The April Labour Force Survey numbers have been released by Statistics Canada, and they are grim.
The official unemployment rate sits at 13 per cent, but this excludes 1.1 million people who are unemployed for reasons related to COVID-19 and therefore not looking for work. If they’re included, the unemployment rate rises to 17.8 per cent. The most striking news, however, is that “more than one-third (36.7%) of the potential labour force did not work or worked less than half of their usual hours.” More than a third of working-age Canadians are out of a job.
While these are historically dismal numbers, it’s important to keep in mind that preventing a large number of people from going to work was one of the goals of the COVID-19 lockdowns. The question is what will happen once lockdowns are lifted, and unfortunately we have good reasons to believe that the economic pain will persist.
For one, the economy has shrunk significantly since March, and will take time to grow to pre-COVID levels. In a webcast hosted earlier this week, the Bank of Canada’s Senior Deputy Governor Carolyn Wilkins predicted that Canada’s GDP would fall by between 15 and 30 per cent in the upcoming fiscal quarter compared to 2019, and the Bank’s April Monetary Policy Report projects that GDP may not return to pre-pandemic levels until mid-2022.
A second reason is that oil prices have collapsed. As of writing, WTI oil costs $24 US per barrel (well below the $58 price projected in Alberta’s 2020 budget). With a supply glut and limited demand, oil is likely to remain cheap for the foreseeable future. December oil futures contracts are trading for around $31, indicating investors do not expect oil prices to rebound any time soon. This means a big chunk of Canadian oil production — a significant driver of the economy — is now unprofitable, and will have to either be abandoned or propped up by state subsidy.
These two factors suggest we should not expect a “v-shaped recovery” in which the end of lockdowns restores the economy to its pre-crisis state. Instead we should assume the default recovery period will be long, slow and painful, and implement policies that mitigate this pain as much as possible.
Given that two of the main drags on our economy are now under-utilization of the labour force and chaos in the oil industry, and that a transition to clean energy is needed anyway, governments should take this opportunity to go big on a green stimulus. A massive investment of public resources into clean energy production and technology could solve three problems at once: putting Canadians back to work in good jobs, ending our economy’s dependence on the volatile oil and gas sector, and accelerating our transition to clean, cheap energy sources.
What could this look like in practice? The objective of a green stimulus plan would be to mobilize idle production capacity and reach full employment through public financing of projects to replace carbon-emitting aspects of our economy with zero-carbon alternatives.
Nearly 45 per cent of Canada’s CO2 emissions are generated by burning fuel for electricity and heat. These carbon-emitting sources would be replaced by a combination of renewables like wind and solar, backed by always-available hydroelectricity and nuclear (which now, by the way, causes the fewest deaths per kilowatt-hour of any energy source).
Around 28 per cent of our emissions are created by transportation, a sector that can be decarbonized through electric vehicles, better public transit and biking options, and synthetic hydrocarbons for longer-range transportation like aviation and shipping.
The remaining one-fourth of our emissions come mainly from agriculture and industrial processes needed to manufacture steel, glass, cement and other basic materials. These can be reduced through a variety of mechanisms, including more efficient land management practices, reforestation and the roll-out of carbon-free industrial manufacturing technology.
This will all require expanding manufacturing capacity, building new energy projects, enhancing our energy grid, retrofitting existing buildings and industry, and substantial research and development. It’s easy enough to conceive of these changes, but actually implementing them will require vast resources. Fortunately, massive stimulus funded through borrowing and targeted taxes is exactly what we need to get people back to work as quickly as possible after COVID-19.
Debt right now is historically cheap, with the Bank of Canada’s key interest rate target at just 0.25 per cent. And we have plenty of room to borrow. The Federal government’s debt-to-GDP ratio in March was just more than 30 per cent. This is well below the debt ratios of the United States, Japan, France and Germany, to name just a few peer countries with greater debt loads. None of these countries have experienced higher interest rates, rising inflation, currency devaluation, or other supposed negative consequences of public debt.
A green stimulus plan worth 2 per cent of GDP — on a similar scale as the 2008 stimulus package — would increase our debt to GDP ratio to 32.7 per cent assuming the new spending has no impact on GDP growth. A stimulus plan twice the size would bring our debt ratio to just under 35 per cent, still well below that of that many G20 countries. If the stimulus did boost growth, as public spending usually does, then it could leave the debt ratio lower than it would be without stimulus.
Revenue could also be raised through additional taxes that are socially desirable for their own sake, such as an estate tax on large inheritances or wealth tax on multi-million dollar fortunes. The Parliamentary Budget Office estimates that a wealth tax of 1 per cent on fortunes of $20 million or more would generate $68.6 billion over 10 years and a financial transactions tax of 0.5 per cent would raise $169 billion over 10 years.
This investment should be deployed through a set of publicly-owned crown corporations — not “public-private partnerships” — for three reasons. First, the private sector is incapable of investing enough resources quickly enough to pull us out of an economic tailspin. This is why it’s always public funding that is used to rescue economies from recession. Second, if public resources are going to build our new energy infrastructure, then eventual profits from that energy infrastructure should flow back to the Canadian people rather than privately-owned corporations. Third, public management of these resources will allow us to protect the workers in our energy sector who will be displaced by decarbonization. Left to the tender mercies of the market, these workers will receive minimal protection or support as the fossil fuel industry naturally declines. Rather than condemning them to years of wage cuts and lay-offs, we should spend money now to create good new jobs and provide paid training to fill them.
Decarbonization is often derided as a fantasy or something that is simply not achievable in the near future. U.S. Speaker of the House Nancy Pelosi notoriously derided the Green New Deal decarbonization plan as “the Green Dream.” This is what C. Wright Mills called “crackpot realism,” confused and unfocused protests deployed by those without any solutions to offer. The notion that decarbonization is too expensive or painful to be done is not supported by numbers or evidence — quite the contrary, in fact.
Not only is decarbonization through a green stimulus program feasible, it is necessary. All serious people understand that we have to transition our economy to clean energy in the coming decades. The economic crisis created by COVID-19 and the collapse of oil prices has just added to the urgency of this investment. We need to decarbonize. Millions of Canadians will need jobs once the pandemic abates. There is plenty to be done. Let’s get to work.