Lessons from Mayor Pete on coping with uncertainty

When Democrat Pete Buttigieg was in Ottawa for the Canada 2020 dinner this week, he had some strategic advice for those who despair over the state of America and are having a hard time seeing their way to the other side of that “storm.”

While the world around us may be broken, he said, there’s not much point in trying to tape all the pieces back together and hope for a return to better times.

But the former Transport Secretary who ran, unsuccessfully, in the 2020 Democratic primaries, is certainly not counselling to give up.

Instead, he advised building new and different coalitions based on commonly shared principles. He urged meeting people where they’re at, and with respect. And he suggested showing them – not just telling them – solutions to the problems of everyday life.

We can hope that the Canadian policymakers putting together this fall’s federal budget were listening, and that they’ll take some lessons from the past and apply them creatively to the future – while meeting people where they’re at.

So far, Prime Minister Mark Carney has signaled that this year’s budget-making process is an arc between austerity and investment. Since he sees a need for both, he will split his columns between operations (where we’ll find the austerity) and capital spending (where we’ll see the investment).

And he and his cabinet have already moved to use the power of the federal purse to support the sectors of the Canadian economy hit hard by the “storm” blowing at us from south of the border.

But let’s take a look at where people are actually at.

Economic growth is stumbling along. The country’s output shrank by 1. 6 per cent in the second quarter of this year, and the third quarter looks like it was flat. Yes, that weakness was especially sharp in trade-exposed sectors. And yes, Canada has thus far avoided a deep recession. But no growth helps no one.

Indeed, the Bank of Canada trimmed its key interest rate last week for that very reason. The bank pointed out that exports and business investment are down, and even though consumption and housing activity look healthy for now, it won’t last.

Employment is also limping. The proportion of working-age people with jobs has been eroding since the beginning of the year. In August alone, it fell by 66,000 people.

Young people find it hard to land work. The unemployment rate for workers aged 15 to 24 is now 14.5 per cent, the highest since 2010, pandemic aside. And the news is full of warnings that entry-level positions are being gobbled up by AI agents.

And the gap between rich and poor is bigger and more troubling than ever. Statistics Canada’s most recent measurement of the gap, looking at disposable income, finds it to be at a record high. Meanwhile, Canada’s wealthiest citizens pay lower tax rates than our plumbers and nurses.

Things aren’t as bad as many imagined they could be, but the people in the fragile parts of the economy need a fiscal policy that is supportive, alongside the long-term capital plans Carney has in mind.

Here’s where taking from the past can actually be helpful.

We know from recent exogenous shocks to our economy, such as the pandemic and the global financial crisis of 2008, that the central bank’s cutting of rates is a blunt instrument, whereas government spending and taxation can be used with far more finesse.

Another lesson the pandemic taught us is that boosting economic resilience in households is just as important, if not more so, than policy oriented simply towards fueling growth. If regular people are having a hard time in their everyday lives, long-term prospects for a country as a whole are on shaky ground.

But as Buttigieg says, it’s not enough to look at what worked in the past and patch it together to face the future. Economic dynamics are changing quickly and profoundly, and the tools of the past will need to be applied with caution and creativity.

The federal government’s recent $13-billion announcement on building affordable homes seems to fit the bill. It’s targeted, it uses federal lands and seeks to partner with non-profits and eventually the private sector – fiscal policy with a creative flair.

The Canadian Tax Observatory is embarking on researching options for a more calibrated tax system that meets people where they’re at, with an eye firmly fixed on the future, on the wherewithal of youth and on their ability to foster growth. And we hope the federal budget will take a similar approach.

As Buttigieg told the dinner audience this week: “All good politics takes everyday life as its departure. The longer you’re planning to be here, the more you have at stake in a set of decisions, many of them irreversible, being made in your name now.”