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The yin and yang of politics and the economy

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Alex Carrick

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

Economists

Today’s article is a continuation, or maybe more an extension, of the arguments set out in “Double-dip recession? The Economic Template is no longer working.” Maybe there/'s something happening beyond the mere economic.

Today’s article is a continuation, or maybe more an extension, of the arguments set out in “Double-dip recession? The Economic Template is no longer working.” The usual economic tools to solve our current problems either aren’t effective or are not considered acceptable at this time. Interest rates can hardly go any lower. The money supply has been cranked up to limited purpose and fiscal deficits have been tried to the extent that further shortfalls seem dangerous and threaten more debt downgrades. All of these apply to varying degrees in Europe, the United States and Japan - the leaders of the industrialized world. Maybe there’s something happening beyond the mere economic. Usually economics and politics are inextricably intertwined. A yin and a yang, as it were. (In some countries, religion can also play a key role, but in the case of the developed world, secularism has largely removed “faith” from the mix.) Sometimes the economy is in ascendancy. On other occasions, it’s politics. Since the onset of the sub-prime mortgage mess, the root instigator of many of the problems that have subsequently occurred, economic worries have dominated public attention. Bubbling up behind the scenes, however, politics – and especially the relationship between politicians and the electorate – may have taken over as the main obstacle to a return to “normalcy.” There is one prime reason the realm of politics has become so important in the current problem set - the common man or woman almost everywhere in the developed world is being asked to lower his or her expectations. Neither voters nor politicians are comfortable with this dynamic. Electorates aren’t used to being asked for sacrifice. Furthermore, and often justifiably, they’re suspicious of such pitches. There’s an old saying that during good times and bad, “the rich get richer and the poor get poorer”. Most peoples’ sights have already been lowered on account of so many jobs being outsourced to nations with cheaper labor forces. Politicians usually attempt one of two approaches to winning elections: 1) they offer the prospect of a change in leadership versus an unsatisfactory incumbency; and/or 2) they promise hope for a brighter future. The latter has been usurped. In the developed world, there are calls for reductions in the social safety net. In fairness, those demands are often coming from external sources, such as rating agencies or supra-national bodies like the International Monetary Fund (IMF). In many nations, with Greece as the most extreme example, the size of the civil service has been judged excessive compared with what the economy can support. Public sector jobs often come with unsustainable benefits that last for life. Pension plans are under attack in many jurisdictions. Nearly everywhere, one key plank in the reform package is extension of the retirement age. There have been battles in state legislatures in the U.S. to amend contracts with teachers, firefighters and policemen, as well as government bureaucrats, to lower budgetary deficits. Sacrifice may also be required in other ways. For example, Germany holds the key to the euro-zone’s fate. To resolve Europe’s woes, the German people must decide if they will make a financial commitment – through broadly-backed Eurobonds or revenue-sharing fiscal union – to save the common currency. Debate over these issues has led to angry confrontations and sometimes general strikes. It takes considerable resolve for elected officials to withstand the pressure, even when they’ve been given a mandate to take action. This is rendered even more difficult by the knowledge there are other vote-seekers standing in the wings prepared to pitch a different message if it will garner more appeal. There are a couple of other political strains being added to the mix. In emerging nations, the concern with struggle has been superseded by alarm at government dishonesty. In India, a leading social activist set off a mass movement when he staged a hunger fast in support of an anti-corruption program. In China, the recent crash of a showcase high-speed train, with accompanying fatalities, has led to charges of bribery against the individual responsible for reviewing bids on the project during its construction phase. There has been enormous outrage over the kick-backs that have been uncovered. Few people have been swayed by the argument the man in charge needed the money to support his 18 mistresses. Returning to the developed world, aging populations are another source of diminishing expectations. Japan is the extreme example. Based on a continuation of current demographic patterns and restrictive immigration policies, Japan’s population is expected to drop by 30 million to less than 100 million by 2050. At that time, more than a third of the population will be aged 65 or higher. What it comes down to is whether or not voters themselves believe they need to alter their goals. History has sometimes thrown up remarkable politicians to lead electorates where they must go. In our more mundane times, polls and the media are scoured by behind-the-scenes “handlers” for information that will nudge politicians towards higher approval ratings. There is a considerable difference between leadership and opportunism. 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 28, 2011

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