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Colby Cosh: Is Canada's economy 'leaking' stimulus? –



On Tuesday the CIBC economics research shop

issued a paper

by Royce Mendes describing Canada’s economy as “leaking” fiscal stimulus dollars to other countries during the pandemic. The paper is likely to be a hot topic of discussion over the next week or so, but I can’t say I would regard it as making an airtight case for its hypothesis.

On the other hand, who would have given the matter the slightest thought if a banker hadn’t written about it? At a minimum, Mendes’s discussion makes you wonder whether, and exactly how, the character of Canada’s small open economy has entered into government fiscal planning — which, like everything else pandemic-related, is subject to the dominion’s national hatred of transparency.

Mendes’s idea is that sending dollars out of the country to pay for imports is of little consequence in a healthy economy, but in pandemic conditions it is creating a special problem (one that monetary policy, in an environment of near-zero interest rates, cannot help). COVID-19 has hit the service part of the economy, creating joblessness and insolvency, and has, if anything, increased our spending on consumer goods for final use.

This means money is going out and stuff made in other countries — that new guitar you’d had your eye on, or $100 worth of time-killing Amazon books — is coming in. The imports have the value of the dollars going out, but your guitar purchase won’t stimulate anything in the Canadian economy, except perhaps your guitar ability and, let’s face it, probably not even that.

Hence, the problem of leakage: when you switched your spending away from baristas or personal trainers or symphony musicians, you inadvertently reduced the “multiplier” effect of the money the government is spending on businesses and individual transfers to keep us all afloat. Mendes suggests that some of the enormous Canadian fiscal stimulus — higher, relative to the national gross domestic product than in any other G20 country — may have been wasted because of this, providing a little extra net stimulus to the rest of the world. Or perhaps our country is just arranged so that we have to go deeper into the hole to get the same stimulus effect from the same amount of dollars, and there’s not a whole lot we can do about it.

This is not perfectly well-established by the paper, which offers zero discussion of what would seem to be half of the leakage equation: are other countries leaking to us? Mendes establishes that Canadian purchases of imported consumer goods have increased dramatically, but the numbers also show that Canadian imports of motor vehicles and parts, energy and aircraft have declined by about the same magnitude.

I don’t know what the net effect of the changes in the various categories might be, and there is no discussion at all of exports. Mendes also claims a “clear correlation,” on the basis of a scatter plot with 10 data points, between the import dependence of various national economies and the size of their fiscal stimulus. I’m not a banker, but that chart and that adjective might tempt me to switch my mortgage away from CIBC on principle if I were a customer.

Even if the data weren’t fishy, weren’t our stimulus measures mostly demand-driven and improvised? Our government never consciously intended to lead the G20 in handouts. When the novel coronavirus reared its head, we mostly just happened to have a government that already adored them.

The exact degree of economic leakage and the disproportionate effects of the pandemic on various sectors are really separate issues that were combined for the purposes of this paper. Mendes makes the point, and it is valid whatever you make of the leakage issue, that the Government of Canada has not yet made any use of the GST as a rebalancing instrument. There is a moment of throat-clearing when he says that “lowering virus counts and making Canadians feel safe” in hard-hit settings like retail would have been ideal targets for early pandemic spending. (Rapid virus testing would have carried an especially large fiscal multiplier!)

With that horse well out of the barn and stomping senior citizens to death, the GST, altered selectively to boost businesses like retail and entertainment, remains as a potential lever for the long winter to come. These industries, Mendes estimates, only account for about a sixth of all GST revenue, and targeted tax relief would have offsetting buoyant effects on other sources of government income.

If the leakage story is right, direct handouts being spent on consumer imports are bound to be less effective and more self-limiting (although some will be human-capital-enhancing; even that guitar might be). The B.C. Liberals, before meeting their Waterloo in last month’s general election, proposed a complete year-long holiday from provincial sales taxes. Maybe they’ll end up losing the vote and winning the argument.

