Conservative economics are failing us

[cybercoma]

From The Econoimst

"Canada's economy: Hey, small spender. With the government and consumers exhausted, officials are begging firms to pick up the slack."

http://www.economist.com/node/21564219

In 2010 and 2011 Canada’s GDP grew by an average of 2.8% a year, more than America’s and than the economies of other rich commodity-dependent countries like Australia, New Zealand and Norway. The OECD now predicts it will grow by 1.9% in 2012, the same as New Zealand and less than the other three countries.

This article not only points to the Conservatives taking credit for Canada weathering the tide of the global financial crisis, but rightfully shuts that argument down by acknowledging our "conservative corporate culture." That is to say, our banks and industry are a lot more cautious with their spending than companies say South of the Border. However, despite tax-breaks, low-interest rates, and "don't call it stimulus" the recovery is about to stall.

For all the criticism that Conservatives have given Mulcair for talking about Dutch Disease, The Economist explains that lower resource prices, weakening demand for Canadian goods in Europe, Conservative austerity measures, and our own housing bubble, have left the recovery in the hands of businesses.

Problem is that they're just sitting on their money. According to The Economist these stockpiles of money amount to some 30% of GDP, "three times the historical average." They're not passing it on to stockholders and they're not investing it into infrastructure.

What little investment they are doing is again symptomatic of Dutch Disease. Canadian business evidently spends half of its investments on structures for storage and transport. This does very little for productivity and recovering the economy, as compared to investments in machinery and equipment. Why do is business spending so much on storage and transport? Because of our reliance on resource commodities. These investments in large part are for moving and storing oil. So again, ignoring other sectors while the resource economy is doing well is detrimental to our economy as a whole.

What has Harper done to encourage our economy to pick up again? He has made an effort to sign deals with expanding economies in Asia to foster our exports, as the economies in Europe continue to suffer. However, this is not enough and such a strong reliance on our resources (the Asian markets can manufacture their own goods much easier) is going to make the Canadian economy increasingly more volatile going forward. This systemic volatility will make middle-class Canadians more reliant on government programs that are designed to smooth out rapid changes in the economy. Problem is Conservative austerity measures and cutbacks are pulling that rug out from under us, while their economic policies and foreign trade policies push us deeper into an economically volatile future.

[MiddleClassCentrist]

Sigh...

Have they ever truly worked in favour of the average person?

Get the money to the top and watch it "trickle down" has never really worked that way.

[cybercoma]

Sigh...

Have they ever truly worked in favour of the average person?

Get the money to the top and watch it "trickle down" has never really worked that way.

Nope. It doesn't work. The best fiscal policy puts money into the hands of the people buying goods. Money doesn't just trickle up. It flows upward in our economy. What no conservative has been able to answer is why any business would spend money on machinery and equipment when no one is able to buy their products. When the middle class votes with their dollars companies know what they need to invest in. When the middle class has no money to vote with, companies just hang onto their money until they get a good indicator of what's going to be in demand. You want to encourage businesses to invest. Stimulate demand by putting money into the hands of buyers not producers.

[Newfoundlander]

Nope. It doesn't work. The best fiscal policy puts money into the hands of the people buying goods.

So cutting the GST was a good thing in your opinion?

[Topaz]

So cutting the GST was a good thing in your opinion?

By cutting the GST, the Tories sent the deficit up higher because they thought more consumers would spend more but they didn't figure in the down turn and so consumers lost jobs and companies felt the pain and then they started to to lay off workers and the economy came to a stop. Now, companies aren't investing, some foreign companies even left Canada, which increase unemployment with 1.2 million out of work and even though the Tories keep saying they have 800,000 net new jobs, how many are foreign workers and how many Canadians and where are they full time of part? It the taxpayers, mostly the middle-income that going to feel the pain on this. We pay, they over spend, we give to EI and they take away. Who are their advisors, because they don't know what they are doing!

[WWWTT]

In addition,the HST/GST cuts only put further pressure on the consumer to bail out and/or strengthen our economy.

What the government needed to do was help out the consumer improve their own financial scenario.

In other words,you can only squeeze so much blood out of a stone!

WWWTT

[Wild Bill]

I find it very ironic that a movie based on the Ayn Rand novel "Atlas Shrugged" is being released during a time when we hear complaints that business is not "saving us all".

One of the main themes of that novel was government taking business for granted. It would continually pass legislation to look socialistic to the masses, in order to ensure the votes. Meanwhile, they would cut backroom deals with crooked businessmen to guarantee them enough profit to survive.

Such a system cannot sustain itself, of course. So deficits keep going up. Factories keep becoming more and more run down.

Business is sitting on what money it has instead of investing for the simple reason it is not seeing positive areas in which to invest! Companies don't choose to stop investing just to be mean! They just don't see any low risk areas in which to put their money.

As long as western business was strong governments could bleed it with few worries. Those times have changed. The money is no longer there. It's in China, Russia, India and many Third World countries.

There is no way the politicians want to give up any of their take. That might cost them votes. Yet business simply can't afford to pay what they used to pay. So business slows down, or cuts back, leaves or simply goes under.

