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Trevor Tombe: Canada’s recovery looks strong. So do we need more fiscal stimulus?

Commentary

Canada’s economic recovery from the ravages of COVID-19 is surprisingly strong. And it seems poised to only grow stronger from here. 

Canada may very well have three-in-four eligible individuals fully vaccinated by the end of July. These highly effective vaccines will almost surely mean that what’s been unsafe for the past year-and-a-half will soon (thankfully) become normal once again. And as provinces ease public health restrictions, activity in many sectors will rebound through the summer.

This is unquestionably great news but it may pose an interesting problem for some of the federal government’s recent spending plans. Or, at the very least, how those spending plans are pitched to voters.

Is fiscal ‘stimulus’ needed?

The federal budget for 2021, released barely more than two months ago, centred on “stimulating a rapid recovery in jobs.” The very name of the budget — “A Recovery Plan for Jobs, Growth, and Resilience” — makes that clear. This was a key rationale for many of the spending proposals it put forward. 

To be clear, the bulk of Canada’s deficit was to directly cushion the financial burden that pandemic disruption has caused families and businesses. This wasn’t a “stimulus” so much as a “bridge” to get Canadians to the other side of this extraordinary situation. But looking forward, significant fiscal stimulus is on the way.

Last November, the federal government planned for $100 billion in what it explicitly called “stimulus.” In Budget 2021, it confirmed this would go forward. It’s tough to track each dollar, but excluding measures directly related to healthcare and income support to individuals and businesses, there is indeed nearly $100 billion in additional spending measures detailed in the budget. That’s large, and is spread across multiple years through to 2025.

The size and length of the planned stimulus is deliberate. Some argue the previous Conservative government pulled back on its fiscal stimulus following the financial crisis too quickly. The government implicitly argued as much when the finance minister said, during the budget speech, that “the world has learned the lesson of 2009 — the cost of allowing economic hardship to fester.” This was widely observed as an argument for larger and longer stimulus.

The basic premise is straightforward: government expenditures can utilize workers and machinery that would otherwise go idle, and borrowing to fund this can itself (potentially) lead to increased labour supply by individuals and therefore increased employment. Estimates vary, to be sure, but a dollar of fiscal stimulus might add 60 cents to $1 to overall economic activity. (For a great review of the research literature on this, see this recent article.)

The case for stimulus today, however, has weakened as the economic situation changed for the better. Dramatically so.

A strong economic rebound

The latest aggregate economic data for Canada is from March. Though a few months old now, Canada’s economy was nearly back to its pre-COVID levels even then. This is a significantly faster recovery than many expected during the early phases of the pandemic and faster than prior recessions in Canada. 

This is not to say the recovery was easy. Hard work by individuals, by families, by businesses, and by public servants and government leaders across the country allowed Canada to almost fully overcome this incredible challenge. Nor is it to say there isn’t much left to do, especially when it comes to increasing employment to pre-pandemic levels. 

The latest jobs report shows Canada’s employment rate (that is, the number of people with jobs as a share of the population aged 15 and above) at 59.4 per cent. That’s roughly two points below where it was — or roughly 500,000 jobs. 

But if employment in just three sectors (accommodation and food services, retail trade, culture and recreation) returns to pre-pandemic levels, then so too will Canada’s total employment. These are sectors particularly disrupted from COVID but primed for a strong rebound as reopenings proceed and public health conditions continue to improve. All without stimulus.

In an important sense, the largest factors holding economic activity back are transitory. There are “supply side” constraints on activity, from public health restrictions and the required changes in business operations. And there are “demand side” constraints, from individuals sensibly changing their behaviour in the presence of a highly transmissible virus. As public health improves, each of these factors will fade — and potentially very quickly. 

A better debate about government spending

This does not mean the government should scrap its spending plans. 

Many of the measures in the budget should best be seen as separate from broader economic recovery initiatives. Affordable housing and homelessness supports ($3.1 billion over five years), increased R&D support ($6.1 billion), additional public transit funding ($5.9 billion), increasing certain elderly benefits ($10.7 billion), boosting funding for Indigenous communities ($15.2 billion; mainly health and infrastructure measures), enlarging the Canada Workers Benefit ($8.9 billion), and the biggest ticket item of all, establishing national childcare and early-learning ($29.8 billion). 

Not all COVID-related scars will be healed when the economy recovers. And some of these programs could help and indeed may be long overdue. Many small businesses may be unable to reopen. Many families will have their ability to work disrupted, especially those with younger children. The government would be justified in arguing for planned spending initiatives on their own merits, and opponents would be justified in arguing against those merits or for alternative programs.

That’s a productive debate to be had — but one entirely separated from the merits of fiscal stimulus. Permanent areas of government program spending should ideally be financed through taxation, rather than borrowing. If the benefits exceed the costs, then the costs are worth paying.

As Canada emerges from the pandemic, one thing is increasingly clear: only months after the government revealed its fiscal plans, pitched as fiscal stimulus, the macroeconomic case for higher spending is significantly weaker. Stimulus may no longer be needed.

And whether one supports this spending or not, that’s a good thing. 

Opinion: It’s a bad sign when elites are adopting Chinese Communist Party rhetoric

Commentary

Here we go again.

