The incoming administration in Washington has proposed an elaborate economic stimulus package that will include a massive public works scheme. Unfortunately, a public works scheme did little to lift Japan out of its economic slump during the 1990s. In Ottawa, the minority government formulated a stimulus package that was perceived as too modest and rejected by opposition parties, who then proposed to form a coalition government. The suspension of parliamentary proceedings in Ottawa will at least serve to delay the malinvestment of that economic stimulus package.

Short-term Gain vs. Long-term Pain Of course, there is already massive malinvestment in both the American and the Canadian economies. Both economies are rife with misleading economic signals caused by the ultra-low interest rates in effect during the American housing market boom. The current round of ultra-low interest rates, along with the massive multi-billion dollar bail out packages in the US, have the potential to generate a whole new layer of misleading market signals and a whole new round of malinvestment. The gains over the short term could easily lead to another severe market slowdown in the long term.



Ultra-low interest rates and government-funded technology development programs financed the high-tech boom and the high-tech malinvestment boom. Consumer and commercial market signals that were riddled with misleading signals led to the development of new cutting-edge technology and innovative software. The only problem was that there was too small a market to support the production of these products and services, or to have warranted their development in the first place. The result was the dot-com meltdown and the high-tech bust.



Governments worldwide are initiating economic stimulus packages that are intended to bring about economic recovery. Over the short term some national economies may even show signs of economic recovery, but those signals will in turn be misleading and cause malinvestment in some business sectors. The result over the long term will be another and perhaps more severe economic slowdown.

