Posted: Thursday, 21 January 2010

by Ken Georgetti, as featured in the Toronto Star on January 20, 2010.

Economic stimulus delivered by ultra low interest rates and increased government spending seems to have stabilized the global and Canadian economies. It works. Why stop now?

Prime Minister Harper argues that we have to move back quickly to balanced budgets and the government’s conservative allies say this has to be done through deep cuts to social programs, public services, and public sector jobs. For them, deficits are the problem, not unemployed workers and their families. For them, balancing the books today is more important than helping people and re-building Canada on a strong economic and social basis for future generations.

We do not need to, and should not, go down the road we took in the 1990s. Canadians endured a lost decade of jobless growth, high poverty, stagnant wages and living standards because of deep spending cuts combined with a high dollar.

Forecasters expect the national unemployment rate to remain above 8% until well into 2011. Balancing the books through cuts to public services and social programs won’t create jobs and won’t provide relief to the principal victims of the recession, the long-term unemployed in hard-hit communities. Nor will it position us to respond to the coming changes brought on by global climate change.

Investments in social and economic stabilization programs that help Canadians cope with the deepest global recession since the Great Depression are not only necessary, but represent sound policy. In the past year, we have invested in public programs that create jobs, raise our economic potential, and further our environmental and social justice goals – and it’s worked. According to many leading experts we have to do still more to ensure that we have a strong recovery. Borrowing to finance these investments is not a problem when the total government debt today is the lowest of any advanced industrial country (53% of GDP in 2008-09 compared to 102% in 1995-96). Interest rates are at an all time low, so it makes good sense to invest now.

Those who call for cuts say that the private sector will take up the slack. But households in Canada and our major trading partner, the U.S., are deep in debt and cannot continue to borrow and spend, especially if we continue to have near double digit unemployment. Surplus production capacity at the global level and the huge trade imbalance between North America and developing countries means that business investment outside the resource sector will remain weak. Our manufacturing sector will struggle to survive for as long as the U.S. economy is weak.

Now is not the time to worry about balancing the books in the short run for politically expedient reasons. As Dominique Strauss-Kahn, managing director of the International Monetary Fund points out, growth now is largely driven by government stimulus measures and countries risk a return to recession if anti-crisis measures are withdrawn too soon.

Several Canadian forecasters and the Bank of Canada recently said that significant government spending is still necessary to maintain growth and help us leave recession behind. Cutting spending would jeopardize the economic recovery. Of course, we can't run large deficits forever. Balancing the books will require low unemployment, decent jobs, plus a solid and progressive tax base. Tax cuts have undermined the fiscal capacity we need to provide good programs, while mainly benefitting the affluent.

Canadian workers have the skills and commitment to rebuild and expand our social and economic infrastructure. What they need is the opportunity to do it. Good family supporting jobs will not only get us out of the recession, but will generate the tax revenue needed to eliminate the deficit. With low interest rates, we can and should finance public expenditures which create jobs now while raising our productive potential and the future tax base. Borrowing today to create a larger economy tomorrow is the best way out to balance books and create no burden on future generations, and it will also help to address the fiscal challenges of an aging society.

Now is time for an expansion of public investment-led growth to support job creation today and a strong private sector recovery tomorrow. Now is time for investment in good public infrastructure and good public services as key drivers of private sector productivity in the future. Now is time for industrial development strategies and procurement policies that create jobs for Canadians.

Ken Georgetti is President of the Canadian Labour Congress.