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Opinion

Opinion

Bad U.S. economic news also spurs fears in Ontario

July 10, 2010

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The latest economic signals from the United States are disturbing; they ought to give our political leaders reason to pause before embarking on draconian austerity programs.

In the past week, the U.S. reported a dramatic fall-off in home sales, a drop in manufacturing activity, a rise in new claims for unemployment benefits, and a net loss of 125,000 jobs. The unemployment rate fell marginally, to 9.5 percent, but only because many jobless people stopped looking for work. The stock markets responded with their worst week in two months.

The combination of negatives led to renewed talk of a W-shaped recovery, with the U.S. economy dipping back into recession.

That would be bad news for the whole world. It would be catastrophic for Ontario, where half of our economy is dependent on trade with the Americans. If they stop buying cars and household goods, our manufacturers feel the pain.

Perhaps in anticipation, the communique emanating from the G20 summit last month acknowledged that the economic recovery is still “fragile,” with unemployment in many countries remaining at “unacceptable levels.” As a result, the G20 called for countries to follow through on their stimulus plans and to move cautiously on restraint, with a target of cutting deficits in half by 2013. ...

This is summit-speak for: Don’t slam on the brakes.

The right-wing commentariat found that message far too limp and called for a more urgent approach to reining in government spending. In an opinion piece last week, Kevin Gaudet of the Canadian Taxpayers Federation compared the Canadian fiscal situation to that of the so-called PIGs (Portugal, Italy, Greece and Spain), when provincial deficits are lumped in with Ottawa’s. He urged Ottawa to “push the provinces hard to get their budgets back under control.”

Given the U.S. economic numbers, this is precisely the wrong advice at this time. Our governments should continue implementing the stimulus projects that have already been committed to and, indeed, should be prepared to fund additional stimulus if the economy falls back into recession. Deficit cutting can wait until the economy is back on more solid footing.

Online: http://www.thestar.com

Comments

Liberty_One 3 years, 9 months ago

camper (anonymous) says…

"I cannot understand why a couple trillion dollars has not been very effective thus far. What is going wrong? Is the money winding up in the wrong hands? I don't know."

It is because they aren't adding anything to the economy, just taking money from some people and giving it to others. This does nothing to benefit the economy but aids those with political connections and harms those who work. According to Keynesian theory, it shouldn't matter what the money is being spent on--paying people to dig holes and fill them back in is supposed to work. But it doesn't because you are diverting labor away from more productive activities into less, hence the stimulus is actually harming the economy, making things much, much worse.

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camper 3 years, 9 months ago

George, let's not kid ourselves. Both parties spend our money like drunken sailors. I support stimulus and extension of unemployment benefits, but for the life of me I cannot understand why a couple trillion dollars has not been very effective thus far. What is going wrong? Is the money winding up in the wrong hands? I don't know.

And if we want to be honest about austerity, we must view the elephant in the room. And this is the funding of these two conflicts. One estimate is that it costs about 1 million per year for each soldier in Afghanistan and/or Iraq. The Republicans are the Hawk party and they got hacked off when their chairman spoke frankly (and quite truthfully I might add). But it is Obama's conflict now. I do not understand why he has taken up Afghanistan. In my mind it is not in the US interest to meddle there.

I ramble now. I do agree with you on much, but not everything. Peace.

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George Lippencott 3 years, 9 months ago

Let us go back and revisit more money for stimulus? The Republicans have demanded we find sources to fund it. The Democrats have so far not been willing to do that. They argue we need to do this because we must.

You know we have spent a couple of trillion dollars on stimulus in the last two years. Will a little more really help that much? Many economists are saying much of the stimulus has had little simulative effect. In fact, most of our economic allies are moving away from stimulus and toward austerity. Whether this comment by a newspaper in Canada represents the position of the Canadian government is questionable. We seem to be almost alone going in the opposite direction. I though that was one of Mr. Bush’s bads. Silly me.

