Editor's note: Managing the recession

Canada’s stimulus plan likely won’t have much effect on ending the recession. But action is still important.

It seems a million years ago, but in January ’08 I attended a conference about the soaring dollar and the stress it was putting on exporters. I sat on a panel addressing the question of what government should do. My answer (which made for a short speech) was this: Don’t do anything you shouldn’t have done anyway when the dollar was at 65¢US. Cut red tape, eliminate barriers to the movement of goods, labour and capital, invest in infrastructure and smarten up on taxes. Improve human capital through better education and help make our companies more nimble so they can better withstand changing conditions.

Well, at least we don’t have to worry about that darned Dutch disease anymore. But it wasn’t cured by Canadian fiscal policy (or monetary policy, which some argued should have been invoked to address the high dollar). I suspect a similar dynamic will apply now when it comes to government action on ending the recession: it won’t have much of an effect. But action — for the long term — is still important.

The global financial crisis has handed governments, especially solvent ones like Canada’s, a perfect opportunity to act. The real disappointment of the recent federal budget was that it had no big goals. It had some good parts — for instance, infrastructure spending (but will it be on the right projects?) and money for a national securities regulator (but when will that regulator get started?). Yet on the whole it’s a hold-your-nose-and-be-seen-to-do-something plan, not an economic vision. Now it’s sitting in the Senate awaiting approval that some legislators have said they’re in no hurry to give, diluting its impact even more by delaying its implementation.

There’s an old anecdote wonks use to explain government’s habit of ignoring problems when they could prevent them, and only doing something when the problems have become full-blown crises. It goes like this: Put a frog in a laboratory beaker full of water and turn the Bunsen burner on high, and the frog jumps out when the water gets hot. Turn the burner on low, however, and the water heats up gradually, so the frog doesn’t notice until too late and it, um, croaks. Well, our legislators seem willing to wait until the frog is good and boiled, and then throw in an ice cube.

I’d feel better if governments turned their attention to the long term, helping businesses cope with the next recession, or the next bout of Dutch disease.

Oh, well. Maybe next year.