... in the interests of the economy as a whole, government intervention in the economy must be as concerned with the impact on workers, as with the impact on any other economic decision makers, such as, businesses
It should be recognized that Canada ranks third in the world in proved oil reserves behind Venezuela and Saudi Arabia, and is the world's seventh-largest oil producer, which makes the exploitation of oil resources in the eastern and western provinces, especially Alberta, crucial to the economy of Canada as a whole.
What the previous premier of Alberta, Rachel Notley, failed to appreciate, when she pumped some seven (7) billion dollars into the market-challenged oil and gas industry of Alberta, hoping that that money would trickle down to the hard-pressed workers of that industry, was that that money would not necessarily or actually remain in the Albertan or even the Canadian economy.
Because the Conservative government led by Stephen Harper had spearheaded a sell off the family silver movement and that money went primarily into the coffers of Alberta's oil sector owners, the Americans and the Chinese.
In much the same fashion as Thatcher sold the national railway system of the UK to private owners. Only to discover, surprise surprise, after the private sector owners not appreciating fully what it was to run a public service, cut the unprofitable lines, which meant that some no longer had a way to get to work. And, to maintain that public service, the government had to buy it back.
Any inference to the Canadian pipeline saga is, of course, merely coincidental. Since the announcement of a rather draconian budget by the newly-elected Premier of Alberta, Jason Kenney, the discussion as to how to manage an economy and create economic growth takes on clear and present urgency.
The second part of this article includes a speech, delivered at Liberty University, by Bob McEwen, on how to manage and grow an economy, which this author believes to be worthy knowledge for anyone interested in the economy, to have.
Jason Kenney stands to learn an important lesson: that is, while voters say they care about limiting taxes, government spending and reducing the debt, history illustrates clearly that more often than not, they punish politicians who do it.
And, more importantly, no matter how valuable a lesson that is for Alberta Premier Jason Kenney to learn, the value of his learning that lesson, pales into insignificance when compared to the harm that will be done to the hard-working and noble people of Alberta, while he learns it.
Fundamentally, whether we are concerned with the economy of modern Canada or the economy of the ancient Roman Empire. And, whether one derives their economic philosophy from the Austrian School of Economics or Keynesian economic theory, two fundamental understandings of the economy stand firm.
One, you cannot grow an economy by contracting it, and two, any economic stimulus strategy that does not employ some version of the multiplier effect, is doomed to failure.
These are the lessons of part 1 of this series. Before delving into the strength and resiliency of the multiplier effect approach to economic stimulus and growth, I which to introduce, Bob McEwen.
Remembering, that Kenney proposes a 10% cut in the size of provincial government employees and a 10% cut in everything that provincial government invests in, while at the same time cutting the business tax rate. How does that align with the fundamentals that you cannot grow an economy by contracting it, and that any economic stimulus strategy that does not employ some version of the multiplier effect, is doomed to failure?
The short answer is, not very well. To offer a more substantial answer to those questions, however, we need to understand just what choices Jason Kenney has at his disposal to spur economic growth.
Government expenditure, that is, money spent by the government, can be divided into two main categories, current and capital expenditure.
Capital expenditure, by definition, is spending on goods that will be used in the long term, and the measurable effects of such expenditures have a tendency to be more long term as well.
On the other hand, government can try and help with the cost of living, by reducing income taxes to encourage greater consumption, which means cutting government spending in order to keep taxes down. And, if there are no other increases in the cost of living, the result can be more money in the family budget.
That outcome, however, seems unlikely in Alberta, because of the removal of the cap on rent increases, and the announced cut in provincial municipal support, which will drive up local taxes, and cuts to secondary education will increase those costs to a public increasingly in job transition.
Furthermore, if the government would like to encourage greater investment in order to increase consumer demand, then lowering corporate taxes would result in businesses having higher after-tax profits to invest with. If, and this is a big if, businesses have confidence in the economy and choose to invest in both future production and higher wages.
Again, there is very little evidence or experience, to suggest that businesses would choose to invest without very favourable borrowing rates not usually available from commercial banks. And, there is precious little evidence or experience to suggest that businesses would voluntarily commit themselves to higher wages over the long term.
Given the limited, self-imposed straight jacket of economic strategies into which Jason Kenney has imprisoned himself. And, while there is no theoretical justification for such a stance, other than his ideological opposition to an increase in current government expenditure to kick start economic growth, only the outbreak of war, which would drive up oil prices, can spur growth in the economy of Alberta, in the foreseeable future.
In a phrase, Jason Kenney, has wittingly or unwittingly, walked into the perfect storm of inflationary and recession-inducing influences that former Federal Reserve Chairman, Paul Volcker, warned OECD countries not to venture into.
All things considered, even with the third largest proved oil reserves on this planet, the economic outlook for Alberta, under current government economic policies, seems rather uninspiring.
There may be trouble ahead, Alberta.
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