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A shopper pictured in Toronto on Nov. 12, 2020, as the holiday shopping season begins amid the ongoing COVID-19 pandemic.

Yader Guzman/The Globe and Mail

One of the few economic positives emerging from an epically miserable 2020 is that our annus covidus has left us sitting on a quite extraordinary mountain of savings. Canadians have stuffed an extra $150-billion or so into their bank accounts since the pandemic began – a veritable stockpile of rocket fuel to ignite the economic recovery once consumers get the pandemic all-clear. Many economists are expecting it. Ottawa is pretty much counting on it.

“Preloaded stimulus,” the federal government called it in its fall economic statement. Unlocking these savings “will be a key element of the government’s recovery plan,” it said.

But what we have here may be a case of walking the proverbial horse to water and expecting it to drink. There may be a pretty significant gap between clearing the path for consumers to spend their ample stockpiles of cash and them actually doing so.

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A big element in the emergence of this savings stockpile has been simple arithmetic: The opportunities to spend have diminished in the pandemic, while the disposable incomes – remarkably – haven’t. The difference is savings.

Household disposable incomes, overall, have surged nearly 8 per cent from the start of the pandemic (based on seasonally adjusted quarterly data). Federal government support programs have more than compensated for income lost to pandemic containment restrictions. (Total paid wages – just one source of income for households, though by far the biggest – were down just 1.4 per cent in the third quarter compared with the first quarter. Government transfers to households were up 41 per cent.)

At the same time, many household purchases have been made either impossible or unnecessary by the pandemic restrictions. We’re not buying plane tickets or staying in hotels. We’re not going to concerts or sporting events. Many of us haven’t gone to a pub or eaten in a restaurant in months. The work-at-homers aren’t even paying for the gas, parking, transit, lunch, coffee and so on of a typical work day.

Canadian Imperial Bank of Commerce economist Benjamin Tal noted recently that the vast bulk is just sitting in standard chequing and savings accounts, “ready to be redeployed in short order.”

Bring back the opportunities to spend, the argument goes, and it will open the floodgates on those extra savings – lighting a bonfire under the postpandemic recovery.

This hasn’t escaped Finance Minister Chrystia Freeland, who stirred up controversy recently by making a public plea, on television, for policy ideas that would encourage consumers to spend their excess cash.

“Certainly, it would be great if that money could go toward driving our recovery,” she told BNN Bloomberg on a Dec. 4 broadcast. “If people have ideas on how the government can act to help unlock that preloaded stimulus, I am very, very interested.”

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Ms. Freeland’s unusual plea is de facto recognition that savers may not be so predisposed to unleashing an economy-stimulating wave of pent-up spending when the pandemic fades. They might require some policy incentives to sway them.

Mr. Tal noted that the bulk of the savings appears to be parked in the accounts of higher-income earners, who have generally been less exposed to the pandemic’s business shutdowns and job losses than have lower-income Canadians. But the thing is, the wealthy don’t have to spend their extra money; they are notorious for not putting all of their financial windfalls back into the economy, unlike lower-income consumers, who have more genuine need to spend any additional cash.

But the arithmetic facts of the savings boom overlook a key element that’s harder to quantify: the fear factor. The pandemic has given Canadians some very compelling reasons to be cautious with their money, and has heightened awareness of having a cash cushion for a rainy day.

Economist David Rosenberg, head of Rosenberg Research & Associates Inc., believes that this more defensive consumer sentiment won’t just disappear with the full roll-out of vaccines.

“Despite the prospect of better days ahead, a theme that is going to emerge from this pandemic is one of more precautionary savings,” Mr. Rosenberg wrote in a recent report. He points to the severely damaged labour market alone (nearly 600,000 fewer jobs than in February) as reason enough to expect consumers to be more restrained than they were before the pandemic.

Canadian households were certainly undersaved and overindebted before the crisis. The debt-to-disposable-income ratio hovered near record highs for years, while the savings rate languished below historical norms. If the crisis convinced consumers to merely return their savings to something closer to their historical levels, it would imply more constrained spending than we saw before the pandemic.

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“As the economy transitions to the new higher steady-state savings rate, the decreased propensity to consume will act as a drag on growth,” Mr. Rosenberg argued.

There are policies that the government could enact to lean against this – like, say, a temporary GST cut, or perhaps more targeted tax holidays to help drive business in battered sectors such as travel and restaurants.

But perhaps we should ask whether the federal government has any business encouraging a pandemic-battered Canadian public to unload their savings. Maybe the government should simply accept that some significant portion of that mountain of stored cash will inevitably tumble into the economy as the pandemic fades, without being too eager to topple the mountain in the name of turbo-charging the recovery.

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