Going nowhere

While this column is about Canada’s Business, what goes on south of the border is of paramount importance to Canada, as our exports to the United States amount to slightly more than 24 per cent of our GDP.

Obviously that is crucial to our economy so the outlook in the U.S. has a tremendous influence on the course of our economy.

Despite the Greek gods warning against hubris and self-pride, the inhabitants of the United States refuse to believe that their economy is in secular stagnation, going nowhere. However, facts cannot be ignored forever.

It must be acknowledged the immediate future for their economy is much better than that of any other country. Yet from a longer-term perspective, the picture is quite different.

Symptomatic evidence shows the United States is stuck in a rut of slow growth accompanied by feeble inflation. Also, the population is aging, a fact obscured by large-scale immigration.

Thus, that nation assumed (incorrectly) that it is unable to find good investments that would attract savings, which lie dormant, unused. As a result, demand from un-exploited savings is weak.

Central banks, therefore, have trouble coping with this sluggish demand. Inflation-adjusted interest rates are below zero. Central banks clearly are unable to stimulate demand.

There are additional negative factors. The baby boom generation is approaching retirement. Its members are inclined to save more as the majority of their major expenses have ended. That group is living longer than previous eras, limiting the opportunities for young people.

Consequently, throughout the globe there is a glut of savings and weak demand for goods.

Also underscoring these trends is that population growth is falling to historic lows, and Japan is being de-populated. Except for parts of Africa and Southeast Asia, population increases are low. Given the mobility of capital all of us will feel the effects of this demographic reversal.

Yet steps can be taken to mitigate these troubles.

Productivity can and should be increased. Industry, unions and schools should co-operate to improve efficiency. Then too regulations which hinder the economy have to be curtailed.

Finally, large-scale projects should be undertaken and would work, as did war spending previously. With interest rates so low a lend-spend program should be implemented to improve infrastructure, such as roads, sewers and hydro lines.

So all is not lost, but we must respond with positive change to reverse secular stagnation.



Bruce Whitestone