Le Québécois Libre, March 15, 2010, No 276.
Over the past week, an amazing news story was broadcast about an eminent economic think tank that had just released its findings after having evaluated the Ontario government's economic stimulus package. It announced that the package had created jobs in such areas as infrastructure upgrading. The key target of the economic stimulus package was to upgrade roads and bridges. Prior to the development of that package, provincial and local governments regularly allocated funds to repair roads and bridges, widen roads, and build new roads and bridges. Every year, construction companies submit bids on a variety of infrastructure projects and employ people in a variety of construction positions.
There is a political purpose to a government commissioning a study to determine if a public works program actually created jobs. People who have some basic free-market economic knowledge know the history of public works programs. They have a specific purpose, that being to create jobs over the short term. Ontario will likely hold a provincial election in 2011, and the minority federal government could literally be thrown out of office at almost any time, depending on the opposition parties. The timing of the public announcement that the public works program has created jobs may extend the term of office of the federal government. The duration of the short-term public works positions will remain to be seen. Perhaps the eminent think tank will make another announcement just prior to Ontario's expected provincial election.
The short-term public works jobs are essentially public sector jobs that are funded by taxes and through the printing of new currency. Canada has undergone substantial growth in public sector employment while job creation in the private sector remains miniscule. While there are occasional signs of some kind of pseudo-economic recovery occurring in the United States, private sector job creation has been limited. The Gross Domestic Product (GDP) is the total value of all transactions in the economy and also includes government spending. News announcements abound that the "recent increase in the GDP indicates that the economy is showing weak signs of recovery." But subtracting all government spending from the recent increase in the GDP suggests that the economy is essentially stagnant, even contracting.
Beginning in the early 1990s, the Government of Japan initiated a public works program to stimulate a slow economy. Japan's economy remained essentially stagnant for at least a decade. Even to this day, there is miniscule economic growth in Japan. Government spending escalated in Argentina during the tenure of the Carlos Menem administration. It did not take long for the pseudo-economic boom of malinvestment in Argentina to deteriorate into a major fiscal and credit crisis.
The Government of Greece recently engaged in a spree of state spending that led to that country's current fiscal crisis. Spain, Portugal and Ireland are not far behind Greece in terms of government spending, to the point of undermining the long-term values of their respective currencies. The economic lesson from Argentina, Japan and Greece is that government spending offers no guarantee of renewed long-term economic growth in the unsubsidized private sector. That is the sector that historically has created opportunities for long-term employment, during times when interest rates may have reflected actual events in the economy.
Western economies will remain stagnant and even contract until the United States Federal Reserve shuts off the printing presses and allows the American economy to self-correct, as happened following the stock market meltdown of 1920. Continued printing of currency merely delays an inevitable market correction and increases the severity of that correction. The state of the economy in Zimbabwe illustrates how unrestrained printing of currency ultimately undermines a national economy to the point where civilization itself begins to break down. Several survivalist websites have appeared in the USA, advising people to take greater personal initiative to prepare to live through greater economic challenge in a stagnant or contracting economy.
As much as governments may want to discourage underground economic activity, such activities as people growing a portion of their food in pots or on small parcels of land, not to mention bartering, may soon become a strategy of survival. Up to 90% of India's population may be employed in that nation's unofficial economy. No government program could create official employment opportunities for massive numbers of people in a private sector economy. In India, people did it for themselves. Perhaps the lesson from India's unofficial economy may serve as a guide for populations in other parts of the world where excess government spending either ruined national economies or seriously incapacitated the ability of their private sectors to function.
A think tank announcing that a government stimulus package created jobs could just as easily have been made in Argentina, Japan, Greece and Zimbabwe after their governments initiated state spending programs. In the short term and in the short term only, economic data certainly suggested that state spending was creating employment opportunities, business opportunities and a range of spectacular economic results in what appeared to be dynamic and flourishing economies. But the illusion of prosperity dissolved into economic breakdown, leaving the economic model from India as one of the few options for certain segments of populations to survive. At some time in the future, a substantial segment of the population of many western nations may also need to follow India's economic model to ensure their economic survival.
* Harry Valentine is a free-marketeer living in Eastern Ontario.