A precarious economy

Something un-Canadian has been happening to our economy.

Hitherto we have been known for our caution and relative lack of risk-taking. Canadian financial institutions, unlike those south of the border, carried on generally without any help from our governments.

Yet the economy recovered very quickly because of the higher prices of our exports – primarily, of course, oil.

However, recently we seem to have thrown caution to the winds.  While in other nations consumers have been retrenching, improving their balance sheets, we have been piling up debt at unsustainable rates – to a record 63 per cent of personal disposable income. 

The Bank of Canada has expressed concern at this trend, which largely reflects the purchase of houses. The result is that house prices are more than one-third higher than the long-time average.  To compound our problems, our economy has been very sluggish and for the first half of the year GDP actually declined.

Now, if not sooner rather than later, interest rates will rise so that those who purchased homes with big mortgages will find that the burden of these mortgages will cause a great deal of trouble.

The newly elected government in Ottawa will have to tackle this looming crisis. That will entail a decline in house construction, fueling a drop in the overall economy.  The new prime minister has pledged to run a sizeable budget deficit in hopes of stimulating the overall economy. Assuming that our neighbour to the south has some economic growth, we just might be bailed out.

Meanwhile provincial governments must show some prudence and that will mean an absence of stimulus for that sector.

Hence, what is to be done? It seems that there should be a new industrial strategy. Resistance to that is usually caused by fear of more government regulation that allegedly burdens free enterprise. This does not need to be the case.

For example, regulation in transportation would protect the public’s interests, and the improved transportation that would take place would be of great benefit to our manufacturing sector. The cumbersome nature of regulation which is caused when federal, provincial and municipal authorities are involved, should be streamlined and hence could help the entire economy.

One step that can be taken is for the governments to provide better information. Now that the longer census form is to be reinstated by the Trudeau administration, that will be a useful tool.

 

 

Bruce Whitestone

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