Now as I understand it, the focus for this money has so far been to pay for public employees and infrastructure (loyal democratic unions). I have nothing against civil servants. However, didn’t we just increase our state taxes to pay for their services? Is there not a proposal to increase our property taxes to maintain our local teachers? Has any body seen any data that suggest that construction workers are hit harder than many others are? Why them and not small businesses? How about displaced workers impacted by our decision to move jobs of shore (maybe retraining for real jobs?)

Why should we want to pay federal taxes to do what is proposed? Oh, wait a minute; this money is coming from Mr. Obama’s stash. Right? We all know it is going to come from the 50% of us that pay taxes. I guess it is just our contribution to California’s fiscal nightmare. Just maybe, California should deal with its own problem. Has anybody figured out that next January 1st all our taxes (those of us that pay any) are going up and Mr. Obama will not be guilty of breaking his campaign promise? That is when a portion of the Bush tax cuts expire and those impact the middle much more than the top, I do not see any way we will get extensions as the two parties will disagree and unless somebody gets a clean majority this fall nothing will happen.

Would it not be nice if the Democrats would use a little bit more logic in selling their never-ending desire to spend other peoples' money toward what might be viewed as vote gathering schemes that benefits their election prospects? Seems like increasingly the Democrat’s spokespersons are putting forward arguments that insult my intelligence as opposed to arguments in support of good governance.

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Tarball 3 years, 9 months ago

Printing money for Stimulus will be needed for years. The economy was going great when Clinton was getting lewinskis at work in government offices. Then Bush stole the presidency from the crazied sex poodle in 2000 and destroyed the economy. Obama has to print money for stimulus to pay unions and take over businesses to save the economy. It will be a never ending process to get ink. Obama will need help from the Neo Black Panthers to calm the country down. Neo Pans will need to soothe the voters so that ACORN can work miracles at voting booths. Things will work out for the country as long as the Chinese don't call in their markers with the millions and million of Chinese men that were not interupted during the country's process of interupting their females. Now that Netanyahu is making friends with Hamas, Iran will not nuke Israel. Soon, with government run medical care and the proper rationing of medicare by czar Berwick, things will be as nice as it is in Ontario. Stimulus printing will save the economy that Bush totally destroyed.

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Liberty_One 3 years, 9 months ago

Mud_Flap (anonymous) says…

"when the manufactured goods were sold, the money stayed right here in the United States causing a multiplier effect and producing more wealth."

Perhaps so, but you're forgetting that the spending also has negative consequences which you aren't considering in your equation there. The government must get that money from somewhere before it can spend it, and thus money is taken out of the private sector. That has the same "multiplier effect" only in a negative direction. For every dollar taken away that's a dollar not spent, which in turn wasn't spent by the person who would have received it etc.

It doesn't matter if we have a secondary or tertiary economy, the negative effects of stimulus spending outweigh the positives.

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Mud_Flap 3 years, 9 months ago

Not sure stimulus works as well in our service based economy. When our economy was industrial based, the money would be spent on durable goods manufactured in the US. Factories would ramp up production to meet the demand by hiring more workers and buying more raw materials, thus priming the economic cycle. More importantantly, when the manufactured goods were sold, the money stayed right here in the United States causing a multiplier effect and producing more wealth. Today, when durable goods are purchased, the money goes to China and other countries who have taken over most manufacturing of items consumers want and need in the US. Guess where the money goes? Jobs are not created (maybe in China) and there is no multiplier effect. How stimulus applies to a service based economy is not clear to me. Obviously, with the unemploment rate at 9.5%, and likely to go higher, it has not created jobs. Between Bush and Obama, there has been over $1 Trillion spent on stimulus in the last 9 years. Where are the jobs?

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camper 3 years, 9 months ago

I believe that stimulus, if used properly, is supposed to pump investment into the private sector, not divert it away from business. A good example is the Hoover Dam and other infrastructure projects. It is private companies that bid on these contracts and employ the private workforce.

I cannot say that the current stimulus is being used to an effective degree, but in principal, it should spur private economic growth.

