The D Word
Not deficit, with a small d, but Depression with a big one.
By now, everyone has come around to accepting that we are in a recession. Even though we have not had the rule-of-thumb two quarters of negative growth, rising unemployment, collapsing housing starts, drops in retail sales and so forth all tell us we are in a recession. Technically speaking, Canada’s first quarter GDP could rise by one-tenth of a percent, then drop steeply in the second quarter, then grow by another tenth of a percent in the third quarter, and so on — we could get through this without experiencing a recession defined strictly as two quarters of negative growth. But we are indeed in one. At the CCPA, we are contemplating coming up with our own methdology for calling a recession, so if you think that would be useful, chime in below.
Anyway, the real question is are we at the start of a Depression. My mental image of the Great Depression is of long lines at soup kitchens and men riding rail cars in search of employment, and that seems a long way off. But the essence of depressions is not just a deeper and longer recession. In a broader historical sense it is largely a dynamic of collapsing asset prices leading to a financial crisis — sound familiar — and that crisis taking years to work off the accumulated excesses.
I don’t think we will get back to those soup kitchens because we have built a fairly robust government sector that transfers income to people of various types (children, seniors, the unemployed, etc), provides a range of core public services, and has a civic bureaucracy that powers the machinery of government. The development of this counter-weight, which persists quite strongly in spite of attacks from the right, is itself a lesson of the Great Depression. Even though we certainly need more stimulus from federal and provincial governments than we have seen so far, by and large we have not caved in to the simplistic idea that “the public sector must tighten its belt, too.”
But you have to admit, the dynamics we are witnessing are more than those of a recession, as we have seen in the post-war years. We are beset by depressionary forces, and the sooner that becomes the conventional wisdom, the better, because it opens our minds to interventions that would have been considered taboo a year ago. Heck, deficits were taboo a year ago; today, printing money is a bona fide economic strategy being used by a country that used to rule the world. And the country that does rule the world is doing pretty much the same thing, though technically the new money is just a loan, for now. I’m not convinced they are engaging this strategy in the correct manner, but the point is that we are beyond the looking glass.
My hope is that we’ll look back on this as The Small Depression of 2009-10 because we leaned hard against those forces, righted the shortcomings of the private sector with some strong public interventions, and came out the other end on a more socially, economically and environmentally sustainable footing.