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Carcross traffic and economic growth

"I got stuck in the Carcross traffic." It's not an excuse you get to use very often. But last Wednesday afternoon it happened to me.

“I got stuck in the Carcross traffic.”

It’s not an excuse you get to use very often. But last Wednesday afternoon it happened to me. I was showing the sights to a friend from Outside, and Carcross was booming.

There must have been two dozen cars there even before the train, the buses, the cruise-ship Jeeps and the German film crew arrived.

There really was a mini traffic snarl as we left. A decade ago we used to pull up right in front of the Matthew Watson store and have the town to ourselves.

Fortunately we had just stocked up on lattes and cranberry muffins at the cafe, so we were in a good mood as we watched rookie RV drivers manoeuvre around train cars and people taking selfies in the middle of the street.

It’s an interesting example of what we refer to casually as “economic growth.” If you listen to the nightly news, they talk about the “economy” as if it was actually some kind of tangible thing that grows, shrinks and “creates jobs.”

In a certain sense, however, the economy is nothing more than the sum total of everyone’s productive activities or, to put it more simply, their incomes. If more people work longer or work more productively, this total will grow.

This is why the commonly held concept that there are a fixed number of jobs in the economy that can either be created, lost or stolen by someone else is false.

Say that I write an extra column, sell it to a newspaper, and then use the money to buy an advertisement for an upcoming talk I am giving. Essentially I have traded a column for an ad.

Both the newspaper and I have more revenue. The gross domestic product has grown.

Notice a couple of things. First, this growth did not require a stimulus program, central planner memo or an intervention by anything called “the economy.”

The newspaper and I just decided to do more work and make a trade. Also, the economic growth the newspaper and I created did not come at anyone’s expense. I didn’t need to cut my spending somewhere else, and neither did the newspaper.

The new “Carcross Commons” economic development zone illustrates this process.

First of all, more people are working. The staff at Caribou Coffee, Frisky Fresh Fish, The Bistro on Bennett and the other enterprises there are producing goods and services they trade with visitors and each other.

For people who were unemployed before, they are now generating income.

That grows the economy. This includes both employees and small business owners, assuming the business owners are generating enough cash to either pay themselves a wage or to generate profits.

The way the math works, having a larger percentage of your population working - that is, moving from zero income to even some income generation - has a significant impact on growth and average incomes.

But it is not the only impact. People who used to work elsewhere but now work in Carcross are also growing the economy, assuming they are making more money than where they worked before (which they probably are, or they wouldn’t have moved jobs to Carcross).

This might be because they are working more hours or are more productive because they are producing more value-add products or operating more efficiently.

Economists have observed this labour mobility effect in many places. A big part of Chinese growth has come from young people moving from marginal farming activities to factory jobs in the cities.

A person who moves from a $30,000 a year manufacturing job in Mississauga to a $100,000 a year job in Fort McMurray is doing the same thing, as is anyone who finds themselves with a higher hourly wage or more hours, or earns more tips from tourists in Carcross than they did in their old Whitehorse job.

The economy can also grow thanks to pre-existing companies that are making more profits due to the extra activity in Carcross. This effect can also be large, since lots of companies have substantial fixed costs. This means that incremental business can be quite profitable, which contributes to growth.

Finally, economic activity can also grow thanks to investment. If the businesses in the Carcross Commons are optimistic about the future, then they will invest in new buildings, equipment and products. This will also grow economic activity.

This would be the end of the story if the Carcross Commons were a purely private sector operation. However, various levels of government have contributed to get the project started.

This means that the cost of government support, both direct and the cost of the government officials who run the programs, needs to be netted against the income generated in Carcross to get a true sense of the economic contribution of Carcross Commons.

Economists will also point out that the taxes to provide this support had to come from somewhere.

It is impossible to measure, but in theory if a country has higher taxes to pay for more economic development projects then that will discourage economic activity somewhere; for example, some highly productive lawyer in Toronto will decide to take a longer vacation since working any more would be taxed at more than 40 per cent.

Or a company might pull the plug on a promising project since its returns are undermined by higher corporate taxes. This kind of thing reduces economic growth.

I don’t have all the figures on taxpayer support given to Carcross Commons, or the incomes generated by the businesses there. On balance, however, it looks like a success story for government-backed economic development schemes.

The region was economically depressed before, with a high degree of un- and under-employment. The positive effect of new jobs on aggregate income should be large.

Furthermore, the location of Carcross means that the businesses can trade with a large and prosperous population of cruise-ship tourists, mountain bikers, adventure seekers and independent travellers, and sell them crafts, lattes and meals at (hopefully) quite profitable prices.

This is good for the incomes of workers and businesses in Carcross.

This is also good for the tourists, as evidenced by the fact they seem happy to trade their Outside cash for what Carcross Commons has to offer.

Carcross is now well positioned to attract more businesses with more services to offer visitors. In a few years, hopefully there will be traffic jams in the winter, too.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels.

You can follow him on Channel 9’s “Yukonomist” show or Twitter @hallidaykeith