Here’s an excerpt:

B.C. had the third-highest increase in unemployment in the country during the recession. Some 51,800 jobs were lost between October 2008 and October 2009, representing 2.2 per cent of B.C.’s total jobs. Unemployment increased over this period to 8.3 per cent from 5.2 per cent.

While the number of EI recipients rose sharply as unemployment grew, with nine B.C. urban communities experiencing an increase of 115 per cent or more in the number of EI recipients, coverage remained low, rising to 48.2 per cent in October 2009. In other words, more than half of B.C.’s unemployed were not receiving benefits, despite the fact that the province’s economy was one of the most devastated by the recession.

Citizens for Public Justice, along with Canada Without Poverty, has been leading a campaign called Dignity for All – a national call to end poverty in Canada.

When the global recession hit in late 2008, economic output and employment fell so steeply in such a short period of time that policy-makers were seriously concerned about the possibility of the downturn growing into a global depression. The sense of urgency led to unprecedented levels of multilateral economic coordination, with stimulus spending rolled out worldwide and significant deficits incurred by nearly all governments.

A year and a half later, we seem to have dodged the bullet of a global depression. Many will agree that what likely saved us is the coordinated global stimulus packages. Others, however, argue that it was all much ado about nothing and the global economy would have bounced back without government spending. Who’s right?

It’s easy to write off the concerns about a deep and prolonged recession once the recovery has began. Unfortunately (or fortunately?), we cannot observe what the global economy would look like in the absence of the massive inflows of government spending, so this debate will not be resolved empirically.

It seems very likely that the governments’ willingness to step in and do what it takes to avert a potential disaster played an important role in boosting business and investor confidence. Without confidence about the future, and without much eased credit conditions and record low interest rate, business investment could have dried up for much longer. Business “investment intentions for 2010 remain modest and largely driven by the public sector,” observed Mark Carney (the governor of the Bank of Canada) in a speech to the Ottawa Economics Association on March 24. Yet, the role of stimulus spending on consumer and business confidence cannot be measured.

Other stimulus impacts are measurable and they provide strong evidence that the stimulus worked, both globally and in Canada. Institutional and government construction remained a beacon of light for the construction industry when commercial and residential construction plans were put on hold during the recession. In addition, the role of the public sector in keeping employment levels afloat cannot be denied. Most of the job creation that we’ve seen over the past six months comes from public sector employment, while the private sector is still shedding jobs. The automatic stabilizers of employment insurance and welfare helped stabilize household incomes to some extent, although they could have done a lot better if it was easier to qualify for these programs.

The federal stimulus package was far from perfect. As we’ve argued on this blog previously, the stimulus would have had a larger impact if it was bigger, less focused on tax cuts, and better targeted to projects with long-term payoffs for the country (think green infrastructure, universal early child care and education programs and poverty reduction initiatives). But without the stimulus, Canadians would have been a lot worse off.

The report earned the scorn of Federal Finance Minister Jim Flaherty, who called it ”poorly done and it’s wrong” in the Vancouver Sun.  His overall assessment?

“You know I just — I’m disappointed that the [Fraser Institute's] work is as shabby as it is.”

Let’s take a closer look at the actual report and examine the claims made and the statistical evidence used to back them up.

To come to the conclusion that “government investment did not contribute to the turnaround during this period [the second half of 2009],” the Fraser Institute researchers engage in a simple growth accounting exercise, breaking down the change of GDP growth in the last two quarters into its four components. Every first year macroeconomics student would be familiar with the growth accounting equation:

GDP = G + I + C + (X-M)

In plain English (for the non-economist readers), this translates to:

Total economic output = Government spending (or consumption) + Investment (both government and business) + Private consumption + Net exports (the total value of all exports minus the total value of all imports)

Statistics Canada measures and reports on each of these four components on a monthly basis, and it also compiles the data into quarterly and annual reports. The Fraser Institute researchers looked at the numbers for the last three quarters of 2009 and found that government spending and investment played a relatively small role in Canada’s economic recovery so far.

