Fearful Symmetry - the Fall and Rise of Canada's Founding Values. Brian Lee Crowley
Pressure is rising for governments to make it easier to get welfare and EI again.
The period of falling unemployment that preceded the downturn that began in 2008 was no mere momentary economic conjuncture, a high in the economic cycle which has now turned and is dragging us down again. A period of sustained and indeed growing labour shortages is not a possibility, nor a probability, but a certainty. We will find our growth constrained by our inability to find workers. Inflation will be an ever-present danger in these tightening labour markets, and that means a vigilant Bank of Canada will keep its finger tight on the interest rate trigger. The standard of living of Canadians will be lower than it needs to be at just the time we will need to find ways to pay for the retirement of all those Boomers.37 According to the federal Department of Finance, by around 2030 or so, annual GDP (gross domestic product) will be about 14 per cent lower than it would have been if we were to continue with the (unimpressive) per person growth rates of recent decades. That is a stunning loss of potential national wealth at a time when the claims of older Canadians, particularly on the health care and retirement security systems, will be on the rise. While our standard of living will continue to rise, that rise will be anemic compared to what it could be, and the risk is real that we will fall even further behind the long-term economic performance of our neighbours to the south, whose economic recovery is also only a matter of time. Nothing about this is set in stone, however; we have the choice to do things differently.
Labour Shortages, Gryphons, Unicorns and Other Mythical Animals
Society is rife with self-corrective mechanisms that deal with emerging problems by giving people incentives to change their behaviour. Some economists, therefore, argue that the aging of the population is not really an issue worthy of much attention; these self-corrective mechanisms will kick in and our behaviour will be adjusted automatically by social and economic forces.38
For example, if workers come to be in short supply because of aging and retirements, wages will rise and companies will simply adjust by substituting capital for labour (i.e., retiring workers will be replaced by machines rather than younger workers) or by enticing workers to stay on past the current retirement age.39
If it is impossible for us to have labour shortages, however, the reverse proposition must also be true: it must be impossible to have unemployment. After all, from an economic point of view unemployment is just a labour surplus, whatever else it may be when measured in human unhappiness and suffering. Yet the historical record of large-scale unemployment over the thirty years from roughly 1970 to 2000 is there for all to see.
I grant that it is quite likely true that if labour markets are left alone to function, unemployment and labour shortages are equally unlikely. On the other hand, that is a big “if.” Much of our unemployment of decades past was not caused by the economy, but by bad decisions by politicians. And if we can create unemployment by bad policy, we can certainly create labour shortages the same way.
In the National Post, one could read in 2008 about how the retirement of Boomer-generation doctors was producing a nationwide shortage of physicians; the fewer physicians who were left were being reduced to gambits like holding lotteries to cull their patient lists, leaving millions of Canadians without a doctor.40 That shortage, however, was a direct result of government policy to reduce medical school enrolments some years earlier,41 a self-defeating scheme to reduce health care costs by reducing the supply of doctors.
If, in the face of a dwindling supply of workers, we cling to high levels of marginally useful jobs in the public sector, raise unemployment benefits and pensions in lockstep with rising wages, continue tax policies that discourage work, and keep up barriers to people moving to where the greatest opportunities are to be found, to pick just a few choice examples, we will, by our own choice, exacerbate the problem. After all, the self-corrective mechanisms that are the economist’s bread and butter in this case would be things like moving underemployed public sector workers, the unemployed, and those retired but still able to work back into the workforce. Raising wages is the way to do that, enticing people out of idleness and low-value occupations. It works poorly, however, if government policy battles you every step of the way. It is entirely possible for government policy to create simultaneous labour shortages and high unemployment. I see it every day in Nova Scotia, where I live.42
And even where the famous self-corrective mechanisms can be seen at work, that does not mean there is no pain or dislocation. Especially where self-correction is obstructed by bad policy, there is no guarantee that the new state of affairs will be as desirable as it could have been. For example, labour and capital are not perfectly substitutable—some jobs simply cannot be done as well, or even at all, by machines, so we cannot spend a lot of money and replace all our missing teachers and hockey players and physicians and restaurant servers with robots and other types of machinery. And the adjustment mechanism can take time to work, during which time labour shortages can exercise a powerful upward pressure on wages and thence inflation.
So self-corrective mechanisms can produce high inflation, high interest rates, and lower growth, especially when poor government policy gets in the way. That would be a destructive combination at the best of times. It would be brutal at a time when relatively fewer workers are striving to produce enough wealth to keep their own standard of living rising while they pay for at least part of the pensions, health care, home care, and a host of other public services for a growing number of retirees. In writing this book I have tried to think about how we, both government and Canadians, might adjust our behaviour so as to improve the chances of good outcomes for all of us in the face of the challenges represented by the aging and retirement of the Boomers.
In any case the classical economists who don’t believe in labour shortages and I are probably not all that far apart. I say that labour shortages will cause Canadians to change their behaviour profoundly over the next fifty years as we struggle to find ways to adjust to a precipitous fall in the numbers of new people entering the workforce. They say that tightening labour markets will produce big changes in the behaviour of Canadian firms and workers as wages rise to reflect the fewer workers that will be available.
Just remember the important point: we agree that profound changes are coming.43 Canadians are entering a decades-long time that will be economically, culturally, and socially as different from the last half century as vinyl records are from MP3s and rotary phones are from Blackberrys.
Reports of Capitalism’s Death Have Been Greatly Exaggerated
Some readers will object that the book’s argument assumes that today’s economic downturn is but a temporary bump in the road, and that in due course we will return to the kind of market-driven economic growth described in later chapters. Moreover, the book assumes that the United States, far from being finished as a global superpower, still has its best days ahead of it.
Our current economic difficulties have certainly unleashed a torrent of commentary to the effect that capitalism’s day is done, that the downturn proves that private business is irretrievably corrupt and cannot be trusted because our woes are entirely the fault of greedy bankers and insurance companies and rating agencies and market manipulators.44 Wise governments will henceforth need to replace this vicious system with disinterested technocratic management. Friedman is dead. Long live Keynes.45
No one can deny that greed led a number of managers to take outrageous risks with the institutions with which they were entrusted, or that they were richly rewarded even after their companies either failed or were bailed out at taxpayer expense. Their misjudgments were compounded by their shameless clinging to bonuses and other entitlements to which they had little moral claim, however much their employment contracts guaranteed them.46
But this constitutes no indictment of liberal capitalism as an economic and political system, nor does it establish that there is some clear, and clearly superior, alternative. Painful as the short-term stalling of the economy is, with all its attendant job losses, plant closures, bankruptcies, and family crises, we cannot lose sight of the tremendous economic benefits our economic system has bestowed on us over the years. More and more of the world has been drawn to this system, especially since the collapse of the Berlin Wall. Previously moribund economies in Eastern Europe, Asia,