Rivers on tilting at windmills

Rivers 100x100By Ray Rivers

September 26th, 2019


“But if you can look past the anecdotal evidence — a hard feat for everyone, no doubt — you’ll find an economy performing pretty well. And in a world full of turmoil and trouble, pretty well is pretty good.” (Peter Armstrong, Senior Business Reporter CBC)

The folks that gave us Doug Ford are at it again. Like the fabled Don Quixote thrusting his lance at imaginary enemies, we hear the NDP and Conservatives complaining about the lack of economic progress over the last four years.

The facts are:

1. Gross disposable personal income in Canada reached an all time high this year;
2. Inflation is almost negligible mainly hovering at less than 2%;
3. Unemployment is at a four decade low;
4. The median after-tax income for 2017, $59,800, was the highest in Canadian history;
5. The number of millionaires continues to grow; and
6. Almost 900,000 Canadians were lifted beyond the poverty line between 2015 and 2017, the greatest ever reduction of poverty in the country’s history.

This last statistic is most noteworthy as the Liberal government exceeded its own goal of reducing poverty by 20% by 2020. This reduced the percentage of people living below the poverty line to less than 10% for the first time in our country’s history. 52,000 single seniors were brought out of poverty.

This was a remarkable feat given that the economy had been teetering on recession when Trudeau took over as P.M. Increasing the progressiveness of our income tax system and choosing to invest in both structural and social programs has paid off. Canada’s economy, despite some trade challenges, such as US steel and aluminum tariffs, uncertainty over a new NAFTA, the continued depression of oil prices, and China’s banning meat and soybean imports, has continued to propel forward.

Trudeau 2015

The public loved the name, they loved the image and he campaigned very well. The question now is: did he deliver on the promise and what are the options for voters.

Much of this growth was accomplished only because our government borrowed money to finance its programs rather than levy new taxes or do nothing at all. Canada’s deficits have become the tools which allowed us to achieve our economic progress. But, of course, Mr. Trudeau’s 2015 election promise of eliminating the deficit by this year is unrealized- lost in the inevitable trade off.

And yet despite large deficits, not only has the economy progressed but the economic significance of the deficits has diminished. Canada’s total debt as a percentage of its gross domestic product has been declining. And that, for anyone who understands debt financing in business, is the most important metric. Our economic growth more than pays for the debt financing.

Mulcair and Harper

The country had tired of Harper and didn’t believe that Mulcair could run, never mind form a government.

It was an unusual campaign promise last election. Contrasted with the NDP and Tory promises of balanced budgets, Mr.Trudeau argued that, given this period of low interest rates, now was the time to invest in Canada’s economy and enhancing its structural and social infrastructure – building for the future while money is still cheap.

And clearly it worked, propelling the country which had been teetering on recession during the last Harper year, to a pathway of solid growth and prosperity. In the end this has been a truly enviable record of economic achievement. Also, since most of the money borrowed is from Canadians, we are reasonably insulated from the vagaries of international currency manipulation.

But despite the best political wisdom, a restored and booming economy won’t ensure a government’s re-election. Otherwise how does one explain what happened in Ontario in 2018?

The opposition PCs made the election about hydro rates and the deficit, detracting from the province’s economic recovery and virtual boom.

Don Quiote

Don Quixote thrusting his lance at imaginary enemies.

Mr. Ford inflated his estimated deficit numbers to scare the public into thinking the bailiff was at the door. It is the same bogey man Mr. Scheer is using in the federal election, although like Mr. Ford, he has no intention of deficit elimination. And as for hydro rates – it’s just another broken promise.

But just like Cervantes’ anti-hero these hapless politicians are also tilting at windmills – pointing at problems which don’t really exist.

Rivers hand to faceRay Rivers writes regularly on both federal and provincial politics, applying his more than 25 years as a federal bureaucrat to his thinking.  Rivers was once a candidate for provincial office in Burlington.  He was the founder of the Burlington citizen committee on sustainability at a time when climate warming was a hotly debated subject.   Ray has a post graduate degree in economics that he earned at the University of Ottawa.  Tweet @rayzrivers


Background links:

Don Quixote –    Millionaires –    Lowest Poverty Rate

Social Development –     Cost of Living –     Disposable Income

Labour Productivity

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5 comments to Rivers on tilting at windmills.