On the surface, this seems to make sense – Canada is a small open economy and global conditions (such as commodity prices and demand for our exports) drive our economic fortunes to a large extent. Global forces started the recession and we cannot sustain a strong domestic recovery without an improvement in the global economic conditions.

In fact, I agree with the Fraser Institute’s assessment that the government cannot claim exclusive credit for the speed of the recovery, just like it cannot be blamed for the recession in the first place. Along those same lines, we should acknowledge that the BC boom in the late 2000s was driven by high commodity prices and growing demand for our exports, rather than by the changes in domestic tax rates or the government’s economic management (although you won’t hear the Fraser Institute staff make this argument).

However, while the government did not single-handedly drive the recovery, they can and should claim credit for cushioning the blow of the recession. Both the federal and provincial governments stabilized employment and personal incomes (and thus consumer spending) by maintaining operating expenditure levels despite the reduction in their revenues. The federal stimulus package was arguably too small to make a very big dent and there were delays in rolling out the actual spending, but without it things would have been a lot worse. Note, for example, that almost all of the recent gains in employment have come from the public sector, while the private sector continued to shed jobs in February, according to Statistics Canada’s latest release from the Labour Force Survey. How much higher would unemployment rates have climbed if the government listened to the Fraser Institute’s advice to balance their budgets by cutting spending?

Government spending filled part of the gap opened by the decline in business investment and private consumption during the recession. With public spending at less than a third of Canadian GDP, the government cannot be expected to fully offset the drop in business investment or private consumption. Their job is to smooth out economic fluctuations by spending counter-cyclically and this is precisely what they did this time. The Fraser Institute researchers do not find evidence of that because they do not look. They focus their attention exclusively on the last two quarters of 2009, when recovery is starting to take hold.

There are a number problems with their analysis.

1) They misuse the growth accounting equation to derive conclusions that are beyond the scope of the equation. All the growth accounting equation tells us is how individual GDP components changed each period (i.e. did they rise or fall), it does not tell us why.

2) They assume that contemporaneous correlation equals causation (and this one is a classic concern in social sciences). The Fraser Institute reports looks at what variables change between two quarters and argue that these must be causing the observed change in GDP growth. This simplistic analysis neglects indirect effects that the stimulus spending may have had on consumer and business confidence, for example. The report authors also fail to account for a number of other government interventions which could conceivably explain some of the GDP growth, such as the swift monetary response from the Bank of Canada, which lowered interest rates and eased credit conditions undoubtedly contributed to improving the climate for private investment.

3) Two quarterly observations do not provide sufficient data to derive meaningful conclusions about the drivers of economic growth in BC, particularly so when the numbers fluctuate so widely from quarter to quarter (compare figure 2 and figure 3 in their report).

Business investment contributed 1.0 percentage points to GDP growth between the 2nd and 3rd quarter, but -0.6 percentage points between the 3rd and the 4th quarter, offsetting the previous quarter’s gains by more than half. Similarly, net exports were a drag to the economy in the 3rd quarter but a boost in the 4th. Which way these numbers will go next quarter only time can tell.

Looking at annual data provides very different conclusions. Statistics Canada reports:

Real GDP fell 2.6% in 2009, as exports dropped 14% and business investment in plant and equipment fell 17%.

and later on:

Final domestic demand recorded a 1.7% decline, largely due to a 17% drop in business investment in plant and equipment. Consumer spending edged up, as a result of a 1.1% increase in expenditures on services. Consumer spending on durable and semi-durable goods declined 2.8% and 2.9% respectively. Government current expenditure on goods and services grew 3.0%, and government capital expenditure increased 13%. [empasis added]

It’s clear from the annual data that without the government stimulus spending, the economic decline in 2009 would have been far greater. It’s quite possible that government stimulus spending provided the necessary conditions for increased private sector spending, thus indirectly driving economic growth. For example, both the federal and provincial governments made it very clear that they are prepared to step in and avert the worst consequences of the recession even at the cost of budget deficits. This certainly helped restore business and investor confidence and opened the door for private sector investments that may not have been undertaken otherwise.

