Deceptive economic glimmers
TheStar.com – Opinion – Deceptive economic glimmers
April 29, 2009. Thomas Walkom
Around the corner from where I live, two more houses were just sold. They serve as visible reminders that Toronto isn’t Fort Myers, that the housing market here isn’t as bad as it is in the United States and that global recessions don’t affect all countries equally.
That made me a little less depressed about the future – until I happened upon a study by Toronto economist Armine Yalnizyan that argues (convincingly, I’m afraid) that the worst is yet to come.
Her paper, to be released today by the Canadian Centre for Policy Alternatives, looks at the current downturn in the context of previous economic recessions and concludes that, yes, this one really promises to be bad. Consider:
* Canada has experienced six recessions (defined as two consecutive three-month periods of economic shrinkage) since 1926, but until now only three have been serious – the Depression of the ’30s, the slump of the early ’80s and the contraction of the early ’90s.
* This time, the economy is shrinking faster than it did in either the ’80s or the ’90s.
* As a result, Canada has lost more jobs, both in absolute and relative terms, than it did during the first few months of those two earlier recessions.
* Unlike other postwar recessions, we can’t count on the U.S. pulling us out. In many ways, it’s in more trouble than we are.
* We’re more vulnerable to recession than at any time since the 1930s. Households are struggling with debt (on average, Canadians now owe $1.40 for every $1 of disposable income). We’re saving only a tiny fraction of the income we earn and much of what we have saved has been wiped out by the financial crisis.
* The unemployment insurance system is in worse shape than it has ever been since it was set up after World War II. When the recession of the ’90s hit, about 80 per cent of the jobless were eligible for what is now called Employment Insurance. Today the figure is half that.
Conventional wisdom holds that, as an exporting country, Canada has little choice but to wait for the rest of the world to recover.
Yalnizyan’s paper shows that this wasn’t always the case. Thanks to free trade and the elimination of tariffs, Canada’s economy today is more dependent on exports than at any point since the Depression.
For instance, we didn’t rely on the vagaries of export markets alone to pull us through the slumps of the ’80s and ’90s. In those recoveries, domestic spending was more important.
Yet in spite of this export dependence, we can no longer count on free-spending Americans to rescue us. Hobbled by debt, they are retrenching from the heady days when they bought everything Canadians could offer.
How long will this one last? Here, too, the past fails to provide cheering examples. Technically, recessions are over when the economy starts growing again. By that measure, the Great Depression of the ’30s lasted only four years, and the recession of the ’80s just 18 months.
But in terms of human cost, the effects linger on. In the Great Depression, it took more than 12 years for the unemployment rate to return to 1929 levels. By a similar measure, the recession of the ’80s lasted seven years.
Yalnizyan’s remedy for this slump is to have government do more, more and more again – for the simple reason that there is nowhere else to turn. She makes a convincing case that Canada, in spite of entering this downturn from a relatively strong position, is more exposed than it has been at any time since the 1930s.