Opinion: Ottawa’s big goals come with big risks

The Liberal dream for the pandemic recovery is a job market where absolutely everyone has meaningful work, paid well enough to make ends meet.

The goal, it seems, is to push the limits of full employment, pulling in marginalized workers from the sidelines, pushing up pay, and making sure the problems exacerbated by the pandemic don’t persist.

It’s a big dream for inclusive growth – putting good wages and labour participation on par with economic expansion as top priorities. But it comes with a big risk – in the form of inflation. Rich countries around the world are grappling with how much to rev up their economies now that the pandemic is coming under control in some regions, and how to do so while keeping inflation under wraps.

Like the United States and Europe, Canadian governments have made a point of spending big, and central banks have made a point of keeping interest rates close to zero, and keeping financial markets well stocked with easy money.

And on the surface, at least, it looks like inflationary pressure is the result. Canada’s consumer prices were 3.4 per cent higher in April compared to a year ago. That’s way above Canada’s two per cent target.

But before we all panic, there are lots of quirks to that number.

The comparison to a year earlier is fraught because that’s when the economy shut down for the pandemic, causing prices to decline outright. Things have been wonky ever since, with supply chains broken and income patterns all over the place because of job loss and government benefits.

Meanwhile, Canada’s real estate markets have surged beyond reason.

But economists are cautious about sounding the alarm. There are so many anomalies in the numbers that it’s hard to predict where they’re heading. It’s perhaps more clear cut in the United States, where former treasury secretary Larry Summers has warned that inflation is a top risk.

In Canada, economist Jack Mintz has issued similar warnings and the federal Conservatives argue that too much inflation will be the inevitable outcome of a Liberal budget that overspends without encouraging growth.

The trick for Canada’s central bank is to make sure it’s ahead of the curve, eventually raising rates gently in anticipation of rising prices.

But we need to talk about inclusion.

The Bank of Canada’s mandate, for now, only focuses on inflation. Lately, however, governor Tiff Macklem has spoken out about the need to focus on getting people back to work – not just most people, but all people. He argues that inclusion is important to consider for the long-term prospects of the country’s economy. That suggests he is willing to look past a bit of inflation here and there in the name of letting the economy run at full tilt.

That’s perfectly in tune with where Finance Minister Chrystia Freeland is positioning herself too. She speaks frequently about the need to prioritize employment and rectify the harms done to racialized workers, women, young people and low-wage workers during COVID-19. And her spring budget pumped $143 billion into a recovering economy to make it so.

But unlike Macklem, Freeland has many more tools at her disposal than straight stimulus – and she doesn’t risk stoking widespread inflation as much if she can deploy them with finesse.

The budget started down that road. Billions in funding for child care will help parents get to work. Money for training could help low-wage workers boost their pay. A federal minimum wage sends a signal to others that anything less than $15 an hour is unacceptable.

But if the goal is to employ everyone, especially marginalized workers, for a decent wage, there are more things that Freeland could do, says Hassan Yussuff, president of the Canadian Labour Congress. He points to expanding the scope of the federal minimum wage, focusing harder on skills development, labour mobility and also having a hard look at how temporary foreign workers change the dynamic for low-income and precarious workers already here.

Unions and employers have a role here too though, in ensuring the recovery treats workers well. Relying simply on the macro tools of fiscal and monetary policy to stimulate the economy into inclusive growth is just too risky to leave to government alone.

Heather Scoffield is a National Affairs writer.

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