The Fraser Institute report finds that net exports were the main economic driver in Canada during the 4th quarter of 2009. Unfortunately, this wasn’t the result of a strong rebound in our export sector – exports continue to suffer from the high Canadian dollar – but of “a slowdown in the growth of imports of goods and services.” Lower imports means weaker domestic demand. This is hardly the foundation for a strong private sector recovery brewing.

Indeed, it’s too early to conclude that the private sector would be able to take off on its own should the stimulus be withdrawn. We need to be very careful about scaling back public spending next year to avoid slipping back into a recession.

The fear-mongering around our provincial debt and deficits is making a return with groups like the Canadian Taxpayers’ Federation arguing that debt is getting out of control (for example, here).

However, the facts simply do not support their assertions. Yes, we have a budget deficit, but this is exactly what one should expect on the heels of a global recession that hit BC harder than our last downturn in the 1990s. Leading economists around the world agree that governments must spend in order to boost the economy and help families weather the economic storm even when this means running temporary budget deficits.

So the revelant question isn’t whether or not to run a deficit, but how big the deficits should be.

And how is BC’s budget deficit doing? CIBC’s calculations show that BC has one of the smallest deficits in Canada, relative to the size of our provincial economy (GDP) (see Chart 6 in this recent report). That’s despite the fact that we were one of the provinces hardest hit by the recession.

Note that these calculations were done before Alberta’s 2010 budget was released on February 9 and thus may underestimated Alberta’s budget deficit.

The chart shows clearly that everywhere except for Ontario, provincial deficits as a share of GDP are less than half the size of the federal deficit (3.7%).

What about provincial debt? The recent temporary increases are far from unaffordable. In fact, of all Canadian provinces, we’re among the best-positioned to borrow now in order to continue stimulating our economy and meeting human needs.

Source: TD Economics. 2010. "Government Budget Balances and Net Debt" (Feb.23).

These facts won’t surprise regular readers of this blog, as I’ve written about them before. But as we prepare for what is rumoured to be another round of so called “restraint” (aka cuts), it’s more important then ever to go back to the facts.

At this stage, there is absolutely no need to panic about the size of BC’s deficits or the provincial debt. For more info on what we should worry about instead, check out CCPA’s Budget 2010 advance warning and my recent op-ed in the Vancouver Sun, A post-Olympics vision is needed for BC.

Yet economic forecasting is a notoriously difficult business. Just a year ago, we saw BC’s economic growth forecasts revised downwards after nearly every Statistics Canada news release, as the real economy indicators – unemployment rate, retail spending, housing starts – posted disappointing results monthly. You’d think that the recent economic volatility would make us more cautious as we read about the latest forecast issued by a bank or economic consultancy. Apparently not.

The mainstream media is in the habit of reporting every new forecast enthusiastically, hailing the strong recovery that is in the cards for BC. There is no context provided, no questions asked. How does the latest forecast compares to the previous forecast issued by the particular outfit last month or last year? How does it compare to other economists’ forecasts? These things don’t seem to be pertinent to the story being told.

This morning, for example, the Vancouver Sun ran a decent size article on the Conference Board of Canada’s latest quarterly provincial economic forecast. Optimism streamed from every line, starting with the introductory sentence:

Olympic spinoffs and an improved outlook for forestry and manufacturing will make British Columbia the leader in economic growth among Canadian provinces in 2010, says the Conference Board of Canada.

B.C. will post growth of 3.7 per cent over the year…

Sure, 3.7% sounds like a high number and at the heels of negative growth for 2009 it’s nothing short of impressive. But in the end of January, those same economists were forecasting 4.1% growth (that’s the number they provided to the Ministry of Finance as members of the BC Economic Forecast Council).

Wait a second. This means that their current 3.7% forecast is actually a decline from what we thought was going to happen just over a month ago. Shouldn’t we be asking why the downward revision instead of celebrating?

Ignoring the hard questions won’t make the problem go away. As we approach the 2010 BC budget release, we need to take a realistic look at BC’s economic prospects and recognize that while our economy (GDP) is no longer contracting, we are still far from our pre-recession levels of employment or economic output. This will be a long, slow recovery and British Columbians will be better served by a government that recognizes this.

