Monday, September 12, 2016

A Helluva Time to Have a Prime Minister Stuck in 1980s Economics

It's hard to guess what's going to be left of Canada or its economy when Justin Trudeau wakes up from his Rumplestiltskin economics and discovers the world he's been dreaming of has left the building - just like Elvis.

Justin, sad to say, is asleep at the wheel when it comes to Canada's economy. He still believes globalism and free trade remain viable. He's also probably got a polyester leisure suit tucked away in the recesses of his closet just in case they come back in style (hint: they won't).

The problem with Justin's economic orthodoxy is that it's from a time past. The economy has moved on and the old rules are no longer working.

"The economy today is much more confusing than it used to be," says Benjamin Tal, deputy chief economist with CIBC World Markets. "We used to have a normal economic cycle where the economy goes up, inflation goes up, you raise interest rates, you go into a recession and then you cut interest rates and everything goes back to normal."

"Now we have a situation where it's not working," he says.

Tal says today's economy is much harder to predict. Our integrated modern economy means what's happening in China has a direct impact on mortgage rates here in Canada. "And this link, this correlation is much larger than it used to be because of globalization." But Tal says that's only part of the picture.

"There is a growing gap when it comes to income distribution in Canada. This means that average numbers don't tell you anything any more," he says. "Because you look at average GDP and average income and it doesn't really tell you the story. So you cannot look at average numbers and say 'Canada is doing OK' because within this number you have a huge gap between people who have a lot and people who don't have much."

The old models don't necessarily work any more. Tal points to one odd fact that stands out for him. Canada is the No. 1 country in the world in terms of education, but we are also the No. 1 country in terms of educated people who live in poverty.

"Economics 101 is obsolete in many ways," says Tal. "The great recession changed a lot of things. That is why we are trying all kinds of things we never tried before: negative interest rates, quantitative easing and that's clearly confusing."

The last thing Canada needs right now is a prime minister clinging to a failed and destructive economic ideology, neoliberalism. Yet Junior keeps making it plain - he's that very guy.


Hugh said...

They can't raise interest rates, because there's too much debt and the whole debt-ponzi financial house of cards would collapse.

They can't lower interest rates, either, because rates are now near zero. Going negative doesn't make sense.

the salamander said...

.. Justin's stirring defense of Globalization was hysterical..
.. blew my mind just reading the trsnscripts..

Anonymous said...

It seems the old wigs are coaching Trudeau into 1960's brain fog. It does seem however, Mr. Trudeau Jr does need to return to University and study Economics.

Anonymous said...

I don't think that's the answer either. The last guy with an MA in Econ was preaching the same nostrums.