We are no longer a prosperous country
Clearly, this poverty is widespread.
By any definition, these are incredible numbers that tarnish the reputation of this country. We have failed colossally at providing for our fellow Canadians. With numbers like that, we can no longer call ourselves a prosperous country.
This news is simply a cold reminder of how the Canadian economy has stalled. With the collapse in oil, with Japan in deep recession, with Europe in recession and teetering on the verge of deflation, things will only get worse.
We are clearly still in a deep crisis, to which provincial and federal governments seem oblivious. When the country is this poor, you need better policies than income splitting, or more tax deductions for transit or soccer. We need bold policies, and an incredible level of political will, both of which are absent.
Add to that recent unemployment numbers from Statistics Canada released last week showing the Canadian economy shedding 10,700 jobs last month. We are heading in the wrong direction.
Not the time to balance the budget
It is not too late, however. We can turn things around but it will require strong policies that will inevitably create deficits. Governments must abandon their quest to balance budgets. There may be a time and place to balance budgets, but now is neither. At this point, deficits are necessary.
1) The government must adopt a policy of full employment. Job creation must become all governments' first priority. But it is more than just creating jobs, they must be well-paid, full-time, permanent jobs. We must also raise the minimum wage by at least 30 per cent. This may add costs to firms, but the macroeconomic effect will be positive, meaning the net effect will be positive because of the spending incentives.
2) The government must adopt more infrastructure spending. The government has recently announced a $5.8 billion in infrastructure spending last week (some of that money was already committed, so it's not clear how much is new money). Though welcome, it is not enough. The government needs to spend at least $60 billion over the next decade. This may create a deficit, but the recovery is more important than possible deficits, which we can deal with down the road. Infrastructure spending must be seen as an investment, not trivial spending, in our future, and in Canadian society at large.
3) The Bank of Canada must hold off on talks of raising interest rates well into 2016 or maybe 2017. The economy is still too weak to even begin to think of a rate increase. Moreover, any increases in the rate of interest may create more harm, as it will hurt over-indebted Canadians and sink any hopes of a recovery. The Bank of Canada must also relax its inflation target: letting inflation go up to 4 or even 5 per cent won't hurt anyone.
4) The Canadian dollar is overvalued, and we must allow the Canadian dollar to sink lower, and settle closer to $0.80. This may not be fun for those Canadians willing to travel abroad, but it will contribute to increasing exports. This has already started and the Bank of Canada should not interfere in markets and let the dollar slide further.
5) We must adopt stricter bank lending regulations. While this has not been as much of an issue in Canada, we must put these regulations in place now. In the U.S., loose lending (subprime or predatory lending) was a major component of the 2007 crisis. Loose lending creates bubbles that eventually burst with dire consequences. Banks cannot lend indiscriminately.
6) Finally, we must also address the elephant in the room: income inequality. Until this problem is resolved, the economic foundation upon which growth and prosperity are built, our economy still faces possibilities of another crisis. This is at the root of the low-income survey. The gap between the super rich and the poor is too large, and will lead to more instability. We must narrow this gap.
These policies may appear drastic to many Canadians, but putting our collective heads in the sand won't solve any problems, and this is what is going on right now. Governments must face reality and move forward in unison and adopt these bold policies now. Enough with policies that serve narrow interests. We must create wealth that is shared by all Canadians.
If we fail to do this, it can only lead to a lot worse. So take a good look at your situation and enjoy it for now, because as the trend goes, you will find yourself soon in a low-income situation.
Louis-Philippe Rochon is an associate professor at Laurentian University and co-editor for the Review of Keynesian Economics