New Brunswick’s decision to increase their minimum wage is part of a larger poverty-reduction plan adopted last November. This move shows that New Brunswick is committed to ensuring a decent standard of living for all workers not just on paper but through action as well.

It’s worth noting that this time last year, New Brunswick’s minimum wage was $7.75, putting it in last place among all Canadian provinces. How much difference a year can make!

Closer to home,  our Premier’s latest excuse for inaction on minimum wages has been the poor economic conditions (most recently used in a mid-December interview on the Bill Good show, see here). That is despite the fact that we’re among the provinces least harmed by the recession and that other, worse affected provinces are managing just fine with higher minimum wages. Now that I think of it, the boom wasn’t the right time to increase minimum wages either, according to our government. Hmm.

As a result, minimum wages remain frozen at $8 per hour, well below where they need to be to ensure that full-time, full-year work is a ticket out of poverty.

Kudos to New Brunswick’s government for showing us that it is possible to maintain one’s social conscience during a recession, and confirming that public policy is, essentially, a matter of choice and not something dictated by “the economy.”

This isn’t the kind of balanced budget law that we had at the provincial level – the kind that can be amended at the government’s convenience. Oh, no. We’re looking at a real binding law here.

(Well, almost always binding – the Vancouver Charter was amended a year ago to allow the city to borrow $458 million to fund the Olympic Village without having to go to the people first. But I digress.)

To cut services or increase taxes and user fees: that is the question.

On December 1, City Council announced their plans for balancing the books: a combination of both cuts and tax increases. It’s not looking good, as Frances Bula summarizes in her Globe article:

Vancouver will see the loss of 177 jobs at city hall, the closing of a landmark conservatory and a children’s petting zoo, dramatic hikes in parking charges, the elimination of the city’s high-profile summer street banners and reductions in everything from library hours to after-school childcare.

City Council’s decisions have left many wondering whether the city’s fiscal health will be achieved at the expense of the overall health of the city. Despite recent activity in Vancouver’s real estate market, we’re far from a robust recovery. Cutting municipal spending and jobs at this time would act as an additional drag to the economy exactly when we need to think about boosting future growth.

The worst part is that cutting services and closing attractions (as if Vancouver has that many to begin with) is only necessary in order to fund a tax break for commercial property owners in the City. This is effectively the result of a decision made by the previous city council (and supported by Mayor Robertson) to shift a portion of business property taxes onto residential property owners over a period of five years.

Think City is among the most vocal critics of Vancouver’s proposed budget. Their key points are outline in a recent Georgia Straight article Vision Vancouver looks after business with tax shift. Think City’s proposal is to defer the tax shift for a year and instead implement a 4% property tax increase on both residential and non-residential owners (instead of the currently proposed increases of 4.3% for residential and 0.3% for non-residential properties). This is estimated to cover almost the entire current shortfall of the city, making service cuts unnecessary.

While reducing the share of taxes paid by businesses can stimulate the economy, paying for this tax reduction through cutting municipal services is not the best bang for the buck. From a macroeconomic perspective, modest tax increases are better that service cuts for meeting the city’s shortfall. This is because macroeconomic models that estimate the multiplier effects of fiscal changes to the economy consistently show that tax increases have somewhat smaller drag at the local economy than spending cuts.

It makes sense: businesses can deduct the property taxes they pay from their provincial and federal taxes, so the income reduction that comes from a business tax increase is not as big as the income reduction from a lost job.

It’s no different at the municipal level than it is provincially or federally – tax cuts are a leaky economic stimulus, while spending on service provision ensures that the money spent benefits the local economy.

Additionally, many of this year’s Vancouver budget woes stem from Olympics-related costs (for example, the City is said to be losing $1.8 million in parking fees because of Olympics-related street closures next year). Guess who’s going to benefit from the Olympics related tourism? That’s right, it’s not the home owners, it’s Vancouver’s service and tourism industry. They should pay their share of the costs, too.