As far as throwing resources away, funding military deployments is far more detrimental. This money is truly being diverted away from our country. Nation building in Afghanistan? This ain't helping our economy.

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oneeye_wilbur 3 years, 9 months ago

Don't be surprised if Blockbuster, T Mobile or Radio Shack pulls out in Lawrence. They are all on the F list.

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Mud_Flap 3 years, 9 months ago

Agree with you on most points Liberty, but it is not Bush's stimulus. Obama owns that one. Bush bailed out the banks with equally devestating consequences.

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Liberty_One 3 years, 9 months ago

just_another_bozo_on_this_bus (anonymous) says…

"Austerity measures will not create an economic rebound. To the contrary, they will exacerbate the recession."

The reason for the recession is Bush's stimulus spending. If you cut taxes but not spending, economically that is no different than keeping taxes the same but raising spending. Either way the government is distorting the economy by diverting capital away from where it would have gone under the private sector.

"The reason the economy went into the dumps is that it isn't efficiently producing enough of the goods and services people really need "

Yes! Yes! Yes! But why? When the government directs spending instead of allowing the market to do so malinvestment occurs. No matter how carefully targeted, central planners cannot decide where to allot capital better than the market. The Soviet Union proved this quite thoroughly. You say to subsidize alternative energy and ecologically sound industries, but which ones? How much? Help small businesses, but which ones? How much? Let's admit reality here, which ones are decided based on who has the best political connections--that will NEVER change, no matter who is elected. Businesses that the market cannot sustain will be supported and then you have more of the problems you recognized in the above quote.

"To the contrary, they [austerity measures] will exacerbate the recession."

In the short term, yes. We have a lot of malinvestment that needs to be liquidated and the economy needs to be readjusted. But in the long run, propping up these malinvestments will be much worse. If we let those businesses fail that should and let the economy readjust itself, it would take about a year, and that year would be painful, but then we would get back on track and unemployment would come down and the recession would be over.

Delaying this will only make it much worse when it finally comes. The recessions are going to start happening more often and they will be worse each time. And each time people like yourself will say we have to spend to prevent the economy from bottoming out. All you are doing is sowing the seeds for the next, worse recession until our entire economy is in the trash and permanent depression sets in.

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just_another_bozo_on_this_bus 3 years, 9 months ago

Austerity measures will not create an economic rebound. To the contrary, they will exacerbate the recession.

The reason the economy went into the dumps is that it isn't efficiently producing enough of the goods and services people really need in a sustainable and ecological way. In other words-- it's broken.

So for stimulus funding to be effective, it should be very carefully targeted. Extending unemployment benefits, giving underwater homeowners help in staying in their houses, but most importantly tax credits and loans to alternative energy and other sustainable and ecologically sound industries, especially small businesses, will do the most to reinvent and reinvigorate the economy.

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Mike Ford 3 years, 9 months ago

I've been through Ontario and Quebec. I miss our money going a long way up there. That's what happens after eight years of dumblican rule encouraging devaluing money, borrowing from China to support pointless wars, and a lot of canada bashing by hillbilly isolationist Americans. Granted we take many of our dumblicans and export them to the prairie provinces to live along their dummies. The Cree, Metis, and Dakota people could teach the dumblicans how to survive the cold and grow food just like Wampanoag taught the pilgrims so that three centuries later they could spawn the bastion of xenophobia and religious judgement that occurs now and be hailed as American exceptionalism by the chuckleheads like Buchanan and Coulter on FOx. How this country champions the underachieving and thefts of and by other countries losers.... nice... I actually apologized for Bush at the Ottawa Embassy in 2003 because I was so embarrassed by this chucklehead and his war hungry followers.

