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Happy Crashiversary! Are you better off now than you were four years ago?

September 14, 2012

4-minute read

Four years after Lehman Brothers collapsed, it’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 we’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 you’ll see how that has been driven by commodities and their rising prices. That’s because globally there has been more demand than supply as the supply chain expanded, and Canada has what the world wants when it’s growing. But emerging economies are slowing down, and that puts Canada’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 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 – rather than mitigate – 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; falling middle class incomes ; andpoverty rates stuck at record highs even though more people are working now than two years ago. High and still rising levels of income inequality seem irreversible, with the top 1 per cent having accounted for 93 per cent of all income gains 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 very different 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, zooming past the U.S.

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 exports 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 that’s down from a stunning 44 per cent of GDP in 2000 . Yes, we were getting close to shipping half of everything we produced offshore. Now Canadians import 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 our largest trade deficit on record. That’s shorthand for saying we’re buying more from the rest of the world than we’re selling to them.

Globally, economic growth has slowed from 5 per cent a year just before the recession to about 3.5 per cent a year, and the rate keeps getting revised downward. There are 200 million people officially unemployed 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. The threats come from the three biggest global players, and we’re all screamingly aware of our interconnections to one or more of them.

Europe is walking a political razor’s edge. It’s not clear if the monetary union will hold, and consequently one of the world’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. Everybody’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 world’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 November’s election. Whoever’s in charge will have to deal with deficits at the federal, state and municipal level in a way that doesn’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 about three years after the crash, 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 – if, in fact, they act “reasonably” and both cut back – 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. It’s true, some governments are pulling back because rating agencies have assessed the situation as increasingly risky to sustain, making it more expensive for these nations to borrow more money. But that fiscal reality doesn’t apply to all nations. I’m looking at you, Canada. Austerity budgets from the federal and some provincialgovernments 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 haven’t meaningfully interrupted this 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 push back will be asking the same fundamental questions: What is economic growth for if it doesn’t deliver broad-based prosperity? And what are governments for if they don’t serve and protect the public interest? Those questions were raised a year ago, all over the world. We can’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

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