Here is a better way to Build Back Better
On Aug. 10, the U.S. Senate passed a US$550 billion infrastructure plan that represents the biggest burst of spending on public works in decades. It was a bipartisan success that significantly advances President Joe Biden’s economic agenda.
It also formalizes the interplay between three things: a de facto commitment to modern monetary theory, the political desire to keep the economy growing and, in light of the latest “Code Red” report on Climate Change, an existential and urgent need to deal with the climate emergency.
This seems to be the political and economic playbook for virtually all G7 leaders. There is a remarkable consensus that spans the political spectrum. According to the playbook first established last spring, what we all need to do is: Slash interest rates to effectively zero; Use micro-level fiscal stimulus to keep the economy moving; and spend the lion’s share of the macrolevel stimulus on building and rebuilding infrastructure for a world with a much smaller carbon footprint.
The objective is laudable, but there’s a snag. Voters don’t generally buy into a “Green Shift.” Just ask former Liberal leader Stéphane Dion. But they do buy into jobs and economic growth.
Rather than trying to reconcile these two seemingly disparate agendas, governments of all stripes have chosen to marry them together to make one a necessary precondition of the other. The prime minister insists those two objectives are not mutually exclusive.
Despite this, and as the federal election in Canada gets under way, there is a growing chorus of prominent Canadians who say the nation’s major political parties are neglecting economic growth as an issue. I disagree.
Parties are talking about growth, just not in a traditional way. Old school commentators talk about our weak competitiveness, but don’t acknowledge the active paradigm shift toward sustainability already under way.
John Mckenzie, chief executive of TMX Group Ltd., recently said, “The biggest, most pressing economic issue for Canada is the need for a long-term growth plan. Are we doing the right planning for long-term growth? Are we creating the conditions for reinvestment, for businesses to invest?”
The questions are rhetorical. Here’s the rub: economic growth and environmental sustainability are incompatible objectives in the long run. Politicians also know that voters hate to be told there are tough times ahead, so there is no mention of belt-tightening as the spigots remain wide open. This time, however, those spigots are trained on things that are accretive to the concept of sustainability.
Meanwhile, central bankers have painted our politicians into a corner. Of course we need stimulus to grow, but at some point that will likely create systemic inflation and exacerbate environmental concerns.
When the inflation comes and/or when the environmental problems become unavoidable, we will be euchred. For inflation, we can either fight it by raising rates and tanking the economy, or we can let it run rampant and die a death of a thousand cuts. For environmental degradation, we can muddle through as we have or we can be more proactive, thereby incurring even more debt.
The bold attempt in the here and now is to manufacture growth (avert economic shrinkage and an ultimate depression) in a way that maintains and enhances sustainability. The current government has upped the ante in actively committing to building a green economy. The plan is to make the public policy case for retrofits, subsidies, green grids, increased carbon taxes and the like to transition to a ‘new economy’ before the fiscal house of cards collapses.
We’re actively growing the economy with a limited tool kit of policy instruments. That’s a tall order. Economist and Financial Post columnist David Rosenberg recently noted that the money boom just “ran out of gas” and that money supply (as measured by M2) stagnated in June for the first time in three years and real M2 contracted 0.8 per cent. Apparently, the history books suggest this could be a recessionary signal.
Context is important. In the early 1970s, a controversial bestseller titled The Limits to Growth was published. Multiple scenarios were contemplated, but a 2020 update showed that the global experience to date was closely
ARE WE DOING THE RIGHT PLANNING FOR LONG-TERM GROWTH?
tracking the business-asusual base case where the authors concluded that if we continued pursuing growth as we had been, the world would experience a decline in food production, industrial output and worse in the 21st century. No specific timeline was given.
Several esteemed economists have been expressing similar concerns for decades. They include Canadians Peter Victor and Jeff Rubin, American Richard Heinberg and Englishman Tim Jackson. These forward-looking thinkers were easy to dismiss in the past because the things they were warning us about seemed distant and unthreatening.
The challenge now, for politicians, central bankers and thought leaders throughout the western world, is to do what is necessary — and for voters to have the courage and foresight to provide a mandate for them to do it.
John De Goey is an Iiroclicensed Portfolio Manager with Wellington-altus Private Wealth (“WAPW”) in Toronto.
This commentary is the author’s sole opinion based on information drawn from sources believed to be reliable, does not necessarily reflect the
views of WAPW, and is provided as a general source of information only. The opinions
presented should not be relied upon for accuracy nor do they
constitute investment advice. For proper investment advice, please contact your Investment Adviser. John De Goey can be
reached at john.degoey@wprivate.ca