National Post

Copyright Postmedia Network Inc., 2020

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The worsening pandemic raises the stakes for Biden's economic program – CNN



“You have to right the market a little bit,” the former vice president told me. “The middle class is getting killed.”
Within weeks, the coronavirus hit and worsened the toll — literally and figuratively. That steepens the challenge President-elect Biden faces when he replaces President Donald Trump in January.
For at least a half century, multiple economic forces have exacerbated disparities within American society. By 2016, a Pew Research Center analysis recently found, the most affluent 5% possessed 248 times the wealth of the least affluent 40%. Wealth improves health; on average, the richest 1% of Americans live more than 10 years longer than the poorest 1%, a study in the Journal of the American Medical Association has found.
Covid has deepened both dismal grooves. Blacks and Hispanics, who lag behind Whites in wealth and income, die from the virus more than five times as often, according to the Institute for Health Metrics and Evaluation at the University of Washington.
The economic dislocations of the pandemic have largely spared more affluent Americans. Buoyant financial markets and home values have protected their wealth, and their ability to work from home has protected their jobs.
Low-paid service workers, by contrast, have been devastated. Many of those who have been lucky enough to avoid being laid off must report to job sites as “essential workers,” heightening their risk of exposure.
Others have faced layoffs due to plummeting demand, and the prospect of permanent job loss from sectors such as leisure travel or in-person retailing that won’t recover soon if ever. While higher-wage employment has risen back to pre-pandemic levels, the number of jobs paying $27,000 or less remains down 19%, according to Harvard’s Opportunity Insights Economic Tracker.
“For people who can work remotely, all this is slightly inconvenient,” observed Massachusetts Institute of Technology economist David Autor. “For many others, they’re going to have to change their livelihoods.”

‘A lot of people have been left behind’

Responding to all this won’t require Biden to rewrite the economic plans he’d already developed, because of who they were always intended to help.
“The agenda was really crafted with the core insight in mind that a lot of people have been left behind for a long time,” noted longtime Biden economic adviser Jared Bernstein.
In the name of rebalancing for fairness and equity, his campaign proposed trillions in tax increases on the affluent to finance trillions in spending on health care, infrastructure, education and other programs.
But Covid raises the stakes for getting his proposals enacted, and suggests subtle shifts of emphasis.
For example, higher minimum wages work best in tight labor markets. So elevated unemployment has diminished the urgency of Biden’s call for doubling the federal minimum to $15, according to Autor.
Yet pushing any tax increases through Congress will be difficult, especially if Republicans keep control of the Senate after Georgia’s runoff elections in January. But Biden’s proposed payroll tax hike on incomes over $400,000 has grown more important. That’s because a significant number of older Americans who’ve lost jobs are expected seek Social Security earlier than previously planned, adding new strains to the program’s finances.
Workers cast off by suddenly declining industries face a more immediate need for the job training upgrades Biden has proposed. Those responsible for young children and aging parents have grown more desperate for the kind of help Biden’s proposed caregiving subsidies would provide.
The inadequacy of virtual learning required by Covid elevates the importance of his higher proposed school funding levels. Without remedial education programs, low-income families less able to compensate with technology or tutoring will fall farther behind than they already are.
“The learning deficits are going to be so deep we don’t know if they’ll ever be able to overcome them,” said Melissa Kearney, a University of Maryland economics professor who specializes in inequality. “I want to be an optimistic person, but I am so disheartened at this moment.”

Congress remains stalled on more relief

One source of her discouragement: the inability of the lame-duck Congress and Trump White House to agree on a new Covid-relief package, which Republicans and Democrats alike call necessary. Without year-end action, millions face impoverishment from expiring unemployment benefits, eviction from their homes and business failures.
The stalemate augurs poorly for passing a major new economic stimulus once Biden and the new Congress take office in 2021. Mark Zandi, the chief economist for Moody’s, calls a large infrastructure program, to help stave off a backslide into recession, the most potent single step the new president could take to reduce economic disparities.
Democrats say Biden can make some progress without Congress, including possible executive action to relieve some student loan debts. His expected choice for Treasury Secretary, Janet Yellen, is a labor market expert deeply familiar with fiscal and monetary tools from her past work as Federal Reserve chair and a Clinton White House economist.
Incoming White House chief of staff Ron Klain brings expertise in pandemics from his work overseeing President Barack Obama’s successful response to Ebola. Taming the coronavirus would at least help the new administration prevent economic disparities from widening any further.
A year later, that issue remains Biden’s target.
“The middle-class and working-class people are being crushed,” the President-elect told NBC last week. “That’s my focus.”