I'm not sure how things will work out but I find when things have gone so far that people are complaining about business being unwilling to do business ironic to an extreme!

[Michael Hardner]

I find it very ironic that a movie based on the Ayn Rand novel "Atlas Shrugged" is being released during a time when we hear complaints that business is not "saving us all".

When have the times been significantly different in this regard ? At least recently ?

One of the main themes of that novel was government taking business for granted. It would continually pass legislation to look socialistic to the masses, in order to ensure the votes. Meanwhile, they would cut backroom deals with crooked businessmen to guarantee them enough profit to survive.

Such a system cannot sustain itself, of course. So deficits keep going up. Factories keep becoming more and more run down.

Deficits come from a difference between revenue and disbursements - so they can happen independently of whether business is more or less heavily taxed.

Business is sitting on what money it has instead of investing for the simple reason it is not seeing positive areas in which to invest! Companies don't choose to stop investing just to be mean! They just don't see any low risk areas in which to put their money.

Right. So if we invoke our memories for a second here - I know that's asking a lot - and think back to the idea that cutting taxes, and globalizing trade would make investment attractive then one wonders what has been happening for the past five years or so.

As long as western business was strong governments could bleed it with few worries. Those times have changed. The money is no longer there. It's in China, Russia, India and many Third World countries.

And in those Western businesses and investors who are over there. Big business is still making profit right now - and that is the point. The invisible hand is in somebody else's pocket.

There is no way the politicians want to give up any of their take. That might cost them votes. Yet business simply can't afford to pay what they used to pay. So business slows down, or cuts back, leaves or simply goes under.

They can afford to pay more - that's proven by the fact that they're storing away lots of cash. Politicians' "take" is nothing compared to what the lower and middle class get - on the whole - from business capital going back into the economy, either through taxes or investment.

I'm not sure how things will work out but I find when things have gone so far that people are complaining about business being unwilling to do business ironic to an extreme!

If the country is set up to make sure business does well, regardless of how the people are doing then I agree with you. It's ironic that people aren't happy that companies are doing so well, and they're not.

[TimG]

Problem is that they're just sitting on their money. According to The Economist these stockpiles of money amount to some 30% of GDP, "three times the historical average." They're not passing it on to stockholders and they're not investing it into infrastructure.

So what? They are keeping the money in bank accounts which means the money can be used by anyone who wants to take a loan.

But general ignorance of your statement is a bigger problem. Companies are hording cash because they do not have confidence in the economy. They are worried that a prolonged global recession is coming and they will need that cash to stay in business. What happens if they listen to your advice spend the money only to find out that they run out of cash in 2013 or 2014? What would you say if we see many Canadian companies going bankrupt and being bought out by foreign rivals for cheap because they lack the cash flow to keep going? That is what could happen.

Those cash hoards protect the existing workforce. When you consider that 93% if the workforce is employed protecting the interests of those workers should count for something.

Question for the people: if you worked for a company hoarding cash would you think this increased your job security?

Edited October 8, 2012 by TimG

[Fletch 27]

I could not find a logical point in your post. That first sentence is a doozy. How can gst/HST "cuts only further put pressure on the consumer to bail out "and/or(???) strengthen the economy"? Non-sensical

By what I'm attributing to NDP math is that your stating. A tax hike via the gst/pst would greatly strengthen the economy?

The article however was a great "opinion" piece. Leftist and grasping for corporations money but a nice piece

In addition,the HST/GST cuts only put further pressure on the consumer to bail out and/or strengthen our economy.

What the government needed to do was help out the consumer improve their own financial scenario.

In other words,you can only squeeze so much blood out of a stone!

WWWTT

[Fletch 27]

Ssoooo. Economist enforce savings and debt retirement for persons and families in times such as this but this editorial/opinion piece would like our employers to burn through the cash?? Seems maybe this "economist" would simply like his hands on your companies cash via a dividend over YOUR employment security. The Left LOVE such articles. "we are the 1 percent" kinda bs.

Some people simply can not see the forest for the trees.

[Shady]

Problem is that they're just sitting on their money. According to The Economist these stockpiles of money amount to some 30% of GDP, "three times the historical average." They're not passing it on to stockholders and they're not investing it into infrastructure.

Yep, because of the uncertainty of the global economy. When Europe finally gets its act together, and America deals with the fiscal cliff coming up on Jan 1, then the global economic outlook will become a lot more predictable and certain. And businesses will have more confidence to spend. Your criticism is tantamount to blaming an individual who's worried about whether they're going to have a job 6 months from now, for not spending more of his/or her money.

[cybercoma]

Does everyone completely misunderstand the point as much as TimG and Shady or are they special?

[cybercoma]

Seriously, what part of a GDP decline screams job security to you guys? I'm not sure how you can fundamentally misunderstand economics at this level, yet post with such derisiveness. It's as though you're completely lacking any self-awareness whatsoever.

On top of that, Tim, you say it's a good thing that the money is in banks because it is used to create loans, which suggests to me you completely ignored the part of the article that said consumer borrowing may be stretched to its limit.