Lately, there have been some in the commentator class who seem to have forgotten the hard lessons about dealing with China that we have slowly, painfully, and collectively learned over the past two-and-a-half years.

Ever since the lawful arrest of Huawei executive Meng Wanzhou in Canada, and the retaliatory hostage-taking of Michael Kovrig and Michael Spavor by China, we have experienced firsthand the true nature of the Chinese Communist Party.

While engaging in hostage diplomacy is the most obvious example, we cannot forget the PRC is still using economic coercion against our agriculture sector. Beijing is also involved in routine foreign disinformation, interference and influence operations in Canada, as well as coercing diaspora communities in Canada to serve PRC regime purposes, such as the illegal transfer of sensitive Canadian technologies to China. What’s more, Beijing engages in cyber attacks and espionage against Canada and our democratic friends around the world.

In recent years, the PRC regime has stealthily acquired considerable editorial control of most Chinese language media in Canada.

Last week’s forced closure of Hong Kong’s Apple Daily with the arrest of its founder, Jimmy Lai, and his brave journalist colleagues means the last Chinese language source of informed, unbiased commentary on China’s Communist Party’s policies, hidden agendas and political corruption has been silenced. The Apple Daily was a key rallying point for upholding true Chinese liberal democracy. The tragedy of its demise cannot be overstated. The PRC has crushed a once thriving democracy in Hong Kong.

The kidnapping of Kovrig and Spavor is symptomatic of the kind of regime that we are dealing with. It threatens neighbours with its growing military. It is quite clearly engaging in genocide against its Uyghur population. These horrendous affronts against the liberal world order are all linked as the CCP seeks to establish global dominance at the expense of Canada and our democratic allies.

Despite all this, and despite Canadians’ increasing suspicion of the regime in Beijing, we still see all sorts of painfully bad takes on China in Western media that pretend to ignore these hard lessons. Take for instance the recent Globe and Mail article by University of British Columbia professor Paul Evans and Senator Yuen Pau Woo, who have adopted the Chinese Communist Party’s rhetoric wholesale.

Just like the PRC’s own apologists, Evans and Woo claim that criticism of the domestic and international policies of the PRC regime in China is driving anti-Chinese racism in Canada. Yes, some researchers did find that discrimination against Chinese Canadians has been on the rise since the start of the COVID-19 pandemic, but Evans and Woo are wrong to twist the story by using such findings to deflect criticism of Beijing.

Evans and Woo suggest that raising concerns about the CCP’s foreign disinformation and propaganda wing, the United Front Work Department, is not only exaggerated but contributes to “racial profiling and stigmatization.” Yet they offer little detail on how this criticism, often from highly reputable sources like Western intelligence agencies and scholars and experts on national security, is exaggerated as opposed to being fair and well-reasoned.

The authors ignore the fact that many of the regime’s most passionate critics are themselves of Chinese descent.

In their flawed logic, condemning the broad scope of belligerent and deplorable actions of the regime “sensationalizes” China to the detriment of the Chinese people. In so doing, they take a tactic from the CCP’s own playbook, as accusations of “sensationalism” are often used by the Chinese government against their own critics, at home and abroad.

The same can be said about their casual dismissal of concerns about “elite capture” (influence by the regime over Canadian political and business leaders) as a modern-day equivalent of McCarthyism, or their willingness to condemn the FBI and the U.S. Department of Justice for investigating and prosecuting professors and researchers of Chinese descent for espionage. In this view, the “toxic atmosphere” is not caused by China’s sharp power tactics against Canada and the U.S., but by those who point them out.

Chinese, Tibetan, Uyghur and Hong Kong critics of the Chinese regime routinely face bullying and intimidation, including threats of death or sexual violence, right here in Canada. But this does not concern the authors of the Globe article. Rather, they argue that Canada needs to show greater tolerance for views that are indistinguishable from the propaganda of the regime; otherwise, they warn, Chinese Canadians will face discrimination.

The authors ignore the fact that many of the regime’s most passionate critics are themselves of Chinese descent. They neglect to mention that the principal oppressor of the Chinese people is in fact the CCP itself. Calling this out is not racist; it is empowering to those who live in China and risk imprisonment for merely expressing opinions that the regime finds distasteful.

Worse still, this article from Evans and Woo is hardly an isolated statement from the authors; it certainly is not out of character. Most recently, Woo doubled down on repeating the rhetoric used by the wolf warriors in China’s Embassy in Ottawa, arguing that Canada cannot be critical of China’s ongoing genocide in Xinjiang due to Canada’s own deeply problematic history with residential schools.

This classic whataboutism is obviously not concerned about racial inequality or the wellbeing of Indigenous peoples, but again, defending the PRC regime against criticism for its abhorrent human rights abuses. The fact of Canada’s appalling history of gross mistreatment of indigenous peoples makes us Canadians even more sensitized to the evil of crimes against humanity being committed by autocratic racist regimes in China and elsewhere in the world. Woo has it exactly backwards.

Let’s not be fooled by the Chinese regime’s propaganda: President Xi and his Communist Party cronies are not our friends, they have no intention of treating us as equals, and they will go to great lengths to achieve ends that are fundamentally opposed to our interests and values.

Chinese people, and the Chinese diaspora in Canada and around the world, are the ones who will suffer most if we ignore these truths and choose instead the perverse path of appeasement.