den Tandt's reporting is correct -- Harper is about to apply his own version of Grecian formula to the Canadian economy.

Harper is not in the habit of listening to expert opinion. But he should lend an eye to Paul Krugman's column in today's New York Times. Krugman writes that Greece illustrates how profligate spending in good times can get you into trouble. However,

trying to eliminate deficits once you’re already in trouble is a recipe for depression.

These days, austerity-induced depressions are visible all around Europe’s periphery. Greece is the worst case, with unemployment soaring to 20 percent even as public services, including health care, collapse. But Ireland, which has done everything the austerity crowd wanted, is in terrible shape too, with unemployment near 15 percent and real G.D.P. down by double digits. Portugal and Spain are in similarly dire straits.

And austerity in a slump doesn’t just inflict vast suffering. There is growing evidence that it is self-defeating even in purely fiscal terms, as the combination of falling revenues due to a depressed economy and worsened long-term prospects actually reduces market confidence and makes the future debt burden harder to handle. You have to wonder how countries that are systematically denying a future to their young people — youth unemployment in Ireland, which used to be lower than in the United States, is now almost 30 percent, while it’s near 50 percent in Greece — are supposed to achieve enough growth to service their debt. 

Harper claims that he is reforming OAS to save the young from an impossible financial burden. But youth unemployment is at record highs -- and the Canadian economy has lost jobs for the last six months. Harper proposes to do what Greece did -- at his urging.

Repeating the same policy and expecting a different result, Einstein said, is insanity. Stephen Harper is no Einstein.