Can we dodge another depression?
There continues to be a great deal of hand-wringing in Ottawa over the economy. In fact, now that President Barack Obama has come and gone, it is all anyone seems to talk about.
The budget is wending its way through the parliamentary process and seems likely to pass. Essentially, the federal government will be driving a truckload of cash down a street near you, shovelling out stimulus money here, there and everywhere.
Journalists and politicians alike are ambivalent about whether throwing around billions of dollars is a good or a bad thing. One moment, Michael Ignatieff is complaining about the size of the looming deficit and the next he is concerned whether the government is spending enough to stimulate the economy. Where does he think the money is going to come from for the government to spend if not from running a deficit? No one would even consider raising taxes now.
The problem is that we don't really have any good examples to follow of government spending its way out of a recession.
We do know some things that governments did that turned the 1930s recession into the Great Depression. Governments refused to bail out banks and set up protectionist trade barriers to try to save jobs at home. The global community seems set on avoiding those mistakes, barring the "buy American" clause that made a short-lived appearance in the American stimulus package.
Interestingly, some American economists credit the corporate restructuring that took place during the Great Depression with setting up the American economy to lead the world. Of course, when they talk about restructuring, we should remember what that really means: masses of unemployed forced to rely on soup kitchens. It may have been good in the long run, but it certainly was painful in the short run.
The end of the Great Depression came with the "stimulus package" of the Second World War. Despite make-work projects in both Canada and the U.S., it was only the massive restructuring of the war effort that really provided jobs.
The Great Depression dragged on for almost a decade. Most recessions last for less than a year. In more recent recessions, governments have taken a number of different steps to stimulate the economy including lowering taxes and lowering interest rates.
Canada's federal government already lowered the GST to stimulate the economy. The Bank of Canada interest rate has been reduced to practically nothing. But these steps have not made a significant difference.
Bob Rae is one of the few examples of a Canadian political leader who used government money to spend Ontario out of the recession in the late 1980s. Now that he is a federal Opposition MP, he has said "never again."
But spurred on by the threat of an Opposition coalition, the Harper government has gone where no one expected--into a massive spending spree. The magnitude of the stimulus package has left even those on the left of the political spectrum gasping.
We have run deficits in this country in the past. It is painfully hard to get back out of deficit once it starts, as interest payments compound.
But do we have a choice? The U.S. economy has already been in recession for over a year with no end in sight. I have noticed a few U.S. chain stores have already closed up here in Canada. American automakers are next in line for bankruptcy.
My mother-in-law lived through the Depression. The problem, she says, was that there was nothing to buy. Once factories and stores go bankrupt, nothing is being produced. The economy spirals from one closure to another.
The stimulus packages in the U.S. and Canada are an attempt to stop the spiral before it starts. Will it work? Maybe.
As Christians we should do our best to make sure that as the economy is boosted and the poor and vulnerable are not left behind. If the middle class gets to renovate its homes at the expense of social housing, something is desperately wrong.
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