Every day the wartime analogies seem more apt. Governments are borrowing massive amounts – as much as 10 per cent of GDP – to bankroll equally massive increases in spending. Central banks are pledging to buy all of that newly issued government debt, if necessary, and every other kind of debt besides, in whatever amounts may be required.
Whole industries are being retooled to provide materiel for the “war,” only today it is ventilators and test kits under requisition, not bombs and fighter jets. We may even see hotels being commandeered as makeshift hospital wards before this is over.
Then there are the range of new income-support programs in the works or being considered: from emergency benefits for workers who have been told to self-isolate, to wage subsidies aimed at persuading firms to keep workers on their payroll, all the way to simply sending cheques to every adult citizen – a full-blown universal basic income.
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All in all it’s a good time to be a fan of the activist state. “There’s nothing like the threat of a deadly pandemic to make us appreciate big government,” a Toronto Star headline chirped, happily. Online, the hot takes are everywhere: Wait, so deficits aren’t the devil’s handiwork? Maybe printing money to pay off debt is not so crazy after all. Looks like industrial policy is back in style. Basic income for the win!
The gist of them all is that the use of such extraordinary measures to address an economic crisis such as we have not seen since the Second World War vindicates their use more generally. If that sounds simplistic, it is not without precedent. The great expansion of the state across the developed world in the 1950s and 1960s would not have been thinkable without the experience of the Great Depression, but even more the War.
The successes of governments in mobilizing resources for the war effort led to increased faith in government’s capacity generally. If governments could plan a wartime economy, it was asked, why could they not plan a peacetime economy just as well? All it took was the brightest minds, and a lot of cash: the combination that led to victory in one theatre would assure it in another.
But of course a wartime economy is entirely different from a peacetime economy – as different as war and peace. First, it’s temporary. It goes on for a while, then stops, at which point so do the spending and other measures enacted to fight it. Federal spending hit 44 per cent of GDP at its 1943 peak, half of it borrowed, but by 1947 it had fallen back to less than 15 per cent of GDP and the budget was in surplus.
Most if not all of the measures that are being brought in to fight the current war seem likewise crafted to be temporary. A tax holiday, such as the federal government has promised, only cuts into federal revenues for as long as the holiday, or the crisis, endures. The emergency support payments can similarly be unwound quickly once the emergency has passed. The assets central banks purchase to keep financial markets liquid can be sold off soon enough.
So the kind of deficit that would be extremely worrying in peacetime – there is now talk of a federal deficit for 2020-21 of $100-billion or even $150-billion, roughly 6 per cent of GDP – is less so in the current situation. This isn’t about “stimulus,” or fanciful claims of “multiplier effects.” This is about keeping the lights on, in the middle of a government-ordered shutdown. In that context, it’s entirely appropriate.
The second thing that makes a wartime economy different has to do with what an economy is for. A wartime economy is designed to do one thing above all: win the war. Everything else is subordinated to that singular aim. Productive resources that might have been devoted to making consumer goods are instead diverted to the military, and by and large the public accepts the sacrifice, in part because, again, it’s temporary.
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Governments are pretty good at that sort of thing. When there is only one economic objective, and everyone agrees what it is, central planning works tolerably well. But a peacetime economy, at least in a market-based democracy, isn’t about making one thing that everybody wants. It’s about harmonizing millions of individual, and competing, wants – wants that change constantly, and in unpredictable ways. Central planning is no good at all at that.
That doesn’t mean we can’t learn from wartime experience. Good policy ideas that are, for one reason or another, politically impractical at most times often become possible in crises, when the risks and rewards of experimentation are seen rather differently. The baby bonus came out of the Second World War. Perhaps some form of basic income will be the legacy of “World War C.”
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
