Happy Crashiversary! Are you better off now than you were four years ago?
Four years after Lehman Brothers collapsed, itâ€™s time to take stock of things by asking a stock political question: Are you better off now than you were four years ago?
Where you stand on the answer depends on where you sit. Many people, businesses and communities are still struggling to regain the ground they lost after September 15, 2008, the day the giant investment banker filed for bankruptcy and triggered the biggest global financial and economic crisis since the 1930s. But for others, things have never been better.
For Canada as a whole, the top line numbers are good, as weâ€™ve heard repeatedly from Ottawa.
Gross domestic product is higher than during the fall of 2008, and more people are employed. But take a look under the hood, and youâ€™ll see how that has been driven by commodities and their rising prices. Thatâ€™s because globally there has been more demand than supply as the supply chain expanded, and Canada has what the world wants when itâ€™s growing. But emerging economies are slowing down, and that puts Canadaâ€™s better-than-most growth at risk.
The head count on employment may be up, but four out of five of the new positions added to the job market since the crisis began are temporary. We now have fewer young people (aged 15-24) working than at the worst point of the recession (summer of 2009), though there are more people now in that age cohort. Both trends do not bode well for the future.
In addition to the performance of the market is the performance of government. Taken together, the policy measures undertaken by government net out to accentuate â€“ rather than mitigate â€“ the widening gap between the haves and the have-nots over the past four years.
Without question Canada has done much better than the U.S., which is burdened by higher jobless rates;Â falling middle class incomesÂ ; andpoverty rates stuck at record highsÂ even though more people are working now than two years ago. High and still rising levels of income inequality seem irreversible, with theÂ top 1 per cent having accounted for 93 per cent of all income gainsÂ since the recovery began.
So, yes, Canada is doing better than the U.S., four years on. But the comparison is not apt. In the fall of 2008 we were in a far better place when it came to overleveraged consumers and businesses — and government deficits.
Yet, in the past four years, Canadian household debt has skyrocketed as a share of incomes and assets,Â zooming past the U.S. and almost every jurisdiction dealing with fiscal crisis is dishing out deep austerity.
More troubling, Canada is a trading nation that is rapidly losing ground in the balance of trade. You may be surprised to learn that the U.S. only exportsÂ 13 per cent of its GDP. Exports are nearly three times as important to Canadians. We export over a third of what we make (34 per cent of GDP) today, but thatâ€™s down from a stunningÂ 44 per cent of GDP in 2000. Yes, we were getting close to shipping half of everything we produced offshore. Now CanadiansÂ importÂ 45 per cent of GDP. We have gone from a very long run of trade surpluses to seven back-to-back years of trade deficits. This week, Statistics Canada reported ourÂ largest trade deficit on record. Thatâ€™s shorthand for saying weâ€™re buying more from the rest of the world than weâ€™re selling to them.Â That’s not sustainable.
Globally, economic growth has slowed fromÂ 5 per cent a yearÂ just before the recession to aboutÂ 3.5 per cent a year, and the rate keeps getting revised downward. There areÂ 200 million people officially unemployedÂ worldwide, and almost 30 million jobs have vanished since the crisis began.
More worrisome than slowing growth is the inescapable fact that the global economy seems to be teetering on collapse, though many folks are still badly whipped from the first round of crisis. The threats come from the three biggest global players, and weâ€™re all screamingly aware of our interconnections to one or more of them.
Europe is walking a political razorâ€™s edge. Itâ€™s not clear if the monetary union will hold, and consequently one of the worldâ€™s two reserve currencies, the Euro, is losing value, and fast.
China, which because of its sheer size has propelled much of the world with its unusual pace of expansion for most of the last four years, is finally feeling the whiplash of the global crisis. Everybodyâ€™s crossing their fingers that the slowdown will be kinder and gentler than a crash. But China is no longer cast in the supporting role it played in 2009, 2010 and 2011 which propped up economies like ours.
And the U.S., which remains the worldâ€™s biggest economy, has become the sick man of the global supply chain. Stopping further contagion is far from certain. Their dysfunctional federal political system has wreaked global havoc, and things may not improve after Novemberâ€™s election. Whoever is in charge will have to deal with deficits at the federal, state and municipal level in a way that doesnâ€™t make things worse — and very soon — or the rest of the world will pay.
In short, the global situation is much, much worse than it was in 2008.
Looking out over the next four years is a little unnerving, because in many ways 2012 has been looking a lot like 1937. Back then too, governments all over the world started twitching about their deficits and started to cut spending instead of looking at the big picture. And the big picture is that businesses are sitting on their hands, and their cash, because there are fewer buyers for what they are selling. If neither businesses nor governments spend â€“ if, in fact, they act â€œreasonablyâ€ and both cut back â€“ the real drivers of the global economy, people just like you and me, will have less money to spend.
The current economic orthodoxy is a foolproof recipe for a slowdown, a slowdown that is global in nature. With eyes wide shut, governments are unnecessarily prolonging and deepening this recession. Itâ€™s true, some governments are pulling back because rating agencies have assessed that maintaining the status quo is an increasingly risky proposition, making it more expensive for these nations to borrow more money. But that fiscal reality doesnâ€™t apply to all nations. Iâ€™m looking at you, Canada. Austerity budgets from theÂ federalÂ andÂ some provincial governments could not be unfolding at a worse time.
Possibly more important than what governments do is what the private sector does over the next four years. The accelerating concentration of income, wealth and power in the corporate and household domains is a corrosive trend, eating away at the legitimacy of both capitalism and democracy. In four years, if we havenâ€™t meaningfully interrupted this process of lopsided distribution of gains from growth, and pain from cuts, we should not be surprised to see increasing friction and unrest.
It may not be in the form of the Occupy Movement, but the pushback will be asking the same fundamental questions: What is economic growth for if it doesnâ€™t deliver broad-based prosperity? And what are governments for if they donâ€™t serve and protect the public interest? Those questions were raised a year ago, all over the world. We canâ€™t wait four more years for them to be answered.
This piece was initially posted on The Globe and Mail’s online business feature Economy Lab at http://www.theglobeandmail.com/report-on-business/economy/economy-lab/four-years-after-lehman-are-you-better-off/article4544960Â Â