His Record Is Abysmal

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We're officially in a recession. And, next month, we may be officially out of it. But that doesn't mean, Jim Stanford writes, that the Canadian economy is in good shape. In three specific areas, the economy has been limping along for years:

Investment: For years Canada relied on energy megaprojects to lead business investment. But that engine is now sputtering badly, for the foreseeable future. Expensive corporate tax cuts didn't produce any measurable uptick in investment. We need new strategies to elicit badly needed capital spending -- both private and public.

Exports: This government's trade strategy consists almost exclusively of signing lots of free trade deals. They've inked six, and are negotiating several more (including the Trans-Pacific Partnership, which might be concluded before Canadians go to the polls). Yet Canada's actual exports hardly grew at all under Conservative rule -- by far the worst record in post-war history. It turns out that producing valuable goods and services that foreigners actually want to buy, is a lot more complicated than signing trade deals and waving them about.

Productivity: Free markets and low taxes are supposed to automatically spur efficiency. But Canada's measured productivity performance has been abysmal: growing less than 1 per cent per year, badly lagging previous governments and most of our trading partners. Upgrading, innovation, and investment are the prerequisites for productivity -- yet we've gone backward in every area.

Mr. Harper's policy prescriptions have done nothing to improve any of these three economic measures. In fact, they have made each measure worse. For nearly ten years, his "steady hand" at the helm have left the economy gasping for air.

Simply put: Mr. Harper's economic record is abysmal.

Canada's Economic Federation

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Scott Clark and Peter DeVries write that the economy is not in good shape. It hasn't been healthy for the last seven years:

The economy has been seriously underperforming for the past seven years and there’s little to suggest this will change over the next five.

Business fixed investment, as a share of GDP, is virtually unchanged since 2008. The unemployment rate remains stuck around 7 per cent, and both the labour force participation rate and the employment rate are below 2008 levels. These trends are dragging down the growth potential of the Canadian economy, which is estimated at around 2 per cent a year, down from 3 per cent.

Unfortunately, when it comes to economic policy, all three of the major parties are entangled in the web of neo-liberalism:

The Conservatives’ growth strategy has always been clear — cut taxes, cut spending, balance the budget, cut the size of government, hope the U.S economy recovers, and pray for higher oil prices. The entire April budget is based on this failed strategy and on projections that are pure fantasy.

What is strange is that the Liberals and NDP are twisting themselves into knots to put together growth strategies that are supposed to be different from that of the Conservatives, while at the same time adopting the Tory orthodoxy that all deficits are bad, all debt is bad, and small government is good.

Wise economic strategy requires federal-provincial cooperation -- something which has been totally absent during the Harper years:

A credible long-term growth strategy should focus on strengthening the economic efficiency of the economy. This would require renewed federal-provincial trust and co-operation, with strong federal leadership — something that has been painfully lacking for years.

It would require, too, an acknowledgement that the tax system has become a serious impediment to economic growth and must be simplified. But it will take real political courage to remove inefficient and unjustifiable tax entitlements.

If we can negotiate international free trade agreements, then why is it so difficult to create a real economic union in Canada, with free movement of goods and services among provinces? Our infrastructure at all levels of government (especially municipal) is collapsing and a national financing strategy is needed to begin rebuilding it. We need a national environmental and energy strategy that includes developing new energy-saving technologies.

Canada is -- or used to be  -- a federation. Until we return to that notion, our economic future is bleak.

A Perfect -- And Predictable -- Storm

For years, Andrew Nikiforuk has warned that building an economy based on bitumen is monstrous folly. Now the folly has come home to roost. Nikiforuk reminded his readers about what the Canadian historian Harold Innis had written about resource traps:

Innis, our greatest historian, said that Canada had a resource addiction problem: it got hooked on the raw export of trees and rocks to global empires and then went on a mining binge, only to awake with no memory of the destruction and no markets.

Whether the resource was furs or lumber or asbestos, the story always ended the same way.

More recently, the American scholar Terry Lynn Karl turned her attention to what happens in petro-states:

[She] wrote that "Oil revenues are the catalyst for a chronic tendency of the state to become overextended, over-centralized and captured by special interests."

Karl herself warned Tyee readers in 2014 that if low oil prices persisted, then Canadians could expect to see "a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta."

And now the petro-state of Alberta, an impoverished kingdom with no savings and unrelenting deficits, has arrived at the doorstep of bitumen's future. 

Stephen Harper has worked hard to make the Alberta model the Canadian model. We are now witnessing the predictable results of entrenching that model.

And Mr. Harper insists that he is a smart fellow.

Something To Think About

For the next seventy-seven days, we're going to hear the message that Stephen Harper is the best person to guide the Canadian economy. Jim Stanford has been crunching the numbers; and it turns out that -- like so much of what Mr. Harper says -- there is a cavernous gap between his rhetoric and reality. Stanford writes:

However, this gap between triumphalist rhetoric and grim reality did not suddenly appear. In fact, the evidence has been piling up for years -- long before the current slowdown -- that Canada's economic performance under the Harper Conservatives has been uniquely poor.

