Talk to the (steady) hand
If you pay attention to economic issues you have probably heard that a recession is defined as two consecutive quarters of declining real (inflation-adjusted) GDP. It is pretty arbitrary, but on this basis, the most recent numbers had Canada missing the cut-off for recession by a hair.
Indeed, it was a downward revision to the first quarter GDP number (which was negative) that made second quarter growth positive. In the absence of that revision, we would have inked two consecutive quarters of declining GDP. These subtleties aside, an important take-away from the second quarter GDP numbers is that second quarter GDP was lower than the fourth quarter of 2007.
Yesterday’s productivity data release from Statscan shows an even uglier picture: “Canadian business labour productivity declined 0.2% in the second quarter of 2008, after declines of 0.6% in each of the previous two quarters. This is the longest series of consecutive quarterly declines since 1990.”
Productivity is typically reported as real GDP per hour worked. So if we adjust for hours of work, we’ve had not just two but three declining quarters. And as Jim Stanford pointed out in a short piece released yesterday by the CCPA, Canada’s productivity record during the Harper years is not just negative but the worst of any Canadian Prime Minister since the dawn of modern statistical record-keeping.
So why is the economy not a bigger issue in this election? Perhaps because private forecasters, as well as the federal government and the Bank of Canada, failed to see any economic downturn coming. The Bank of Canada, in its mid-July Monetary Policy Report, lowered its expectation to 1.0% growth for 2008, down from its projection of 2.5% a year earlier, and 1.8% as recently as January. Private sector forecasters have fared no better, and even though expectations have been revised downwards my sense is that they are still excessively optimistic given the actual fundamentals.
The real economic issue, however, is not Harper’s record but what he would do if things got really bad. We are looking at a government that will be cutting spending in order to balance its books. That’s not the news I want to hear if I am at risk of losing my job. Those income tax cuts only help if you have income (and the more income the better). So we are seeing a campaign framing the issues as short-term private monetary interest as being more important than sharing the risks that can emerge in bad economic times.
American writer Michael Yglesias calls this YOYO economics: you’re on your own. Or in Canadian electoral parlance: talk to the (steady) hand.