Flaherty's 'tiny time pills' could bring economic relief
According to TV advertisements from another era, a popular brand of cold capsules contained them. You could see the different-coloured beads inside the clear end of the capsule. In the ad, each one had a cartoon clock attached and floated through a cartoon human body. By the TV ad theory of non-prescription medicine, the little clocks assured us that each of the beads would fire at a different time. By contrast, boring, old-fashioned pills exploded into your system all at once, failing to provide TV medicine's holy grail: long-lasting relief.
I'm not quite sure it was in anyone's plan, but Canada's finance minister Jim Flaherty has some "tiny time pills" of his own. And he has every right to boast about them at his appearance before the Empire Club of Canada in Toronto on Friday, because the Canadian economy is going to benefit from them, too.
Big spenders
According to various competing economic theories, there are many ways of stimulating a sagging economy. One is the "dropping money from planes" theory. That one says you don't actually direct the money at anything; you just pour it into the economy as quick as possible.
That is exactly what the U.S. government handouts did just as we were falling into the current economic morass. In 2008, then U.S. president George W. Bush's $150 billion US stimulus plan handed out $600 to every American. I am among those who fear that money was wasted. Huge as it seemed, that kind of money was like spitting into the ocean compared to the trillions pouring out of the world economy at the time.
Canada did not go down that road.
Recently, CBC Radio economics correspondent Mike Hornbrook reported on a group calling for new government stimulus money. The well-spoken Canadian Auto Workers economist Jim Stanford pointed out that the federal stimulus plan had failed to increase the number of private sector jobs.
"Across the private sector as a whole, there's no source of new growth," he said.
As well as wanting more stimulus, Stanford complained that the money the government had announced wasn't getting out the door fast enough.
The idea that government spending can replace the private sector jobs lost in the last year is absurd.
Stanford means well, but the idea that government spending can replace the private sector jobs lost in the last year is absurd. Creating modern jobs is expensive. In the Dirty Thirties, make-work projects got away with providing ditch-digging crews with a shovel each. But even then, the important projects needed wheelbarrows and steamrollers. They needed trucks to get the workers to the location.
In the modern, capital-intensive world, each worker needs many thousands of dollars in heavy construction equipment or assembly robots or computer servers.
That's why smart governments know that the cheapest way of padding the economy during a recession is liberal unemployment insurance. It replaces the salaries without the expense of actually creating the jobs.
Perhaps the worst thing is that the private sector is still laying off. As I write this, AOL has announced 2,000 jobs will be cut from its staff of about 6,000. And the rich-world think tank the Organization for Economic Co-operation and Development says there are more job losses to come.
Animal spirits
Reversing that trend will not be easy. Creating real private-sector jobs requires real demand for products and services.
According to some doubters, government spending doesn't help at all. They insist that the only thing that can restart economic growth is a change of mood or, as British economist John Maynard Keynes called it, a renewal of "animal spirits."
I haven't heard one person who thinks Flaherty is going to announce more stimulus spending on Friday when he talks on the subject of "recession and recovery." If he goes there at all, it's likely the finance minister is going to tell us how he is going to prevent the deficit from growing out of control.
But Mr. Flaherty has an ace up his sleeve.
Right now, there are hesitant signs that animal spirits are reviving. And remember the mayors complaining that the infrastructure money had not started to flow in time for the summer construction season?
Think of all that cash, set aside in last year's budget. The government has promised a stimulus progress report at the beginning of December. Likely, it will show that money is being transferred to provinces and municipalities but not yet spent. According to federal accounts, once transferred, that money is gone. But it isn't really. Infrastructure spending leaks into the economy slowly as recipients dole it out.
Those are the tiny time pills.
Imagine them circulating through the economy, each one attached to a cartoon giant cardboard cheque.
And if we really have hit the bottom, if the private sector economy really is beginning to creep back, then delays in the launch of stimulus projects might have been a blessing. Because if the real economy is on the verge of growth, now is the time when stimulus can provide a crucial jump-start and really make a difference.
The future remains murky, but maybe the tiny time pills will be enough to get our country's sick private-sector economy back on its feet — and provide long-lasting relief.
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