You see, as an economist and public interest researcher at the CCPA, I occasionally get invitations from talk radio to discuss or debate the economic and social policy questions of the day. And since our minimum wages in BC have been frozen for eight full years now, the debate around whether we should increase the minimum wage comes up every so often. Usually, it’s around some auspicious date, such as the day that we took the rock-bottom place in Canada (that was September 1st, 2009) or the anniversary of our embarrassingly low $8 minimum wage (November 1st).

But I just can’t get airtime to discuss the minimum wage on talk radio. Typically, I get bumped off the list in favour of another guest, usually Jim Sinclair from the BC Fed. Ok, I get it: I’m a policy wonk somewhat removed from the proverbial real world while he’s right in there representing the workers, and listeners are more interested to hear from the people directly involved, not just from analysts. Fair enough.

This time around, however, something different happened. My Monday morning TALK 1410 live radio debate on the minimum wage was canceled, period. The reality is that, as of today, Vancouver has one fewer talk radio stations, as TALK 1410 rebranded itself as an all-sports station and became TEAM 1410.

The global recession has not been kind to traditional media. Sadly, this has impacts that go beyond direct job losses and reduced consumer spending to the much more important issues of media democracy as more and more voices are excluded from the mainstream media.

So this coming Monday at 7am, you won’t hear me discuss what we should do about our low minimum wages. But you can stay tuned for extensive coverage of the latest most-crucial-must-win game.

As if you needed one more reason to go to Media Democracy Day at the Vancouver Public Library this Saturday.

A recent report released by the OECD devotes an entire chapter to the question “Is Work the Best Antidote to Poverty?” OECD Employment Outlook: Tackling the Jobs Crisis looks at the impact of the global recession on labour markets and presents some very interesting observations on the problem of working poverty in industrialized countries. In the end, the researchers find that we need more than just job creation to deal with poverty:

Employment reduces considerably the poverty risk, but does not solve all problems. On average in the OECD area, 7% of individuals living in households with at least one worker are poor.

According to the same report, in Canada this number was 9%. Moreover, the data show that working poor account for close to 70% of all poor people in Canada, which is roughly the same as the OECD average.

Yes, in all countries people who do not work experience higher poverty rates than those who do (no surprises here), but it’s sobering to realize just how common working poverty is. This leads the researchers to conclude that

the working poor constitute an important target population for anti-poverty policy in most OECD countries.

What kind of anti-poverty policies may be necessary? Poverty is a complex social problem and country-specific factors need to be taken into account, but the report notes that:

Social transfers play a key role, precisely because they can be targeted towards the most vulnerable households: on average in the OECD area, they reduce by almost half the rate of in-work poverty.

On this front Canada’s not doing very well. Previous OECD reports (such as last fall’s Growing Unequal? Income Distribution and Poverty in OECD Countries) have noted that social transfers in Canada have become less generous between the mid-1990s and the mid-2000s, so it should not surprise us that our poverty rates (including working poverty) have grown.

Another very interesting point made in the report is the call for increased training opportunities for those who have lost their jobs.

At the same time, OECD research suggests that it would be advisable to shift somewhat the focus and resources behind activation from the “work-first” approach which tended to dominate prior to the crisis to a “train-first” approach for those at high risk of long-term unemployment.

All in all, this report adds to the evidence that even a strong economy will not eliminate poverty on its own without a comprehensive, government-led poverty reduction plan.

Perhaps someone should send Gordon Campbell a copy.

From a purely macroeconomic standpoint, any government spending is better than none in the midst of a recession as it will boost the economy in the short term. In the long term, however, the best use of government borrowing is to finance investments that will bridge our current economic needs with long-term social and environmental goals. Think investments that leave us with healthier and better educated citizens, that increase long-term productivity and set us up for the “green” economy of the future, while also increasing the quality of life for all people.

It’s here where the current government policy leaves a lot to be desired. We would be better off running higher deficits and making these public investments now, than running smaller deficits and having to pay them off with a less productive economy in the future. Let’s not forget that public dollars can be invested in initiatives that will have long-lasting benefits for said future generations.

