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The skill lies in the balance

0 1626 Market Intelligence

Alex Carrick

Positions:
Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

It’s a beautiful fall day in Ontario, with a slight chill in the air – a good time to take a spin around the world. There’s something strange going on. Has there ever before been a time of so many legislatures in uneasy equilibrium?

It’s a beautiful fall day in Ontario, with a slight chill in the air – a good time to take a spin around the world. There’s something strange going on. Has there ever before been a time of so many legislatures in uneasy equilibrium?

Canada and Australia are being run by minority governments. Inadvertently or not, the United Kingdom has elected a coalition, which is a minority under a different name. Japan keeps changing Prime Ministers like toothbrushes.

The U.S. is heading into mid-term elections with all of the momentum in the hands of a new political force, the Tea Party. Concerns about the cost of medical care and financial reform have left many Americans feeling uncertain and wary.

Elsewhere, formerly popular President Sarkozy of France is now hugely unpopular. Austerity measures plus whiffs of scandal have been his downfall. Parts of Mexico have become lawless. Attempts to rein in the drug trade lead to violent repercussions.

Regimes in Iraq, Iran, Pakistan, Afghanistan and North Korea variously demonstrate illegitimacy, insurgency and corruption to one degree or another.

The seemingly most stable governments are in the emerging nations. This can hardly be a coincidence. Those nations have seized upon their opportunities and are taking full advantage.

The first wave was to employ their abundant cheap labour to produce exportable consumer goods and all manner of components for assemblers in other countries. The second wave has been provided by the Internet. Digitizing files has globalized the services sector.

There is a sense in the developed world of becoming bystanders. The meltdown of the financial sector took the swagger out of the free enterprise system. The economies of industrialized nations are still often wonky, with bad cases of vertigo. The sovereign debt problems of several nations in Europe still give analysts the “heebie jeebies.”

What’s to become of us, here in the established order? The first thing to remember is that economies, to a considerable degree, are self-correcting.

It may not be too much of an exaggeration to say that the faster China and India attain fully developed status, the better. This will almost assuredly lead to workplace and environmental standards that will reduce much of the cost competitive disadvantage for North American and European producers.

At the domestic level, our governments have become high-wire balancing acts because electorates are unsure which direction to turn. Familiar traditional ways of doing things may no longer be effective (e.g., unfettered capitalism). Yet many of the new approaches (e.g., carbon taxes or “cap and trade”) are untested and risky.

Furthermore, polarization of views at fringe extremes has made it harder to achieve consensus.

There needs to be a return to common sense and clearer logic.

If it’s government debt that calls for action, due to the recession-fighting stimulus frenzy of the past two years, then a closer watch on spending for a period of time is called for. This might begin as restraint so as not to choke off the early shoots of recovery then evolve into serious cuts. Minimal-impact tax increases will also speed the return to better fiscal balance sheets.

Expectations for short-term economic growth may need to be pulled back in favor of the longer-term.

If it’s a matter of household debt, then the credit squeeze and tighter labor markets are forcing a shift to loan repayments and higher savings.

Looking out a year or two, improved consumer finances will provide a boost to the economy in several ways. Individuals and families will find it easier to meet mortgage payments. Governments will be able to sell more of their bonds at home, rather than answering to foreign buyers. And it will be easier for firms to acquire investment money for needed upgrades and improvements.

When it comes to the environment, measures to ensure preservation will be imperative. But there must also be an understanding that income-generating development should not be brought to a standstill.

That is especially the case when such investment generates research into more effective clean-up efforts and long-term caretaking employment.

The trick is in finding when, where and how to make the appropriate policy adjustments.

Maybe electorates have been wiser than they knew in establishing governance as it is presently constituted in many already-prosperous nations. Voters in their collective wisdom have hit upon a universal truth. The skill lies in the balance.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick last update:Sep 27, 2010

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