Partisan claims about the BC economy
BC’s recession and election together mean things are going to get nasty in the political realm. Already we seeing plenty of sneering commentary from our esteemed cabinet ministers. Consider this jibe from Colin Hansen, the Minister of Finance, in his annual address to the brethren of Sigma Chi:
“I want you to think about one thing. Think about the opening ceremonies of the Games next Feb. 12th. There will be lots of government officials. I expect the prime minister will be there. I expect the mayor of Vancouver will be there. I expect the premier of British Columbia will be there. Visualize those opening ceremonies with Premier Carole James.”
This riff only makes sense in the context of a long-running refrain that NDP government can only play the economic blues. In the weeks to come, we will be reminded about the bad old days when the NDP were last in power. But now that we can roughly compare two terms of the NDP with two terms of the Liberals, we find that there is little truth to the smear that the NDP have the cooties.
The average rate of economic (real GDP) growth under the Liberals has been 3.1%, whereas the so-called â€œlost decadeâ€ under the NDP saw average growth that was only slightly lower, at 2.8 %. But if we add in estimates for 2008 and 2009 (using latest projections from the private sector, which are too rosy in my opinion, and better than what the government itself is projecting in the budget), the average growth rate under Liberal rule falls to 2.6%, LESS than under the NDP.
In terms of family incomes, average after-tax income in BC (constant dollars) was $46,340 in 1991. By 2001 it rose to $50,248, an increase of 8.4%. And by 2006 (last year for which we have data) it grew to $55,583, an increase of 10.6%. This masks some important differences in distribution, with average incomes further down the income distribution lower than they were in the early 1990s, while incomes up higher soared much more than average.
How about employment? During the “lost decade” of 1991 and 2001, BC employment grew by 344,100, an increase of 22%. Between 2001 and 2008, BC employment grew by 392,700, an increase of 20%. However, BC also just lost 35,000 jobs in January, and the prospects for rising unemployment in 2009 are severe. By the time the election occurs, it could well be the case that more jobs were created under the watch of the NDP than under the Liberals.
In terms of the unemployment rate, it was about 10% when the NDP came to power, and fell to 6.9% in May 2001. In the following boom years, the unemployment rate fell to record lows of around 4%, but at last glance (January) it was 6.1% and rising. By the time of the election I would not be surprised if the unemployment rate was higher than when the Liberals first came to power.
My point here is not a partisan one â€“ the NDP were far from perfect in office; they benefited from immigration to BC in record numbers; but also got sideswiped by the Asian crisis of 1998-99. Rather, it is to remind people that BC’s economic fortunes generally swing on decisions made outside our borders. Politicians will inevitably try to take claim credit when times are good, and just as quickly will shift blame onto others when times get bad. The BC Liberals have rode as astonishing wave of luck by coming to power in 2001, just as BC’s real estate boom got underway in the cities, and just as exports surged and commodity prices soared, taking with them the rest of the province.
The Thone Speech may claim that all new jobs in BC have arisen due to tax cuts implemented in 2001 and 2002, but the reality is that BC benefited from: low interest rates as determined by the Bank of Canada that launched a housing boom; an extra $3 billion per year in transfers from the federal government; huge growth in export demand from the US and Asia. At best the government can claim that the downturn of 2001 and 2002 was softened by its deficit-financed tax cuts, although even there so much of the gains went to the top earners in the province that it was a weak stimulus.
That the housing and commodity booms are now over, and BC is in a recession that is getting worse each week, points to structural weaknesses in BC’s economy that were not cured with a tax cut. Alas, the Premier is once again getting bit in the backside by his own penchant for populism, as BC’s fixed election date guarantees two and a half more months of bad economic news in the press in the lead-up to the next election. Given the choice, most politicians would have held a snap election last fall when plausible denial about the state of the economy was still possible (our Prime Minister even broke with his own fixed election date for this very reason).
But since that was not the call, expect a rugged and ugly election season, with a lot of finger-pointing and name-calling. That is a shame because now more than ever British Columbians need a real democratic debate about where the province is headed.
Good to see someone telling the truth. Politicians have only limited power to affect economies under our system. The governor of the bank of Canada combined with the five big banks determine whether we have feast or famine.
However, a common conservative tactic is to blame poor economic performance on taxation of the rich as a justification for cutting taxes. To make up for the budget shortfall the politicians borrow a pile of money. Economic improvement usually follows and the politicians point to the tax cuts as the cause.
The truth is that the money never existed until it was borrowed and as it makes its way through the economy it provides a temporary boost. Of course the mini-boom is short lived as the tax cuts were designed to let the rich keep more money so the newly created credit moves to the top and stays there.
I’m hazy on this but I think Campbell borrowed something like three billion right away and a few billion more over the next coupe of years. That’s a heck of an injection of new credit. Of course the debt isn’t supposed to be paid off so we’ll be paying many many more times that in interest over the years.
Unfortunately, we humans don’t seem to be able to comprehend the past of the future very well and only see the now. We don’t connect borrowing with booms and debts with busts, only “right now” enters our collective consciousness.