It is a commonplace view that we are in the midst of the worst financial crisis since the 1930s. Our response will require tough strategic choices. The decisions we make will determine our economic progress for the remainder of the decade as well as ending the likelihood of having to endure a similar problem in the next few years.
To restore economic stability, the United States is relying on huge dollops of money to ailing industries as well as middle-class tax cuts, the latter as if the over-extended U.S. consumer needs to purchase, for instance, another flat-screen TV, incidentally made in China.
All but forgotten is the fact that millions of baby boomers in North America are just beginning to retire, and they will require the wherewithal to finance that process. That must be one of our principal objectives now. There is no easy way out of the financial panic presently gripping our world. Essential are reforms that initially will not be welcomed. Belt-tightening is neither physically nor psychologically pleasant.
Hitherto in economic downturns our governments have lowered interest rates to reinvigorate consumer buying and revive a flagging housing market. To accomplish these goals central banks throughout the world have cut interest rates and in some cases, notably in the U.S., offered stimulus packages and bailouts for distressed companies. Those were “yesterday’s” remedies.
Our new economic strategy must focus on savings and investment. The Canadian savings rate is about 13 per cent of GDP, far above that prevailing in the United States, but in both cases is insufficient to fund the needs in the 21st century.
A partnership with private capital would be helpful in funding some needed infrastructure projects, particularly in transportation.
A good example is the Express Toll Route, Highway 407, in Ontario. Our railway industry should be extended both for passengers and for freight. There is every reason that Canadian Pacific and Canadian National should participate therein. Then, to aid the savings-investment process, capital gains taxes should be reduced, which would free up and encourage more investment in place of consumer spending.
Second, there is a requirement that international trade be free when possible. Some of our trading partners discriminate unfairly. Witness the U.S. actions on the lumber industry and China’s restrictions on importing vehicles made here. Those actions clearly are unfair and counter-productive and must be altered.
Third, there should be intelligent, carefully constructed re-regulation so that our financial institutions do not engage in the absurd (corrupt?) tactics that have brought about one-time charges against incomes of our banks and have destroyed financial institutions elsewhere. Those who want instant gratification will not like those reforms.
However, there are other considerations, and we must hope that our financial authorities view our problems with a long-term perspective, to ensure our future.