Don Pittis: Canadian economy needs to get out of election mode

If Prime Minister Stephen Harper could wave a magic wand andmake the Canadianeconomy boom, you'd think he would do it now.

It's well-known that one of the main barriers for an existing government to get re-elected is a sagging economy. And despite Conservative Finance Minister Joe Oliver's boasts on job creationand growth, there are plenty of signs that Canadians arehurting.

Oil and the loonie are plunging. And while Bank of Canada governor Stephen Poloz would prefer us not to use the word "recession" because it is "unhelpful,"itseems clear that Canada is in or close tothat.

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The fact that governments cannot snap their fingers and fix the economy is in some ways reassuring. It shows that the conspiracy theorists who think the world is being controlled by powerful cliquesin smoke-filled rooms really are just wacky.

Part of the problem is that politics is complicated. Despite his government'sability to pass practically any legislation, in so many ways, Harper's hands are tied by external forces and those created by his own party.

That is why an imaginary government that did not have to worry about politics might do things differently.

One of the most obvious things to do when an economy is weakening is to spend. While it may be smart to runsurpluses when the economy is booming, you don't have to be a fanatical Keynesian to think it's goodto spend that surplus when the private sector economy is shrinking.

In this case, Harperis partly restricted by his own ideology. Switching from abalanced-budget, small-governmentfocusto Keynesian largesse would seem like a flip-flop and could alienate aneo-conservative core.

What about the evidence?

Perhaps more significant, the party was so confident in the success of its resource-dependenteconomic strategythat it made political sweeteners like income splitting and further tax cutsdependent on a balanced budget.That may be why against much evidence, the finance departmentkeeps insisting there is no deficit.

On the other hand, even an apoliticalfederal government would be unwise to move too far toward a spending splurge.

Provinces are already over-borrowed.If both levels of government let go of the purse strings at the same time, the entire country would begin to look more like Greece.

Speaking of which, Rob Nicol,communications director at the PMO, recently raised the greatestelectiontaboo the spectre of tax increases inthe context of Greece.

"ThomasMulcairis offering the same high-tax, high-debt policies that created thetypeof chaos we see in Greece today," said Nicol.

What he failed to note was the problem in Greece was not strictly the spending but the refusal of the government to make its upper and middle classes pay enough tax. One of thesolutions imposed on Greeceis to double the country's value-added tax.

Rather than running up a deficit to be paid off by Harper's granddaughter, a government that did not have to play politics might look for places to get money that would help the economy more than hurt it.

Taxing so-called "dead money"sitting uninvested might be a way to stimulate new private sector investment while raising revenue for government spending. Finding a way to taxother passive or unproductive investments, including houses flipped within five years or purchased with foreign money, might help.

Delayed result

Whether borrowed or taxed, spending to speed economic recovery has to be more than just a Keynesianinjection. Fiscal spending, unlike interest rate cuts or the money printing of so-called quantitative easing,can be directed to infrastructure,education and scientific researchwhile stillproviding Keynesian-stylestimulation.

Of course, long-term investments, such as those for the better education of aboriginal peopleand immigrants,do not provide a benefit now in the crucial months before an election. Unlike newly cut child benefit cheques, that kind of spending won't show its impact until the election is long over, but the economic benefit to Canadawould be real and long-lasting.

Another long-term and probablyunpopular way to help the economywould be to slow the growing flood of money into speculative land and housing. Makingfarmland more expensive does nothing to help Canada's agricultural productivity and could hurt it.

Larger and larger loans for a nearlyunchanged stock of houses createnothingbutasset inflation. Itrobs money from the kind of investments Canada needs to compete with our trade partners. And as The Economist reported recently, an economic decline based on the unwinding of consumer debtcango on hurting for years.

Using regulation to force companies to do more research in Canada is also a long-term, low-cost solution. Helping the provinces negotiate freer trade would also help. Freeing up immigration for educated people while restricting low wage workers might help Canada, though it couldhurt businesses looking for lower-cost labour.

This economicprescriptionmay not make Canadians feel good right now. But Canadians, especially those who vote, are not stupid. They know that there is nothing the government can do about global resourceprices or global wage rates. And as BMO reminded us recently, the lag time between a fall in the Canadian dollar and the resultingeconomic benefits can be a matter of years.

Canadiansknow neither Harpernor any of his opponents can wave a magic wand. But maybe the thought that an importantgroup ofCanadians will vote for more than instant gratification will help them grant our long-term economics wishes.