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Families ‘facing hardest period in five decades’ as Britain's economy stalls – The Guardian



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Families ‘facing hardest period in five decades’ as Britain’s economy stalls  The Guardian

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How this ocean-to-table operation is helping the N.L. economy by keeping it local –



Through late summer and early fall, Tim Ball spent as much time as possible underwater in his dive gear, scouring the seabed off the Burin Peninsula for scallops. 

It’s an ocean-to-table operation that sees his hand-harvested scallops quickly making their way to dinner plates in the downtown of St. John’s. 

“I try to keep it all local,” said Ball about his business philosophy. 

With a provincial economy that’s in dire straits and in need of reversing its course, Ball thinks every little bit can help— especially if the focus is keeping as many of those little bits as possible in the province. 

Tim Ball says dive harvesting is a scalable industry that would benefit rural Newfoundland and Labrador. (Adam Walsh/CBC )

For Ball, that means, among other things, using locally made bags and boxes for packing his scallops and using a Burin Peninsula cab company for sending his catch into St. John’s. 

“Because this is a primary industry … we are in, and we are getting the actual resources from the bottom, this is creating new money for the economy,” Ball said. “If the money is staying in Newfoundland, then great.”

Terre Restaurant in St. John’s is one of the destinations for Ball’s scallops. Before the season ended last month they could be found listed on the menu as “Seared Diver Scallops.”

Matthew Swift is the chef at Terre Restaurant in St. John’s. (Adam Walsh/CBC )

“They’re amazing,” said head chef Matthew Swift. 

“Anywhere else in the world … the idea of marketing day boat scallops is sort of a pipe dream. If I were to tell friends in other places that Tim gets out of the water, and I get the scallops in as long as it takes to drive in from Burin? It’s insane,” he said. 

On top of the quality, it’s Ball’s business recipe that also interests Swift. 

“Just in terms of having a diverse and smaller economy, where we can support people on a more individual level,” he said. 

This is the end of the line for Tim Ball’s hand-harvested scallops — seared and served on a plate at Terre Restaurant in downtown St. John’s. (Adam Walsh/CBC)

This way of thinking is something that also strikes a chord with John Schouten — Memorial University’s Canada Research Chair in Social Enterprise.

Schouten says Ball’s operation means more than just local spending on his supply chain. There’s also a spillover effect which would also see Ball spend money at local businesses in and around Garnish, where he fishes from. 

“So every hundred dollars that passes from me, to you, to somebody else here locally, that $100 is working the whole time in our favour here in the province,” said Schouten in an interview last month.

Patch the bucket

It may be a small example, but there’s a bigger lesson in it for the provincial government, said Schouten. He thinks the government should treat the economy like a leaky bucket, where money comes in and goes out. 

“If the government could, using that metaphor, start patching the bucket to keep the money in the province longer, working harder for local businesses, local people, people who are making a living wage — that would do wonders for the stability of the economy here,” he said. 

John Schouten is the Canada Research Chair in Social Enterprise at Memorial University. (Adam Walsh/CBC)

Speaking of helping the economy, Ball thinks what he’s doing is scalable. In addition to scallops, Ball also hand harvests sea urchin, but he thinks there’s more that can be harvested as well —  including kelp, sea cucumbers and periwinkles. 

For that to happen, there would have to be consistent licensing periods from the federal government and more divers with commercial dive training. 

Eventually Ball would like to see a special school that trains up to a dozen divers a year for this type of work.

If a community had a handful of divers, Ball said, the economic spin-off is easy to see — you need people shucking scallops and spotting the divers, gear needs repairing, supplies need to be bought. 

“I think it’s just a win-win situation for small communities,” he said. “It could be a good economic boon.”

Read more articles from CBC Newfoundland and Labrador

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