Throwing Good after Bad

In theory, governments throwing stimulus money into what we have  told are shovel-ready projects have a way of keeping people employed during hard economic times. Shovel-ready projects like road construction, overpass development, public building improvements, new schools and hospitals come to mind when we are told our government has spent $47.2 billions dollars towards their Economic Action Plan.

We are again made to feel better when Federal Finance Minister Flaherty reminds us that for every dollar spent on economic stimulus we receive a Gross Domestic Product return of  $1.5 dollars. Not bad considering that when the average investor looks for a return, 11% would be considered a good bang for the buck.

So while the average Canadian goes about their business thinking that the government is doing all it can to lessen the blow of a sharp recession, public funds are being poured into private enterprise at an alarming rate. Building a deficit that will only translate into higher taxes for the average wage earner, a burden that we will feel for decades to come.

So, has this money stimulated the economy? Have we seen an increase in job openings as a result of the stimulus money? Has the business sector seen an increase in sales as a results of more jobs and increase demand of materials as a result of shovel-ready projects?

If the government is right and their research on the GDP return on investment is sound, we should have felt the joy of $23.6 billions dollars filling our pants.

Recent news has been filling the airways with talk of us being in a 'post recession' Canada. And, certainly with the exception of a sharper than normal slow-down in the Alberta Oil patch, Alberta's economy has been the envy of North America.

If anything, most Canadians look to their own micro view of the economy by browsing real estate listings to see if housing costs have reduced, or have spoken to their local small business person to 'see how things have been.' Although with the government keeping interest rates down, the real estate market has slumped, but for the most part housing costs have only corrected on an average of 20%. Much less than the economic pundits were predicting.

No matter how your view, every Canadian, whether their politics lean left or right, or teeter on the fence, should be rather concerned on how the Federal Government spent our $47.2 billions dollars. Because a stimulus package can be only one method employed by a government to encourage economic growth. And, we should at least be asking of our elected officials if the stimulus spending has had the effect our federal Minister of Finance advised it would. Have Canadians benefited a $1.5 dollars for every dollar spent towards stimulus?

Recent studies from reputable think-tanks have shown that public funded stimulus packages do not have a recovery effect on recessional economies. University of Stanford Professor John Taylor concluded in a recent study that there was little empirical evidence to show that government spending is a method of ending a recession or inversely accelerate an economic recovery. Further, Harvard economist Alberto Alsina in a 2007 study has found that FAILED stimulus initiatives almost exclusively relied on government spending.

So where did our government get this magical economic multiplier of 1.5/1 that seemed be a strong influence on opening the public purse? That figure comes out of a political document co-authored by the chair of the U.S.. President Barack Obama's council of Economic Advisers. A document that purports a multiplier of 1.57 without any data to back it up. The same foreign office that put together a stimulus package that has cost the American taxpayer $2.8 trillion so far this year, with another $8.2 trillion in commitments for the balance of 2010.

With the rapid solidification of Globalization, each country involved in providing bailout money are connected at the hip, and in most cases are heavily influenced by the biggest player on the field. In the case of the USA, they not only influence how their money is doled out, but it is fair to say influences the actions of neighbouring nations. In Canada it is reported that a $3.5 billion dollar auto-industry bailout was allocated for the Canadian subsidiaries of the Big Three. One of which General Motors has already pledged all its assets worldwide to the U.S. government in order to secure the first American installment of a US $30-billion loan, leaving no assets to collateralize a $6-billion loan reported coming from our Federal government.

When it came to stimulus spending the auto industry has been been quick with palms-up. General Motors aside, Chrysler has also been seen requesting billions of dollars from our Federal government.

It would appear that when it came to softening the blow of spending billions of tax-payer dollars the promise of a 50% return helps justify throwing good money after bad. It would also be fair to say that our Federal government have allowed themselves to be bullied by the U.S.A. who once again pursue to pad their interests in-part to bail out their auto-industry.  An industry where the U.S. Government have become vested shareholders. It would have bolstered a bit of Canadian pride if our government had done their own homework instead of relying on faulty data provided by the same compromised U.S. Government, and come up with a true Canadian plan to tackle our own economy.

Don't hold your breath waiting for funds to build new schools or hospitals, but there may be a new shiny sedan in your future. That is if our government stops throwing good money after bad.