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Mike Ford 3 years, 9 months ago

I've been through Ontario and Quebec. I miss our money going a long way up there. That's what happens after eight years of dumblican rule encouraging devaluing money, borrowing from China to support pointless wars, and a lot of canada bashing by hillbilly isolationist Americans. Granted we take many of our dumblicans and export them to the prairie provinces to live along their dummies. The Cree, Metis, and Dakota people could teach the dumblicans how to survive the cold and grow food just like Wampanoag taught the pilgrims so that three centuries later they could spawn the bastion of xenophobia and religious judgement that occurs now and be hailed as American exceptionalism by the chuckleheads like Buchanan and Coulter on FOx. How this country champions the underachieving and thefts of and by other countries losers.... nice... I actually apologized for Bush at the Ottawa Embassy in 2003 because I was so embarrassed by this chucklehead and his war hungry followers.

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Mike Ford 3 years, 9 months ago

I've been through Ontario and Quebec. I miss our money going a long way up there. That's what happens after eight years of dumblican rule encouraging devaluing money, borrowing from China to support pointless wars, and a lot of canada bashing by hillbilly isolationist Americans. Granted we take many of our dumblicans and export them to the prairie provinces to live along their dummies. The Cree, Metis, and Dakota people could teach the dumblicans how to survive the cold and grow food just like Wampanoag taught the pilgrims so that three centuries later they could spawn the bastion of xenophobia and religious judgement that occurs now and be hailed as American exceptionalism by the chuckleheads like Buchanan and Coulter on FOx. How this country champions the underachieving and thefts of and by other countries losers.... nice... I actually apologized for Bush at the Ottawa Embassy in 2003 because I was so embarrassed by this chucklehead and his war hungry followers.

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Mike Ford 3 years, 9 months ago

I've been through Ontario and Quebec. I miss our money going a long way up there. That's what happens after eight years of dumblican rule encouraging devaluing money, borrowing from China to support pointless wars, and a lot of canada bashing by hillbilly isolationist Americans. Granted we take many of our dumblicans and export them to the prairie provinces to live along their dummies. The Cree, Metis, and Dakota people could teach the dumblicans how to survive the cold and grow food just like Wampanoag taught the pilgrims so that three centuries later they could spawn the bastion of xenophobia and religious judgement that occurs now and be hailed as American exceptionalism by the chuckleheads like Buchanan and Coulter on FOx. How this country champions the underachieving and thefts of and by other countries losers.... nice... I actually apologized for Bush at the Ottawa Embassy in 2003 because I was so embarrassed by this chucklehead and his war hungry followers.

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Mike Ford 3 years, 9 months ago

I've been through Ontario and Quebec. I miss our money going a long way up there. That's what happens after eight years of dumblican rule encouraging devaluing money, borrowing from China to support pointless wars, and a lot of canada bashing by hillbilly isolationist Americans. Granted we take many of our dumblicans and export them to the prairie provinces to live along their dummies. The Cree, Metis, and Dakota people could teach the dumblicans how to survive the cold and grow food just like Wampanoag taught the pilgrims so that three centuries later they could spawn the bastion of xenophobia and religious judgement that occurs now and be hailed as American exceptionalism by the chuckleheads like Buchanan and Coulter on FOx. How this country champions the underachieving and thefts of and by other countries losers.... nice... I actually apologized for Bush at the Ottawa Embassy in 2003 because I was so embarrassed by this chucklehead and his war hungry followers.

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Liberty_One 3 years, 9 months ago

Stimulus spending will never be enough because it doesn't work. If we want to get the economy back on track we need to cut spending so that resources can be diverted to the private sector. That way we can grow the real economy--the private economy which the government feeds upon. When the government spends more and more money that diverts resources, capital and labor away from private projects; away from the ones which create real long-term job growth and increase production capacity. This article talked about declining home sales in the US like it was a bad thing. We have a housing glut--we don't need more houses right now, and unless sales and prices come down, people will continue to build more houses that we don't need.

This is called malinvestment. Instead of using those resources for things that would actually improve the economy they are being diverted into things that we don't need, and are thus being wasted. Our economy will not recover as long as we are throwing resources and capital away like this. The housing bubble needs to be deflated and those industries need to go out of business so their capital, labor and resources will go to more needed projects. This is the only way to real, sustainable recovery--balance the federal budget (and the state budgets too) and let the businesses fail that should. Let the economy readjust itself instead of maintaining the current malinvestments. If we had done that in the first place the recesssion would be over by now.