I have worked with my Unifor colleague Jordan Brennan to compile an exhaustive empirical comparison of Canada's economic record under the Harper government, and compared that record to previous post-war prime ministers. The full 64-page study was released today, and is available here.

Here's what we did: The performance of the economy under each prime minister was described on the basis of 16 conventional and commonly used indicators of economic progress and well-being. These 16 indicators fall into three broad categories, summarized as follows:

• Work: Job creation, employment rate, unemployment rate, labour force participation, youth employment, and job quality.

• Production: Real GDP growth (absolute and per capita), business investment, exports and productivity growth.

• Distribution and Debt: Real personal incomes, inequality, federal public services, personal debt, and government debt.

Taken all together, the picture that emerges is grim:

Considering the overall average ranking of each prime minister (across all 16 indicators), the Harper government receives an average ranking of 8.05 out of a worst-possible 9.0. That is dead last among the nine post-war governments, and by a wide margin -- falling well behind the second-worst government, which was the Mulroney Conservative regime of 1984-93.

The very poor economic record of the Harper government cannot be blamed on the fact that Canada experienced a recession in 2008-09. In fact, Canada experienced a total of 10 recessions during the 1946-2014 period. Most governments had to grapple with recession at some point during their tenures -- and some prime ministers had to deal with more than one. Instead, statistical evidence shows that the recovery from the 2008-09 recession has been the weakest (by far) of any Canadian recovery since the Depression. A uniquely weak recovery, not the fact that Canada experienced a recession at all, helps explains the Harper government's poor economic rating.

This statistical review confirms that it is far-fetched to suggest that Canada's economy has been well-managed during the Harper government's time in office. To the contrary, there is no other time in Canada's post-war economic history in which Canada's economy has performed worse than it did under the Harper government.

The man who claims to be an economist -- but who has never earned his living as an economist -- is a dismal failure when it comes to the dismal science.

Something to think about each time you're told that Stephen Harper knows what he's doing.

Government By Obsession

When it comes to looking into the economic future, the Harper government's  record is nothing to brag about. And, in election years, the Harperite crystal ball is thoroughly unreliable. Consider, Scott Clark and Peter Devries write, what happened in 2008:

The November 2008 Economic and Fiscal Update forecast annual surpluses as far as the eye could see. Two months later this forecast was thrown into the trash. In response to the crisis Harper and Flaherty quickly discarded their Conservative orthodoxy and became temporary Keynesians. They introduced the largest stimulus budget ever, in an effort to increase economic activity. After that, deficits were recorded for seven consecutive years until, in this year’s April budget, Finance Minister Joe Oliver declared the government would finally register a surplus in 2015-16.

It's worth remembering that Harper and Flaherty became temporary Keynesians because they were a political minority. Who knows what they would have done if they had won a majority? Now fast forward to 2015:

The elimination of the deficit never had anything to do with good economic policy. The Conservative government’s sole economic policy objective has always been the elimination of the deficit. This is the only criterion it uses to judge its economic record; nothing else has mattered — not stronger economic growth, not increased job creation, not improved productivity, not saving the environment, not greater tax efficiency and tax fairness, and not strengthening federal-provincial and Aboriginal relations. The primary objective of the Harper government has always been to diminish the role of the federal government in economic policy. Eliminating the deficit no matter how small was critical to achieving that objective. 

Stephen Harper is obsessed with diminishing the role of the federal government. Period. Circumstances have nothing to do with what role the government should play. Therefore, economic data are meaningless to him:

Statistics Canada has reported that economic growth has declined for four months in a row (January to April). Private sector economists have now revised down their forecasts of real GDP growth for 2015 by about 0.6 per cent. Earlier this month, the IMF also cut its forecast for economic growth in Canada for 2015 from 2.2 per cent to just 1.5 per cent. Shortly thereafter the Bank of Canada cut its forecast for economic growth for this year to 1 per cent, while declaring the economy had contracted in the second quarter. That means Canada was in a “technical” recession in the first six months of the year.

Never mind that the latest data differ significantly from the data the April budget was built on. Besides, that budget was built on false premises to begin with:

The April budget was built on smoke and mirrors: overly optimistic economic growth and oil price assumptions; cutting the contingency reserve by two-thirds; selling shares in GM at fire sale prices; raiding EI revenues; and even booking “savings” from unilateral changes to federal employees’ sick leave benefits. Without these tricks the government could not have paid for the income tax cuts it announced last October and still have balanced the budget.

The facts don't matter. They have never mattered. It's called Government By Obsession.

Failing Economics 101

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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.

A Running Gag

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Yesterday, at a campaign  stop in Pickering, Stephen Harper claimed the Canadian economy was in bad shape because the global economy isn't doing well:

"Let me just state clearly what the situation is, there has been a downturn and the reason for that has been the downturn in the global economy," Harper said in Pickering, Ont.

"It's really that simple. Look around the world, we have another crisis downturn in Europe, we have a very significant slowdown and some other related economic problems now in China, we had very negative first quarter growth in the United States.

"So those things have obviously affected this country and in particular through oil prices and some commodity prices."

