Canada’s economy has suffered for decades from “terrible management” and it will take decades to fix it, a finance expert has argued.
Stephen Johnston, who works as Omnigence Asset Management’s director in Calgary, said Canada has become the “poster child for stagflation.”
Stagflation occurs when a country’s economy suffers from sluggish growth – stagnation – and rising prices – inflation – at the same time.
That combination “makes nobody happy,” Johnston told NowMedia video host Jim Csek, since it leads to lower living standards.
Explaining Canada’s precarious economic position, Johnston emphasized the country’s lack of manufacturing, loss of capital, fiscal deficits, overvalued housing, uncertainty about natural resources development and penchant for borrowing.
He discussed many of those points in a paper earlier this year titled “Is Canadian growth dead?”
“Basically, Canada is the poster child for stagflation,” he said. “Like, if you think, there was a list of 20 things you shouldn't do … And you certainly shouldn't do all of them. We've basically done all of them.”
Canadians – as well as foreigners – have been investing their cash, or capital, outside of the country “in earnest for the last decade,” Johnston said, describing that situation as “a travesty.”
“Without capital, you don't have affluence,” he explained. “I mean, it's very straightforward.”
What capital the country does have, he added, “is disproportionately focused on residential real estate.” In other words, people are spending their savings on homes rather than investing in, for example, Canadian start-ups.
Meanwhile, the country has “borrowed to consume,” a practice Johnston classes as “effectively stealing growth from the future.”
All that amounts to “terrible management,” he argued.
“It's just appalling economic and legislative and administrative and policy decision-making,” he said. “I mean, it just is. And so we've set up this set of conditions that are going to take a very long time to fix.”
Just how long would it take to get out of the hole Johnston thinks the Canadian economy has found itself in?
“It'll take decades to fix what's happened because you have to, first of all, deleverage,” he said. “And then you have to fix the regulatory environment to attract capital. And then you have to discourage consumption and encourage capital investment.
“Right now we encourage consumption and discourage capital investment, so you've got to change the tax system to do that. We've got to address the tax rates both on the capital side and the income side in Canada.
“I don't want to sound like a doomsayer, but there is a very long list of things that need to be done.
“And that which takes decades to create takes decades to fix.”
'Terrible management': Financial expert says it will take 'decades' to fix Canada's economy - PentictonNow
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