Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.
Economists seem fixated these days on one thing: boosting GDP growth. Central banks are basically out of monetary clout, yet global growth has been underwhelming. Everyone from the International Monetary Fund to the Organization for Economic Co-operation and Development is now urging governments and policy makers to take action.
But what if we are asking the wrong question? Rather than ask how we can jack up growth, perhaps we need to ask how we can prepare for perpetually slower growth.
Those urging higher growth have an arsenal of policy options, the most common being more government spending on infrastructure. There is merit to this idea – many cities are creaking under the strain of crumbling infrastructure. But where does it end? A three-year program by Ottawa or any provincial government might help to boost GDP in the short run, but it's all financed with borrowed money. That adds to debt, which eventually will act as a drag on growth.
Other ideas to boost growth include eliminating interprovincial trade barriers and expanding trade abroad. Both excellent ideas. But after decades of pressure on provinces to reduce barriers, what makes anyone think that it will work this time? And as for foreign trade deals, it appears there are more dead ends (Trans-Pacific Partnership? The Canada-EU Comprehensive and Economic Trade Agreement?) than glowing opportunities on the horizon.
Of course, we should continue to press for better provincial and international trade deals – we'd be silly not to. But we may need to temper our expectations as to where such efforts will lead and the growth that will result.
Then there's innovation. Can more spending on research and development – both in the private and public sectors – boost growth? Absolutely. We can always seek to improve policies and incentives to encourage more innovation. Canada has not kept pace with the rest of the world.
Yet, expecting some new innovation to leap forward and solve our slow-growth problem is naive. It can help to expand new industries and create new jobs, but not by enough to get us back to the Garden of Eden of 4-per-cent GDP growth.
Maybe slower growth is simply inevitable. Consider the forces that are pressing on Canada and other wealthy industrialized countries.
The population is aging. That means fewer new household formations, changing consumer patterns, more saving and less spending. We've known about this for decades – it isn't a new or unexpected trend.
The population is indebted. With record-high levels of consumer debt, getting more shoppers back in the mall won't solve the problem.
The population is changing its tastes, particularly the millennials. They're less interested in buying cars, owning a house and guaranteed company pensions. Baby boomers and Gen Xers shake their heads in disbelief, but endless consumption isn't what motivates young people. All of this turns the traditional economy of churning out more stuff on its head.
A slower rate of GDP growth wouldn't be so bad, of course, if it weren't for two major problems.
The first is job creation. A fast-growing economy creates jobs – at least the kinds of jobs that we've come to know and recognize. And with a national unemployment rate stuck near 7 per cent, job creation is on every government's agenda.
The second problem is that slow growth means interest rates are unlikely to rise any time soon. That poses a major problem for investors, people on fixed incomes, pension-fund managers and institutions living off endowments. All have planned on higher yields.
Have we exhausted policy ideas on job creation, which would surely have their starting point in the education system? Rather than focus only on boosting infrastructure spending, perhaps we need to focus on education spending – both kindergarten to Grade 12 and postsecondary. This is truly the best use of tax dollars to invest in the future. The more creative thinkers we are, the better equipped we'll be at building new jobs and opportunities in an economy that is shifting and morphing very quickly.
As for low yields, could policy be targeted to ensure the most vulnerable (that is, pensioners and seniors) are supported? This means more than just ramping up Old Age Security or Guaranteed Income Supplement transfers. It means rethinking the way seniors live in closer communities, supported not by money but by the people around them. Seniors living with low incomes can suffer more from isolation than lack of money. Rather than single-unit low-income housing, we need to re-examine multi-family, communal living arrangements, maybe using tax credits as incentives for builders.
None of this is easy. But endless policies to pump steroids into the economy has not been working. It starts to have a feel of desperation about it. Instead, can we make peace with slower growth?
Todd Hirsch