Wednesday, January 21, 2009

The Right Stimulus

Apart from investing in infastructure, I see reforms to EI as the most compelling form of stimulus. When you consider many economists only expect a 10% return on the dollar, when it comes to tax cuts (Don Drummond for example), it seems a pretty inefficient way to stimulate the economy.

If the budget really wants to address the "vulnerable", it seems the best way is to help those hurt by the economic downturn, enable them to ride out the recession and put them in a position to prosper once the economy turns around. There is universal agreement, that when Canada emerges from the recession, we will still see a labor shortage in many "skilled" categories. Why not expand EI benefits, make it more "lucrative" in the short term, so laid off workers have the capacity to keep spending? On top of that, expand benefits to include provisions for re-training, in targeted professions, so those workers have the skills to find future employment. You collect benefits for a longer period, and apart from that, the government will pay for additional training. If an employer hires a new "apprentice" for example, the government would pay that salary for a period of time, making it attractive to bring new people on board, "we" absorb that short term cost. That sort of investment keeps people spending, while also giving them the skills to find future work, once any program ends.

When people lose their jobs, they effectively are removed from the economy, apart from spending on the most basic of needs. Giving laid off workers more money through EI, allows people to continue to be "consumers", which means the economy as a whole doesn't suffer from a contracted work force. Extending benefits, while people "re-train", in specific areas where the future need is great, means we emerge from a downturn with workers ready to fill the known voids. To me, that seems like both a short term recipe to keep the economy moving, as well as longer strategy to make any recovery more sound and modern. When you compare the cost of ramping up EI benefits and training with the cost of tax cuts, I see the latter as decidedly inefficient.

People with jobs don't necessarily need a break, particularly in this climate where any small tax cut will likely be hoarded or spent on foreign goods. It's the people without work, the people that don't have the skills to succeed in the modern economy, that should be the primary focus. We can turn adversity into opportunity, and at the same time address future labor shortages, in critical fields. Increase the spending capacity of those who have lost their job, that in and of itself is a "stimulus", and continue that "stimulus" by paying for those laid off workers, as they acquire the skills we know the Canadian economy will need.


Anonymous said...

Liberals screwed up the EI system in the first place and stole $54 Billion from the workers and businesses in Canada and short changed the provinces on transfers for health, education and social services to create the illusion of surpluses.


Steve V said...

What's really pathetic is using ancient history in a discussion on how we move forward, during a recession.

janfromthebruce said...

Steve, it's not pathetic. You just don't want to be reminded of the truth, so the liberals can come in, and fix what they broke, and hope that the public isn't reminded of where the original problem came from.
If one wants to take credit for fixing something, one also must take ownership for breaking something. That is being accountable.
So yes, let's move on, but remember it has been both the NDP and the Bloc who, since the EI was revamped by the liberals, who have been at the forefront of fixing EI. I am glad that liberals have come to a deeper understanding of the flaws they created, and are willing to be a part of elected officials who want to fix it.

Steve V said...

"You just don't want to be reminded of the truth, so the liberals can come in, and fix what they broke"

I wasn't even a freaking Liberal, so excuse me if I don't feel the need to apologize. I'm looking forward, you partisans can grind axes all day. Whatever.

wayupnorth said...

Bang on Steve!

If the government gave everyone on assistence $100 dollars a month most of it would be spent in days. Tax breaks on income might see 25% of the money enter the economy in a few months. Business tax breaks or consumption tax breaks are 100%swallowed up in profits and have no effect whatsoever.

Why the cons. are agonizing over this is beyond me. You don't need an economics degree to understand how different forms of stimulus works.

Steve V said...


Harper used the word "lucrative" when spoke on EI, didn't want any measure that made it more attractive not to work. I think his ideology prevents him from seeing the big picture.