Stop the shovels

If, by the time you read this, Canada has not been plunged into another election, it will be a blow to lexicographers everywhere. At one point there was serious prospect of an entire campaign being fought on the question of whether billions of federal dollars had been “committed,” “approved,” “announced” or, in fact, spent. Ah, the semantic might-have-beens.

To be sure, the government’s second report on “Canada’s Economic Action Plan,” the proximate cause of this silliness, uses all of these terms and more, in an effort to impress the public with how much spending has been rushed “out the door” since January’s hurry-up budget. The effect is quite dizzying, even without the commingling of spending programs with similar names on wholly different timetables with which the government further obscures its intentions.

Citizens attempting to come to grips with the magnitude of the government’s efforts to “stimulate” the economy must decide which number to be more impressed by: the $33-billion (over seven years) Building Canada Plan, not to be confused with the $8.8-billion Building Canada Fund, or the $13.4 billion (over two years) allocated to Building Infrastructure to Create Jobs, or the $4 billion specifically designated as Infrastructure Stimulus. But I fear I oversimplify. The $13.4 billion budgeted for infrastructure actually has a “stimulus value” of $16.5 billion, and that’s before you count the $15 billion in “assumed provincial and territorial actions.” With me so far?

Okay. Looking just at the current fiscal year—appropriately, one supposes, if the point of the exercise is to spend the money as fast as you can—we see $4.4 billion set aside for major infrastructure projects: the proverbial “shovels in the ground” that are the object of particular veneration among the stimulus cult (the stimulati?). Of that, the government says, about $1.9 billion has been “committed.” And how much has actually been, you know, spent? Not a clue.

Not that it matters. For all Michael Ignatieff’s attempts to make this the defining issue between him and Stephen Harper, surely what is more significant is their firm unity of belief that this sort of “stimulus” is the cure for our economic ills. And yet if the opposition is right, and hardly any of the money has actually been spent, it only goes to show how pointless the whole business is. For, quite unaided by any shovels actually hitting the ground, the economy has already begun to stabilize, even to show signs of improvement.

While the headlines tell us that GDP shrank in the first quarter at an annualized rate of 5.4 per cent, the worst quarterly performance since 1991, that’s looking in the rear-view mirror: it does not tell us what is happening today. Look at more current figures, and you get a better picture of where we’re headed. Housing starts are up, as are housing prices. Retail sales have been rising for three consecutive months. Manufacturing shipments, after suffering huge declines through the fall and winter, have since stabilized. Earnings growth has been maintained, while the threat of deflation has eased. Even employment appears to have bottomed out.

The same signs of tentative recovery are in evidence elsewhere. The latest figures out of the United States, on housing construction and industrial production, are encouraging, if not exactly robust. Commodity prices are rising, as is consumer confidence. There’s a reason stock markets have been soaring over the last three months. But that reason has nothing to do with any “stimulative” spending that may or may not be somewhere in the pipeline. Instead, look to credit markets, where interest rate spreads—the premium riskier borrowers must pay over safe government bonds—have narrowed markedly. More than anything else, that reflects efforts by governments and central banks to provide liquidity to financial institutions and otherwise ease credit.

These have been quite massive, and dwarf anything done on the fiscal side, certainly in this country. As of December, for example, the Bank of Canada had provided some $40 billion in additional liquidity. Another $58 billion was injected through the government’s purchase of insured mortgage assets from the banks. By these and other means, interest rates have been helped to historic lows: a prime rate of 2.25 per cent, five-year mortgages in the five per cent range. That is the stuff of which recoveries are made, at least in the real world. As opposed to the kind of magical thinking our political parties have absorbed, in which a $1.6-trillion economy can be turned around merely because the government spends a few billion dollars on hockey arenas and overpasses.

Which is not to say that such spending has no effect. It has real potential to do considerable harm. Indeed, what is most striking is how rapidly the predicted negative effects of deficit finance have begun to show themselves. Already, scant weeks after the budget was passed, the deficit projections have had to be revised upwards. Already, markets have begun to push interest rates back up. Already, the talk is of the tax increases that will be needed to bring the budget back into balance. Ricardian equivalence, anyone?

In short, while the stimulus spending may arrive too late to do much about the current recession, it may be just in time to worsen the next.