Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

Construction Industry Forecasts

Notes from Alex Carrick

Alex Carrick
The yin and yang of politics and the economy
Sep 19, 2011

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.

Alex Carrick Post Archive

09/14 - Double-dip recession? The economic template is no longer working
09/09 - Will Canada follow the lead of the American Jobs Act?
09/01 - Regional influences on the Canadian construction outlook
08/26 - The roles of oil and natural gas in the economic outlook
08/18 - The slowing world economy and concern for jobs in the U.S. and Canada
07/26 - Damage to the credit rating of the U.S. has made tomorrow today
07/20 - U.S. sub-sector jobs histories provide insight into economic structural change
07/12 - In the context of a highly regarded Canadian economy, Toronto kicks up its heels
07/06 - A shakier world outlook explains the easing in commodity prices
06/29 - May’s higher inflation rate in Canada can only be called “rude”
06/22 - The latest on Canada’s population change and pension holdings
06/15 - U.S. inflation moved up to 3.6% in May with commodity prices as the spur
06/07 - World’s Banking Sector Still Faces Major Challenges
06/01 - Stock markets are adjusting to a cloudier outlook for the world economy
05/25 - These are tricky times for Bank of Canada Governor, Mark Carney
05/18 - Canada’s leading indicator index advanced strongly in April
05/11 - U.S. and Canadian foreign trade performed as expected in March
05/04 - Many reasons to celebrate Canada’s escape from minority government
04/27 - The latest data on debt and demography in Canada
04/21 - The two key U.S. housing reports turned more positive in March
04/14 - Keeping up with world-wide economic events takes focus
04/06 - Stock Exchanges are seeking perspective on the view
03/30 - Engineering work will lead Canadian construction categories out to 2014
03/21 - Eruptions in Japan and Libya alter the course of world events
03/10 - Government accounted for nearly half of Canada’s 2010 non-residential construction
03/02 - Public debate is about to become more political
02/25 - The focus shifts to oil prices, extraction capacity and construction costs
02/18 - Canada’s January inflation maintains the positive economic environment
02/09 - A ballet with three principal dancers - commodities, construction and manufacturing
02/01 - Strong North American stock markets have many positive implications
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