Does anyone else find it odd that a free-market-worshipping government can happily leap into the fray to micro-manage a labour market outcome (deciding, for example, that postal workers must get 1.75%, not 1.9%, in the first year of their new contract), yet pleads powerlessness when it comes to interfering with market outcomes that are genuinely harming our economic trajectory?
Here’s my take from today’s Globe and Mail on that particular piece of one-sided reasoning.Â Of course, market fundamentalists will think I’m truly loonie for encouraging government intervention in sacrosanct fields like energy prices and interest rates.Â That just goes to prove my point: a good arbitration is in the eye of the beholder!Â Here’s the column:
Now that the mail is being delivered again, Canadaâ€™s economic prospects have brightened considerably.Â That is, if you believe the Harper governmentâ€™s claims that the phony shutdown of Canada Post by its own management indeed constituted a real and present danger to the national recovery.
Here, once more for posterity, is the synopsis of the whole melodrama: Canada Postâ€™s management wanted to cut wages for new hires, and ultimately abolish the companyâ€™s defined benefit pension plan.Â The union, naturally, resisted.Â But fearing back-to-work legislation, they organized rotating job actions, rather than an all-out strike.Â So management shut down the whole operation, precipitating the desired government intervention.Â And the resulting legislation, with tag-team precision, then imposed a wage settlement lower than what Canada Post had already offered.
The Harper government, flexing its new majority muscles, justified the whole Machiavellian drama with the need to protect the economic recovery.Â Never mind that managementâ€™s argument for cutting wages and restructuring pensions was precisely that the post officeâ€™s importance was in historic decline.Â It seems that management and government alike are allowed to argue that the post office is either really important, or else not very important at all, depending on the moment.Â (The same flexible double-speak applied to the Air Canada strike, as well.)
I donâ€™t know any economists who were losing sleep over the impact of either work stoppage on the national GDP.Â But many economists, myself included, are increasingly preoccupied with several bigger threats that really could undo the recovery â€“ fragile and halting as it has been.Â Â (Last week’s dismal GDP reading reinforces the validity of my concerns.)
The government has indicated its willingness to interfere in normal contractual relationships between private parties, even dictating contractual outcomes, in the interests of preserving Canadaâ€™s economic momentum.Â That opens up a lot of terrain for a very hands-on approach to shepherding our fragile recovery.Â So letâ€™s assign Ottawaâ€™s control freaks to some truly important economic protection work.
1. Gasoline prices.Â Even at a mere $1.25 per litre, gasoline prices will rip $40 billion from the pockets of Canadian consumers this year.Â Soaring gas prices are a big reason why consumer spending has stopped in its tracks â€“ an alarming development that could genuinely precipitate a recession.Â And you canâ€™t invoke â€œmarket forcesâ€ to explain gasoline prices.Â In reality, theyâ€™ve been driven up by speculation, fat oil industry profits (which could reach $50 billion this year), and the continuing power of OPEC.Â
2. Interest rates.Â The Bank of Canada is holding its prime rate at a historically low level, fearing the â€œheadwindsâ€ buffeting the global and national economies.Â But the gap between that rate (which chartered banks pay on their own borrowing), and what the banks charge their own customers, has widened substantially.Â For example, a 5-year mortgage currently goes for about 4.5 points above the Bank of Canada rate â€“ half again as high as the average spread during the decade before the financial crisis.Â Spreads on credit cards, small business loans, and other forms of credit are even wider.Â No wonder the Big Six banks made $20 billion in profit last year â€“ but no wonder borrowing (and spending) by consumers and businesses alike is stuck in its tracks.
3. The loonie.Â According to the Organization for Economic Cooperation and Development, the fair value of our dollar (based on purchasing power) is about 81 cents (U.S.).Â Currency traders have pushed it 25% higher â€“ jeopardizing Canadaâ€™s ability to sell anything (other than oil) to world markets.Â Again, savings on imports arenâ€™t passed on to consumers (instead, importers have fattened their profit margins by billions).Â But the pain to our export industries, and the threat to our future growth, is real.
All these issues reflect contractual dealings between private parties that are genuinely jeopardizing Canadaâ€™s continued economic growth.Â All reflect the working of power and policy, not the â€œpureâ€ forces of supply and demand.Â And all are amenable to myriad forms of government intervention to attain different, better prices (for energy, credit, and our currency itself) in the interest of continued recovery.
Why is the government so quick to intervene to suppress compensation for the humble folks who deliver our mail, yet stands on the sidelines while truly powerful people enrich themselves at the expense of our national prosperity?Â Perhaps itâ€™s not the economy theyâ€™re concerned with after all.