It seems almost forgotten that economic growth comes from two principal sources: having more people at work and ensuring that those workers are operating as efficiently as possible.
Without those ingredients our economy will at best stagnate. Those who are counting on the most recent data to continue are due for a major disappointment.
Expansion of the number of workers getting jobs seems to be slowing – in Canada down to very low numbers and in the United States to about half of that experienced early last year. The lagging productivity growth is the result of the shift from manufacturing to advanced technology. What is surprising is the tack that governments in North America have taken.
The remedial moves are not working. For instance, the idea of negative interest rates is just absurd. If you were to give the government $10,000 for a ten-year loan, at the end of that period receiving $9,700 is simply mind boggling. It clearly is a short-term occurrence. Why would any intelligent investor do that now? It is the result of a temporary glut of money that lenders such as banks keep and do not invest.
Negative interest rates highlight the distortions that have been caused by erroneous policies. Investors are faced with major dilemmas. They can invest in foreign countries that have a precarious financial status. As an alternative they can make commitments that offer higher returns but are much less sound. Another approach may be to purchase another company that can use capital profitably but also is in a dire financial position. Clearly any of those manoeuvres are fraught with risks, and are not very judicious steps.
The theory then that spending money governments do not have is also a foolish plan. If that were a solution we should move to Zimbabwe or Venezuela, which have indulged in that plan so their currencies have become worthless. History repeatedly shows us a better route. The initial step is to remove so many regulations that inhibit investment. That includes everything from governments’ efforts to conform to environmental rules to bending over backwards to ensure workers are fairly treated. All well and good, but unfortunately everything is overly regulated today.
If governments retreated from this counterproductive means, the economy would thrive. Lower commodity prices and the larger number of unemployed would entail lower input costs and that in turn would encourage more investments. Governments are spending money to stimulate the sluggish economy but they ignore repaying the excess spending deficits in better times. When have you heard of our Canadian government reducing its indebtedness, except for Paul Martin under Prime Minister Jean Chretien? These simple plans were followed in the deep recession of the 1920s but have been ignored since.
It is not surprising more are turning to the principles enunciated by so-called Libertarians, who want to greatly reduce government activity. The fallible “reforms” proclaimed by so many governments will never work over the long term. Small wonder that governments seem clueless.