The fact that Harper put all his eggs in the oil basket has nothing to do with the shrinking economy. The fact that he has delivered an unrelenting dose of austerity to that economy has nothing to do with it. In fact, his prescription is for more of the same:

Harper added that the federal government will not "spiral ourselves into deficit" and face credit downgrades, create an "investment freeze" by hiking taxes on businesses or take away tax breaks to Canadian families.

"Those are things we don't do," he said. "What we are doing, is providing strong fiscal discipline with lower taxes and we will have very large scale investment going into the Canadian economy this month alone through the increased universal childcare benefits."

In Young Frankenstein, the hump on Igor's back keeps shifting. Finally, he denies its existence. It's a fitting metaphor for Stephen Harper's concept of responsibility. He takes responsibility for what others  have done -- like the banking system Paul Martin bequeathed to him, or the discovery of John Franklin's ships.

But he'll deny responsibility for the deficits he has run, for his atrocious record of job creation and for the hollowing out of Canada's manufacturing sector. Like Igor, he's become a running joke.

A Pathetic Failure

A lot of electronic ink has been spilled of late on the subject of Bill C-51. And the effort has been called for. But the irony of all that spent energy is that it is working in Stephen Harper's favour.

The prime minister used to burnish his credentials as an "economist." No more. He has good reasons to not talk about his economic expertise. Tom Walkom writes:

At a fundamental level, the economy is failing. Any number of studies point to this fact. The latest was released this week by the Canadian Imperial Bank of Commerce. It says the quality of work in Canada, as measured by wages and job security, has fallen to a 25-year low.

More and more people are trapped in low-paying jobs. More and more are contract workers deemed to be self-employed.

Wage growth for those who already earn good salaries is high. Wage growth for those who earn little is low.

The study says the reasons for this decline are so deeply embedded in the structure of the globalized economy that they will be difficult to reverse.

This picture, of Canadians doomed to live in a world of precarious work, is deeply depressing. It is also a picture that affects far more people than terrorism ever would. 

To date, two people have been killed in what the government insists were terrorist attacks. And, this past weekend, we suffered our first casualty in Iraq.  The death of Sgt. Doiron may change that conversation. But Mr. Harper desperately wants to keep the conversation from circling back to the economy.

As an economist, our prime minister is a pathetic failure. Soon, on the subject of foreign affairs, the same judgement may await him.

Fiscal Fever

Earlier this week, Paul Krugman wrote that -- in the United States, at least -- the fiscal fever has broken:

So the good news is that this fever, unlike the fever of the Tea Party, has finally broken.

True, the fiscal scolds are still out there, and still getting worshipful treatment from some news organizations. As the Columbia Journalism Review recently noted, many reporters retain the habit of “treating deficit-cutting as a non-ideological objective while portraying other points of view as partisan or political.” But the scolds are no longer able to define the bounds of respectable opinion.

In Canada, unfortunately, the scolds are still in power. All that matters is the deficit. Scott Clark and Peter Devries review Canada's recent economic performance:

The year 2013 has not been a good year for economic growth and job creation in Canada. In fact the economy has not been doing well for some time. We’ve been in a growth decline since 2010 and job creation has been dismal since then. In 2009, real GDP declined by 2.9 per cent and then bounced back in 2010 to 3.3 per cent. Since then, growth has been slowing: to 2.4 per cent in 2011; to 1.7 per cent in 2012; and to a forecast rate of around 1.6 per cent in 2013.

At the G8 summit in 2010, Stephen Harper pushed hard for a global dose of austerity, siding with Carmen Rinehart and Kenneth Rogoff, who claimed that government debt has severe negative effects on growth when it exceeds 90 percent of G.D.P.  Krugrman writes:

From the beginning, many economists expressed skepticism about this claim. In particular, it seemed immediately obvious that slow growth often causes high debt, not the other way around — as has surely been the case, for example, in both Japan and Italy. But in political circles the 90 percent claim nonetheless became gospel.

Then Thomas Herndon, a graduate student at the University of Massachusetts, reworked the data, and found that the apparent cliff at 90 percent disappeared once you corrected a minor error and added a few more data points. 

That news never penetrated the Conservative bunker. Harper and Flaherty are focused on the deficit -- employment be damned:

In February 2008, the unemployment rate hit a low of 5.9 per cent. In November 2013 it was 6.9 per cent. In February 2008, the labour force participation rate hit a high of 67.8 per cent; in November 2013, it had fallen to 66.5 per cent, clearly indicating that many Canadians had simply withdrawn from the the job market because of a lack of opportunities. It also means that the ‘real’ unemployment rate, which includes discouraged workers, is much higher than 6.9 per cent.

In February 2008, the ratio of working Canadians aged 15 and over to the population aged 15 and over (referred to as the employment rate) reached a high of 63.8 per cent; by November 2013, it had fallen to 61.7 per cent. In other words, the economy is just not growing fast enough to create enough jobs for a growing working-age population. The youth unemployment rate remains stubbornly and unacceptably high.

Austerity -- Mr. Harper's prescription for world economic health -- has been a disaster. The rest of the world has come to that conclusion. But, in Canada, the fever still rages.