Some people rejoiced last week, when Bank of Canada Governor Stephen Poloz announced that interest rates would remain where they are. But Scott Clark and Peter Devries write:
Reading between the lines suggests that the Bank does not expect a strengthening in employment growth and any significant reduction in the unemployment rate over the next eighteen months — before the 2015 election, in other words. And there is very little the Bank can do about it, short of lowering the overnight rate further.
The simple fact is that there is a need for more aggregate demand in the economy. This has been the case for the past three years. Since 2010, growth in output and jobs has been falling and in 2013 only 102,000 net jobs were created; 60,000 full-time jobs were lost in December alone. Unused capacity in the Canadian economy has been growing for the past four years.
However, Jim Flaherty -- or rather Stephen Harper, who is Canada's real Minister of Finance -- is not concerned about the lack of demand:
Mr. Flaherty is simply not prepared to do what is necessary to raise aggregate demand in the economy. For years, the government’s strategy has been to cut the deficit it created and hope that exports and investment would fill in the gap. This hasn’t worked. . . Even the International Monetary Fund thinks he’s wrong. It has recommended that, in the absence of a strong recovery in growth and job creation, the date of deficit elimination could be delayed.
Instead, Flaherty and Harper have decided to follow Andrew Mellon's advice to Herbert Hoover: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” In their quest for re-election, they are slashing, burning and not spending. Jason Fekete reports that:
Approximately $10 billion of authorized budgetary expenditures have gone unspent each of the past three years, with the government forecasting departments and agencies will spend $7 billion less than authorized in the current 2013-14 fiscal year.
For the Harperites, history is all about military prowess. It has nothing to do with economics, which they believe exists outside history, and is governed by hard and fast rules. Unfortunately, they are doomed to repeat history.
Stephen Harper is Canada's Herbert Hoover.