According to a new study by UBC’s Human Early Learning Partnership, just under 30% of BC children entering kindergarten are “developmentally vulnerable” (read, not ready to learn), and the resulting depletion of human capital is estimated to cause BC to forgo about 20% of GDP growth over the next 60 years, a value equivalent to investing $401.5 billion today at a rate of 3.5% interest (for more details, see this Vancouver Sun article).

By failing to make public investments now to eliminate child poverty and ensure that our children grow up healthy and have access to good quality education, we are wasting our children’s potential and leaving them with a less productive economy in the future. Yes, making these investments will cost money and increase the government debt, but at this point leaving debt to our children seems far preferable to the alternative of saddling them with the (often very expensive) consequences of our unresolved social and environmental problems.

There is, however, a type of debt that we should not leave to future generations. It’s the debt incurred from hosting lavish parties for ourselves (Olympics, anyone?) or creating wealth by destroying the environment (through subsidizing natural gas extraction, for example).

Increasing government debt in itself is not as large a problem as some of the recent media coverage would suggest, but both BC and Canada’s governments could and should be making better spending choices.

There is no doubt that price declines and record-low mortgage rates are attracting first-time buyers into the market, making home-ownership affordable for some people who were priced out of the market just a year ago. A number of my former university pals fall into this category and they have recently purchased a home or are in the process of finding one.

Then, there is the pent-up demand from the earlier part of year, when sales were record low.

However, neither of these sources of housing demand is the result of broad-based improvements in consumer confidence. They are also unlikely to produce a sustained housing market recovery. Eventually, these newcomers in the housing market would purchase their homes and the market should cool again. Unless, of course, the recent surge in housing sales is actually another example of Canadians embracing cheap credit, as Paul Vieira suggests in his recent Globe article. He outlines the risks of low interest rates:

But the approach carries great risk — that Mr. Carney keeps rates too low for too long and ignites the type of consumer-driven bubbles that essentially caused the global financial meltdown not so long ago.

“The risk is that we become complacent,” said Andrew Pyle, wealth advisor at ScotiaMcLeod. “Right now, Canadians have a borrowing strategy that does not fit well with the rising rate environment. That, to me, is the most significant risk.”

It’s too early to say whether the speedy recovery in housing sales is the beginning of a new bubble. But if housing sales keep growing in the face of job losses and a weak economy, we should be more than a little worried.

When B.C. Liberal Premier Gordon Campbell came to office in 2001 he unleashed a top-to-bottom review of all government agencies in an effort to bring finances in order. The result wasn’t pretty. It led to protests of all kinds from any number of public-sector groups affected by the restructuring and cost-slashing that occurred.
Eventually the good times began to roll and the province found itself awash in cash. The economy was booming and Victoria was raking in hundreds of millions in royalties from the oil-and-gas sector alone. It had money for just about everything. And then the global economic meltdown of 2009 had to come along and ruin everything.

That’s a bit of a gloss for what happened along the way.

The worst part of the early 2000s slash-and-burn wasn’t a string of pesky protests. It was the very real and harmful consequences of cuts to public services for people and communities across the province. The CCPA documented those consequences extensively, pointing out that the cuts hit women, rural communities and BC’s most vulnerable citizens (seniors, poor people, low-wage health workers, people living with mental illness, and others) hardest.

At the time, CCPA called the cuts reckless and unnecessary. Reckless because of the pain they would cause. Unnecessary because the government claimed it had to cut spending to eliminate a “structural” deficit, when in fact the deficit was caused by a temporary slowdown in the economy combined with massive income tax cuts. Once the economic situation turned around, BC did indeed find itself in a much stronger fiscal position — but it did not have money for everything. Record high “surprise” surpluses were funneled into debt reduction instead of being used to tackle problems like poverty and homelessness. Nominal expenditures (ie, not adjusted for inflation) in the social service ministries only recouped their pre-cut levels in 2008/09.