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gccs14r 3 years, 9 months ago

No one needs to say anything naughty about you, Tom. All anyone has to do is read your posts and your naughtiness is self-evident.

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Tom Shewmon 3 years, 9 months ago

Did someone say something naughty about me at 10:51? I missed it darn it.

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camper 3 years, 9 months ago

The same debate was taking place during the great depression and FDR was confronted with the same question. Due we put on the breaks by reducing spending (ie stimulus), or do we continue using this economic tool?

Nobody likes running up huge defecits like we are now, but if we discontinue some form of stimulus there will not be any more temporary boosts to GDP. Recovery will become more natural and largely up to the private sector (which is all good). However, times are different now, and a private sector recovery will have to come from the service industry. Unfortunately, the US is no longer the manufacturing giant it once was.

Without stimulus it is more likely this will be a double-dip recession if not depression. One thing is certain, a depression will be many times more difficult and longer to recover from than a recession. If we end stimulus, this is the gamble we take.

I'm just saying. I do believe there are valid points to both sides of the argument however.

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MarcyDarcy 3 years, 9 months ago

This comment was removed by the site staff for violation of the usage agreement.

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Tom Shewmon 3 years, 9 months ago

And investor confidence has fallen to a y-t-d low. Yeah, President Obama, we're heading in the right direction, huh? How stupid and/or brainwashed ARE his followers. Tragedy.

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Mud_Flap 3 years, 9 months ago

It appears that any effect stimulus programs had in the economy are wearing off. The Congressional Budget Office's most recent estimates of ARRA's quarterly impact show a second-half GDP drag of somewhere between 0.5%-1% compared with the first half. That might not sound apocalyptic, but Q1 GDP growth registered just 2.7%. That makes a 1% drag nothing to sneeze at. Economists say GDP growth needs to be 2% to keep unemployment from rising. Housing will be the other major drag on growth. Since the homebuyers' credit expired at the end of April, the housing market has been perfectly derelict, with new home sales collapsing to the lowest levels ever recorded. What should you expect out of the second half of 2010? Lots of bad news, probably. It was bound to happen. The economic stimulus served only to temporarily boost GDP (modestly) and prolong any real recovery.

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Tom Shewmon 3 years, 9 months ago

I think if the far-left zealot and Obama (maybe former now, I'm not sure) supporter, Paul Krugman thinks we're possibly heading for a depression, you gotta wonder. I've heard at least 3-4 righty and lefty economists of late not rule it out, and one or two seem to think it's inevitable on this track. A double-dip? You can almost bank on it, no pun intended.

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jaywalker 3 years, 9 months ago

"draconian austerity measures"

???

Yeah, sure, austerity is absolutely the wrong approach when faced with unsustainable entitlement programs (more than 50% of our budget now) and the incredibly ignorant practice of printing money that's as worthless as homemade counterfeit bills. Sure, sure, spend spend spend you're way into oblivion...errr... I mean "out of debt". That makes sense. Mm hmm.

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Flap Doodle 3 years, 9 months ago

Amazing how Canada is able to run their economy without millions of illegal aliens working at less than minimum wage. You know, we should try that.

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Tarball 3 years, 9 months ago

The IMF told Obama to raise taxes. IMF is made up in part by Third World and European economic Loopers. How is the euro doing these days? Obama will forgo his promise to not raise taxes on anyone but the $250 K crowd. He'll use the IMF Loopers reconmendation as an excuse to tax everyone with a VAT tax.

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Tom Shewmon 3 years, 9 months ago

Yet, Obama trashes Republicans while simultaneously telling us that we are "heading in the right direction". That's odd when pundits/economists, left and right, are now talking of a double-dip recession and some now are even fearing a full-blown depression down the road. There's your "change". Thanks a heap Obama, Pelosi and Reid.

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