Time to break an election promise

Last night when I was watching the US presidential debate on Newsworld, the ticker told a one-line story that the Conference Board of Canada’s latest forecast for 2008 economic growth has been lowered to 0.8%. It was a redemption or sorts because back in February I testified before the House Finance Committee with Glen Hodgson of the Conference Board. I was the skeptic whereas Hodgson bullishly stated that the Canadian economy would grow 2.5% this year. So I’m not sure their latest prediction is worth much. Why to the media keep going back to the Conference Board every time they make a prediction without ever bothering to see if past predictions have panned out?

The main point is that we are headed into a recession, probably a long and nasty one. But how long and how nasty depends on how governments react. So now that the election is over, it is time to abandon balanced budgets, and start focusing on what a realistic planning deficit for 2009/10 should be. All parties endorsed balanced budgets in the election campaign with almost religious fervor. They need to renounce that vow and perhaps should hold a press conference together so that no party gets blamed as the first mover.

With Stephane Dion a lame duck for the Liberals, this inevitably brings up leadership contender Bob Rae, who is intimately associated with the last deep recession in Ontario in 1990/91. Ontario’s manufacturing base was particularly hard hit between high interest rate policies emanating from the Bank of Canada to stamp out inflation and the fallout of the Canada-US free trade agreement (policies that were praised by my Western profs), both of which amplified the business cycle turn to recession.

Rae also wears the smear of “fiscal profligacy” for his time as Premier. Ontario’s deficit was about $3 billion in 1990/91, around the time that the Rae government came to power. The next year it swelled to just under $11 billion, then hit $12.4 billion in 1992/93 before starting its decline to $11.2 billion in 1993/94, and $10.1 billion in 1994/95. From there it declined steadily up to budget balance in 1999/00, but would have happened much sooner were it not for the Harris tax cuts after 1995.

These deficits, of course, have to be stacked against the economic circumstances of the day. In 1991, real GDP fell by 3.9%, and then grew by about 1% each of the next two years before gaining some strength in 1994. By then the damage was done and the NDP’s days were numbered. Even then, the economy was characterized by “jobless growth” and really did not start firing on all cylinders until 1997.

Ontario’s deficits, while met with such hostility from corporate Ontario, actually made the recession less painful for Ontarians than it would otherwise have been. The deficit was 3.9% of GDP in 1991/92, and 4.3% in 1992/93, before falling to 3.8% in 1993/94 and 3.2% in 1994/95. Just imagine how bad it would have been were those each balanced budgets. And once Ontario’s economy turned around, deficits shrank rather quickly.

On top of the provincial deficit, the feds ran large deficits in this period, as they should have. Those federal deficits were between $30-40 billion range for the early 1990s, around 5% of GDP. So the total stimulus in Ontario, federally and provincially, was 8-9% of GDP. That was a bad recession; this one looming could be worse. And the single most foolish policy governments could make looking forward is trying to balance the budget by cutting back on spending.

5 comments

  • Are we heading towards a recession? Well it totally depends on how governments react. I think all parties should endorse balanced budgets in the election campaign.

  • I hate to be the rain on the parade, but I think the whole deficit hang up will soon be a moot point.

    There is an economic storm coming that will be unprecedented.

    Not only do we have the signal biggest financial crisis in many decades to the south that is threaded through a web of global fraud, we now have a commdity bubble collapse right here in our own yard.

    Oil has crashed, and so too are a majority of other commodities. I wonder what fraudulent leveraged financial vehicles that our own banks have wrapped up within those perceived assets.

    (Can you imagine that we have let the markets and speculators jerk our dollar around in a fashion that it mainly served as a bubble speculation rather than a currency. It has only cost us a vacuuming up of our productive assets within a good portion of the manufacturing sector.

    Yet sit down and discuss that with a neo-con and they will religiously defend the actions of these markets. How is that in any state of insanity rational? )

    Yet Mr. Harper somehow dodged the whole fiasco with timing. )

    We need to wake the hell up and start acting. As far as I am concerned we are in a recession and it is about to get much much worse.

    We need to move from talking about deficits to start suggesting some programs that would be worthwhile spending some good amounts of public money on.

    As we stated many times a good start is EI reform. It is simple enough. The US is in he midst of EI reform so why can’t we?

    Of course we had a huge surge in part-time jobs last month?????????????????

    Of course I cannot say anything about any economic data put out by statscan on this blog as I have been informed by my employer I could be fired for it, and have been threatened twice now, with no evidence to back up those threats. Nice how a large institution of employees can sit back with such abandon and hurl threats ad nausea, with no accountability, I wonder many times what democracy really means.

    (I do apologize for the lack of statistics in my posts but as you can see my right to free speech has been taken from me.)

    You might want to check out other posts that actually have the right to free speech.

    Paul

  • Paul said of his employer:

    “I wonder many times what democracy really means”

    Um, nothing in the context of a job.

  • how far is your employer allowed to intrude on your right to be a citizen, is what I am referring to. I am an economist, so why can I not make statements about the economics situation without having to worry about what my employer has to state.

    This to me is a real issue that needs to be addressed for civil servants.
    I have consulted my “union” and they the Canadian Association for Professional Employees is about as in bed with the mplyer as you could possibly get for a union. Not only have they refused to grieve this decision by my employer, my union has now threatened me with legal action if I went public being critical of them with regard to my case.

    So I guess I am left in a space where I must just shut the phrack up and speak ever so nicely of economic data.

    So wonderfully bubbly and squeaky cleaned. Information surrounding us with its brevity and hammers. Pounding into our head the definition of what is never real.
    Just a construct so pointed and undemocratic.

    Defining for the imagination of how value goes

    A fine art dressed up in the armour of objectiveness and fashion.

    Revealing only where the winds blows.

    Left undefined are that which cannot and that which they do not want to hear.
    A number has definition throughout the universe

    Yes you are counted and included in the equation.

    Only blunted and muted and rearranged in a nice fitting row. Officially, formally, the bottom defined from above, meaning so incisively ground off. The sharp edges gone,
    the reality habours in the shadows lurking hiding with the bold.

    a 10 minute poetic rant for those economic poets out there.

    Some comic relief for a change, given the election blahs.

  • Paul said:

    “how far is your employer allowed to intrude on your right to be a citizen, is what I am referring to.”

    As far as your employer feels is necessary by his/her definition. The kinds of disruptiveness that comes of exercising one’s rights as a citizen, even in the pale democracy we have, can be seen by any employer as disrupting the “smooth flow” of business/productivity/exploitation. Can’t have that.

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