Today BC once again faces a cyclical deficit, this time driven by a full-blown recession. As my colleague Iglika Ivanova points out today in the CCPA’s budget reality check, if the government delivers major cuts in Tuesday’s budget, it will only deepen an already painful recession and make it harder for the poor and middle class to weather the storm. Given the to-do in this week’s throne speech about keeping a lid on deficits (weird bare-cupboard-hanging-on-wall-of-deficit imagery and all), it looks like more reckless and unnecessary fiscal policy is coming our way — though it remains to be seen just how far the government will go.

A new report by yours truly, released today by the CCPA, examines the social and economic costs of spending cuts and concludes that in these hard economic times, spending cuts will create far more problems than they solve. This is because government spending has ripple effects throughout the economy, causing a change in output (GDP) that is greater than the actual cut. For the economy as a whole, less money floating around means higher unemployment and lower aggregate income – a drag on the economy at exactly the wrong time. For BC families, spending cuts mean reduced access to public services like libraries, seniors’ care and community health services and reduced supports for the most vulnerable among us. It means that thousands of people would lose their jobs and that’s on top of the recession-driven losses we are going to continue to see for months or even years. Many would be forced into poverty and homelessness.

But it doesn’t have to be that way. British Columbians have been trained to think that government debt is bad and should be avoided at all costs. We continue to be bombarded with dire warnings about the supposed negative effects of running a deficit. Yet, the truth is that it is entirely appropriate for the government to run a large deficit in a serious recession.

At the bare minimum, the deficit needs to be high enough to cover revenue shortfalls arising as a direct result from the recession (the underlying deficit). How big that is would depend on how poorly the provincial economy performs, but our models point to an underlying deficit in the range of $3.2 to $3.9 billion for 2009/10 alone.

The best response to a major recession would go beyond funding the underlying deficit and introduce new spending measures to stimulate the economy and protect incomes and employment.

What British Columbians need from their government in next week’s budget is not a plan to minimize the deficit but bold leadership and a stimulus package that keeps the economy rolling in a way that moves us closer to our social and environmental objectives.

What is surprising, however, is the lack of substantive discussion over the relative merits of each party’s proposed economic recovery policy, as stated in their platforms. Instead, we are repeatedly told that responsible economic stewardship involves keeping the business sector happy and anything that goes against the interest of “employers” (such as increasing the minimum wage, for example) is bad policy. The Liberals’ tactic seems to be to market themselves as friends of businesses while portraying the NDP as the employers’ enemy.

This tactic was used in the televised leaders’ debate last weekend, when Mr Campbell remarked:

“When you’re talking about the economy, I think it’s fair to ask the question: Why is there not one major employer group in British Columbia – in mining, in tourism, in forestry – that actually supports the New Democrats’ policies?”

Like most other over-simplified messages, this one is also incorrect. Good economic policy does not mean pandering to business-based interest groups. Yes, lowering business taxes and relaxing workers’ rights makes it easier for firms to reap higher profits, which encourages them to set up locally, creating jobs for the local population and increasing economic growth. However, economic growth alone is not a guarantee that everyone (or even most people) would benefit from the increased prosperity. In BC, we’ve seen this clearly over the last 25 years, when economic growth was strong yet poverty remained largely unchanged and income inequality increased substantially.

Where does this leave us? We need to keep in mind that the whole point of having a strong economy is to benefit society by improving the standard of living of people. We cannot continue to ignore our social and environmental problems in the name of having a strong economy. We need to balance the need of businesses to keep their costs low with the needs of workers to earn enough so that they are able to afford the basics like housing, child care, education to make sure we’re all set on the right path in life.

This does not mean that we have to completely ignore the interests of the business sector. Policy-making in a recession involves some trade offs for sure, but it’s not the all-or-nothing proposition that the BC Liberals are trying to make it.

US President Obama summed it up well on March 10th, when he revealed the first details of his education plan (quoted widely in the media, for example here):

I know there are some who believe we can only handle one challenge at a time [but] we don’t have the luxury of choosing between getting our economy moving now and rebuilding it over the long term.

It’s time for our policy-makers to recognize that tax dollars are not simply a drain of resources from individuals or businesses but can and should be used for productive investments that would make the economy stronger and more sustainable in the future. These investments include building up physical infrastructure, as the current government is doing, but they also include making this infrastructure “green,” which they are not doing (as Marc explains here), as well as building up the social infrastructure we require to ensure that our children are well-educated and prepared to face the challenges of tomorrow.

