Drummond Misdiagnoses Ontarioâ€™s Economy
The Harvard International Review has posted an interview with Don Drummond. I have posted the following response:
It is good Drummond confesses that his free-market policy prescriptions failed to improve productivity, but old habits apparently die hard: â€œWe have an Employment Insurance scheme that basically dissuades people from going where the jobs are. We still have interprovincial trade barriers.â€
The University of Torontoâ€™s recent Mowat Centre EI Task Force concluded: â€œThere is no evidence that regional variation in the unemployment insurance system has altered internal migration patterns in Canada in a substantial manner.â€ Drummond is presumably familiar with the Task Forceâ€™s research since he served on its advisory committee and endorsed its recommendations.
The only possible â€œinterprovincial trade barrierâ€ Drummond identifies throughout the interview is securities regulation. Towards the end, he acknowledges that â€œmost of them have been eliminated by the provinces themselves. Even the security regulators in the provinces have more or less worked out a way to recognize each othersâ€™ requirements.â€
Drummond also misdiagnoses Ontarioâ€™s economy, denying that it has a large stock of unemployed labour: â€œif that were true, you would be seeing declines in wages. Yet wages have been increasing fairly firmly.â€
Over the past year, Ontarioâ€™s average hourly wage rose 1%, compared to provincial inflation of 2.4%. So, wages are indeed declining in real terms. A more obvious measure â€“ the provincial unemployment rate â€“ also indicates a large stock of unemployed labour.
By boosting employment, Ontario could certainly grow faster than 2% in real terms. However, Drummondâ€™s prescription of extreme austerity will not help achieve that goal.