  • Mike

    As all sensible people know, you cannot borrow your way to prosperity. Investing is a word that should only be for hard assets. So granted, borrowing money to replace bridges, piping, and expand infrastructure like this is ok, with it being amortized over reasonable life spans as is done by any business providing services. Programs are not hard assets and all of that spending should be paid for with revenue in the current year.

    We are increasingly spiraling into who can promise the most to people. What differentiates the camps is the approach. Those left of centre take your money and then tell you haw to live\ by giving it back (minus their commission i.e. government overhead). Those right of centre will offer similar programs but use incentives, like tax rebates. The difference is subtle but huge to how we as a people want to live. Wards of the state, increasingly reliant on government handouts or as independent people making our own living and own decisions based on what we want and believe is right for our families.

    That is the real choice in any election.

  • Hans Jacobs

    Borrowing when rates are low is a sound strategy. Much of the interest on the debt will return to governments through the income tax system in subsequent tax cycles and the next generations of Canadians will benefit from modern infrastructure that will (hopefully) inflict less damage on the environment.
    I recall that Harper had wanted to raise the OAS eligibility age to 67, but didn’t mention it during his election campaign. At age 74 it wouldn’t affect me, but it makes me wonder what Scheer’s undeclared plans are, since Scheer has said that he consults with Harper regularly. Typical Conservative goals are: “find efficiencies/cut red tape/balance the budget” but somehow these are never achieved. Selling public assets (a la Mike Harris and Kathleen Wynne) to finance a “dividend” or reduce the deficit is a non-starter IMO.

    • Phillip Wooster

      “Borrowing when rates is low is a sound strategy”—except, rates don’t stay low forever. What happens when interest on the national debt currently costing $26 billion per year goes up and the higher interest payments on the growing debt begin to crowd out the ability of the government to use any fiscal policy to stabilize the economy? (Of course, governments of various stripes, and especially the Trudeau Liberals use fiscal policy not as the economic stabilizer it was intended to be but as a tool of social spending). If the government in Ottawa raises taxes to cover the higher interest costs, the government’s revenues fall driving up the debt even further—very quickly the government must start slashing its spending! The Liberals got lucky–the economic boom in the USA dragged Canada along for the ride and allowed the deficit/GDP ratio to fall but if a recession hits, the deficit will rise quickly and with slowing GDP this ratio will also rise quickly. At this point, Canada could find itself in the same situation it did in the early ’90s when the IMF and bond rating agencies came calling, pushing up interest rates and forcing the government to cut spending and run a surplus to get its financial house in order, and to his credit, Paul Martin was equal to the task. As a Conservative I hate to say this but Paul Martin was truly a great Finance Minister.

  • Jim Barnett

    We are living very well. We are doing that on borrowed money at every level of Government, deficit spending at the Federal and Provincial level and converting Municipal savings for rainy days into current nice to have spending. On top of that we have record student loan debt and consumer loan debt at extortive interest rates. The fastest growing businesses are in payday loans. Our children and others cannot find affordable housing in Burlington and need to travel further and further to find work, clogging our overloaded transportation facilities. Yes, we are living high on the hog now on money provided by deficit spending but it is getting tiresome trying to explain to my grandchildren that they and their children will not live as well in the future since todays Politian’s have mortgaged their future without their input.

  • Phillip Wooster

    Nice selective quote to start your article. Perhaps you should read David Rosenberg, professional economist at Gluskin-Sheff who on September 9 of this year published the following article in the Financial Post, “Get ready for the loonie and rates to fall, because our economy is sputtering”. His article covers a wide range of Canadian economic metrics and concludes that the economy is far from being in good shape. I read a wide range of technical economic sources to keep myself informed as part of managing my pension plan–I can’t afford to be anything but objective. But then, I don’t wear red sunglasses when reading.