The current US Administration is doing it. Let’s make sure that those we elect next week do the same.

BC’s Economic Challenges and the Liberal Platform

By Marc Lee

The BC Liberal platform features many feel-good photos and proud statements taking credit for the province’s recent boom. But read between the lines, and one realizes that after eight years in power, the Liberals have effectively run out of ideas.

The platform fails to offer any vision for the future. The Campbell Liberals made some progress on climate change actions over the past couple years, but the platform offers nothing new. Meanwhile, the Climate Action Secretariat, once residing in the Premier’s office, has been relegated to the Ministry of the Environment, which recently had its budget cut.

Premier Campbell deserves credit for bringing in the carbon tax, plus a variety of other climate measures that represent the low-hanging fruit of greenhouse gas emission reductions. While the carbon tax has its shortcomings, in my view it is a positive first step, and one that carries enormous symbolic value for environmentalists.

Still, the government enters the election without a plan in place to get BC to its legislated 33 per cent reduction in greenhouse gas emissions by 2020. And there are some glaring contradictions between the climate plan and other parts of the Liberals’ platform.

One of those contradictions is the oil and gas industry. Between 2001 and 2006, oil and gas industry emissions surged by far more than the carbon tax will ever reduce come 2020. Recently, Premier Campbell was in the Northeast, promising more new investment in oil and gas extraction, which may make it virtually impossible to reach our targets. And it is not like the oil and gas patch is a huge employer – about 2,200 direct jobs in 2008 – for all that pollution.

Highway expansion and the $3-4 billion Port Mann Super-Bridge also go against the climate-action grain. This expensive mega-project will only push more unsustainable, car-oriented development further up the Fraser Valley. This threatens valuable farmland, and means that congestion will be back within a few years. No jurisdiction in the world has ever built its way out of congestion problems.

The Liberal platform offers no real vision for the economy either, now that the great boom is over. Unemployment rose rapidly through early 2009, and with housing starts down 70%, the worst is yet to come, as construction workers finish their current projects and head straight to the back of the unemployment line.

The current economic collapse is not the fault of the Liberals, but then neither was the boom their creation. BC’s economic fortunes rest on what happens outside our borders, in particular in the export markets of the US and Asia, and in Ottawa, through the Bank of Canada and the federal government.

As cheerleader-in-chief, Premier Campbell may have pumped up the home team’s confidence, but let’s face it, the cheerleaders did not win this game. Like other parts of the world, low interest rates drove a bubble in real estate, leading to a massive expansion of construction activity. And high commodity prices driven by export markets made BC’s resource industries take off.

In February’s budget, the Liberals offered little in the way of stimulus, mostly re-announcing projects already underway or relying on federal stimulus dollars. There is much more that should be done to retrofit our infrastructure to be green – like public transit and energy efficiency upgrades – and to meet long-neglected social needs, like affordable housing, addiction and mental health facilities, or residential health care.

Bad economic times mean that the small deficit projected in the budget will inevitably turn out to be much larger. The Liberal platform promises that BC will “live within its means”, but faced with a $1-2 billion deficit, will a new Liberal government pile on more spending cuts and risk making the economic picture worse, or will it accommodate a larger deficit? What does that mean for the few new promises in the platform, like all-day kindergarten or U-passes for all Vancouver post-secondary students?

In politics, as in business, marketing is everything. The BC Liberals have branded themselves as the party of good economic times, but also the party with the long-term vision to tackle climate change. At a time when families in BC are concerned about the future on both fronts, the Liberals have put forward an unambitious “devil you know” strategy to win re-election.

Even during the good times, not all British Columbians were part of the boom. Poverty rates did not drop in any meaningful way, homelessness doubled, and inequality worsened with each passing year. BC needs a plan, with targets and timelines (just like climate change) to address poverty, especially as the recession deepens its grip.

With a lack of vision and too many contradictions, the platform does not provide any sense of how Campbell the Third will govern.