As the global economy continues to perform poorly with growing unease in Europe, Asia and the U.S., the need for a Canadian economic contingency plan is becoming more apparent. Should a downward spiral be prompted by a failing European nation or a second recession in the U.S., Canada will find itself increasingly vulnerable as it is no longer in the same strong economic position as during 2007’s economic crisis.
One of the nation’s top economists is suggesting if it comes down to it, Canada should spend more money to stimulate its growth. This “Plan B” suggestion comes from CIBC’s Chief Economist Avery Shenfeld. In the latest Economic Insights report he says, “If the global picture materially sours, borrowing more, particularly at the federal level, and spending more on infrastructure projects [could serve to] reduce future deficits and improve growth in the process.”
He adds that “ramping up government spending on infrastructure, rather than trimming interest rates, may be Canada’s best path should economic growth falter in the next year.”
Is spending more on infrastructure projects really the key to successfully stimulating our economy? Here are a few things to consider.
The Billions Already Spent On Stimulus
Back in 2008 and 2009, when the world was reeling from the worst economic crisis in history, the Conservative government announced a $35-billion stimulus package. The two-year plan was an effort to reboot Canada’s economy by pumping more money into it. $12 million was earmarked for infrastructure “launching”. In Finance Minister Jim Flaherty’s own words, “We will start construction of roads, bridges, public transit, broadband Internet access, schools and social housing in every region of the country.” It also put Canada into debt for years. More spending on the same would mean Canada would remain in debt longer and more vulnerable to a tax hike.
Unemployment Is Still Stubbornly High
A recent poll found unemployment and health care top the list of things Canadians often worry about. The Ipsos poll conducted monthly shows jobs are on the minds of most and with the unemployment high at 7.2 per cent, many skilled workers are still looking for work. The money suggested by the CIBC survey to be spent on infrastructure fails to recognize the many that don’t work in construction or a field that would benefit from this type of spending. This would ultimately mean many remain unemployed – even with the extra spending.
The Biggest Unemployed Group Are Under 25
New spending would leave out Canada’s most unemployed group, as those under 25 are still suffering with an unemployment rate of 14.8 per cent. Many highly educated university graduates can’t find work because there is nothing available in their area of expertise. Stimulus spending would be much better spent focused on this group of people who are starting their careers and have many years of employment ahead of them. Although some would have skills to get involved with infrastructure building it certainly would not be inclusive of all graduates.
Stimulus spending is always controversial. It spends taxpayers’ money on what some might consider unnecessary programs in an effort to kick-start a lagging economy. It usually pushes a country deeper into debt and can limit a government’s ability to spend money on necessary projects should they arise. A “Plan B” is always necessary – especially when it comes to protecting a nations economy – but that plan should be one that includes all of its citizens and show it has learned from past mistakes.