There's all kinds of different conclusions from all points on the political spectrum that can be drawn from the facts in the article. Yet time and again you guys continue to completely ignore the facts, or make up your own, in order to double-down on ideological positions that are completely untenable.

[Shady]

Does everyone completely misunderstand the point as much as TimG and Shady or are they special?

Only economic illiterates understand your point.

[Shady]

Firms aren't going to s-called "pick up the slack" if they think there's economic storm clouds ahead. Any smart business is going to maintain as much liquidity as possible, in order to make it through tough times. So your premise makes aboslutely no sense at all. At least for anyone with an once of business and economic knowledge.

[Argus]

Sigh...

Have they ever truly worked in favour of the average person?

Get the money to the top and watch it "trickle down" has never really worked that way.

The government does not 'get the money to the top'. Money will naturally go to the top because it's the top which controls all resources and money producing businesses (naturally). That's where money will always go. Government tries to take from the top and redistribute it downward. Both liberal and conservative governments do this. The only disagreement is on how much to redistribute and where it should go. Likewise, the motivations are mainly what is good for the country as a whole. If 'the top' is left with more money, the theory is that they'll use it to create more business and expand industry, and thus create more jobs and a larger economy. A countervailing theory is that if more is given to the bottom and middle they'll spend it, creating demand which will then expand the economy and create jobs.

The problem today is that both top and middle are not really spending that much. They're both so worried about the economy that they're squirreling it away in the safest possible investments. That means, of course, that it's not going to either expand business or expand demand for goods. It's going into bank accounts, into bonds, into GICs. Whether business or individual. So what do you do about that? Because when neither side is spending their fears for the economy become a self-fulfilling prophesy.

[WWWTT]

Those cash hoards protect the existing workforce.

False statement.

Well over 60% of our economy is driven by consumers spending.

In other words,the money that these corps. made that they are hoarding was made from the consumer and tax cuts!

They are failing to recirculate the money into our economy!

WWWTT

[punked]

Firms aren't going to s-called "pick up the slack" if they think there's economic storm clouds ahead. Any smart business is going to maintain as much liquidity as possible, in order to make it through tough times. So your premise makes aboslutely no sense at all. At least for anyone with an once of business and economic knowledge.

That is fine but you are against the government picking up the slack to create an economic environment where these firm will want to spend. So your solution is basically just suffer through a depression. I just want to be clear those are the policies you are advocating for. You want government to cut back spending at the same time as the private sector leading to the private sector to be more scared of investment and spending causing more layoffs and depression.

That is shitty policy.

Edited October 8, 2012 by punked

[WWWTT]

Money will naturally go to the top because it's the top which controls all resources and money producing businesses (naturally). That's where money will always go.

Yep and there's a word for that,its called "extortion"!

Or "manipulation"?

How about "monopoly"?

WWWTT

[TimG]

False statement.

You clearly don't understand the statement. Companies under financial stress without cash need to shed workers quickly to cut costs without thought to long term viability. Companies under financial stress with large cash reserves don't need to engage in panic layoffs that hurt the long term viability of the company. Bottom line: cash reserves mean workers at that company have more secure jobs. Edited October 8, 2012 by TimG

[WWWTT]

Firms aren't going to s-called "pick up the slack" if they think there's economic storm clouds ahead. Any smart business is going to maintain as much liquidity as possible, in order to make it through tough times. So your premise makes aboslutely no sense at all. At least for anyone with an once of business and economic knowledge.

Oh,ok then.

If there's something bad on the horizon coming,then the consumers who are actually circulating the cash should get the tax breaks.

After all it is the consumers that are creating the wealth and not the corporations.

All I am saying is that we should reward the job creators and cut the blood sucking useless fat!

WWWTT

[punked]

You clearly don't understand the statement. Companies under financial stress without cash need to shed workers quickly to cut costs without thought to long term viability. Companies under financial stress with large cash reserves don't need to engage in panic layoffs that hurt the long term viability of the company. Bottom line: cash reserves mean workers at that company have more secure jobs.

Yet you leave a lot out of the equation. Most companies make money because people spend money. When people are being fired to balance the books people stop spending causing more layoffs in the private sector. Unless the public sector picks up the slack for a little while through what is called stimulus spending. Although you and Shady are against this. So what is it? Should the public sector spend a little to bring up the confidence of the private sector so the private sector spends to start the economy again.

BTW companies don't hold on to cash so they can employ people when their balance sheets show a loss. They hold cash until they feel they can spend in a way to make a company grow. When balance sheets are off companies lay off people to get them back in order. This is the free market don't cha know? You live in a fantasy land you believe successful companies hold cash so they can keep workers when they are losing money.

[WWWTT]

You clearly don't understand the statement. Companies under financial stress without cash need to shed workers quickly to cut costs without thought to long term viability. Companies under financial stress with large cash reserves don't need to engage in panic layoffs that hurt the long term viability of the company. Bottom line: cash reserves mean workers at that company have more secure jobs.

If I did not "understand",it is because what you have written here is not the same as the quote I originally responded to.

WWWTT

[WWWTT]

I could not find a logical point

Something tells me that you and logic have an estranged relationship.

WWWTT