March 19, 2024

Why does the economy feel like it is going nowhere?

• Canada's GDP per capita is way down.
• Workers' real wage growth has stalled.
• Business insolvency is up.
• While inflation is coming down, inflation on housing is not.

This is not the story that leads to lots of joy around the economy. It is not that the economy is doing terribly, it just isn't doing the way that most people remember it being before the pandemic. Things are different now and not in a good way.

When we compare Canada and the USA (hard to do, but bear with me), the spending by the government is significantly lower and the policy supports for jobs lacking. That spending in the USA has lead mainstream neoclassical economists to say that the spending is "not sustainable" since the budget deficit is increasing this year as fast as it did last year. Most investors thought that would not be the case as borrowing costs hit highs caused by central bank interest rate hikes.

Different parts of the USA state are working at cross purposes. The Federal Reserve is driving zombie businesses out of business, causing consumers cut back spending because of increased borrowing costs, and putting a cap on wage growth through forcing a slowdown in hiring.

On the other side, the USA is subsidizing capital at rates not seen for a very long time. From policies to attempt to re-shore production, to large infrastructure and transport procurement projects, to direct profit subsidies to specific industries (like digital).

This is creative destruction driven by government financial and economic policy.

The result is higher growth in the USA than anyone else. By a long mile.

Since Canada is run by a bunch of ultra-orthodox neoclassical banker types, they have done the opposite of the USA and reigned-in spending. So much so, that they have actually cut spending to parts of the government that drive growth. Procurement programs, spending on digital, and funding for industry research initiatives are all declining this year along with cuts across all other parts of the government.

In the private sector, lack of interest in losing money has driven capital into USA financial markets, supporting dividends and asset purchases in the USA. There are other things happening, but the reality is that being beholden to the an orthodox neoclassical world view is harming Canada's competitiveness.

The result is what we see, a general slowdown in private sector activity driven by the Bank of Canada's interest rate obsession and nothing to counter those actions.

The International Labour Organization has released its report on forced labour (also called slavery, bonded labour, and trafficked people). It seems we are doing

It is no surprise, but lower wages are the key to much of the profits made from forced labour. And, those wages are in industrial, services (including domestic), and agriculture.

These are low wages for migrant workers. But, the ILO has published what it thinks are also an industry driven by recruitment fees for low-waged workers in forced labour in trafficked industries.

While demand drives the industry, the illegal profits are also financing illegal payments to "recruitment" into these industries.

For unions, conclusion that dovetails with what we have been promoting in the industry.

• more inspection of the supply chains used to traffic forced labour
• a fair and legal recruitment process for migrant workers with full rights as employees

Both of these systems lack sufficient enforcement in all countries.

However, the biggest issue is the lack of social protection, education, skills training and good migration governance for workers across the world. People get into these situations through a variety of routes, but a major one is simply a lack of access to the formal economy driven by capital's sociopathic demand for cheaper labour at any cost.