Thursday, October 23, 2008

Conservatives, stupidly arrogant or arrogantly stupid?

When I read this last night I had a chuckle followed by a moment where by stomach sank.

The ignorance of the sentiments expressed in this story was breathtaking.

The Conservatives should not be worried about a deficit and trying to place the blame for that deficit on the Opposition. The situation they find themselves in is much more serious for them and for the country.

The world in entering the first real global recession since the late 1980s. All of the developed world is being hammered by the continuing fallout of the sub-prime mortgage collapse in the United States. This is resulting in most of the emerging economic powers suffering retreats in their economic output as their markets dry up. China is projected to have growth slow by more than 3 percentage points. Brazil and Mexico had to recently spend billions of their foreign currency reserves to prop up their currencies.

All of the developed world economies are moving as if emersed in slowly hardening concrete as a result of the credit crunch. The bailouts we have seen in the past month have only prevented a total collapse of the world credit market. They have not resolved the problem. That is going to take time. The Japanese went through this beginning in the mid-90s and it took them nearly a decade to recover.

Here in Canada, Central Canada has been in a recession for about a year but the Canadian economy has been buoyed by the energy and commodity industries. Now that is beginning to change. Oil and gas prices have tanked and the floor has not been reached on them yet. The same can be said of the commodity industries with the result of a sharp decrease in the value of the Canadian dollar. Normally, this would be good news for Central Canada except for the fact that the credit crunch prevents them making the investments they need to take advantage of that situation. And to make things worse the falling dollar will cause an increase in inflation restricting the room to maneuver for the Bank of Canada.

So, Canada is heading towards a recession of at least the proportions of the early 1990s and maybe even of the proportion of the late 1970s and early 1980s.

That is why I had a chuckle at that story. Deficits are the least of the problems the Conservatives will be facing. Recessions like those of the 70s through the early 90s take on a life of their own and they are government killers. Bob Rae, George Bush senior, John Major, and Jimmy Clark can all attest to that. During those kinds of recessions the vicious cycle develops where consumer confidence goes so low that they stop spending, which causes the recession to deepen, which causes consumer confidence to fall even further, leading to less spending and so on. This situation also leads to anger and angst and the desire of governments to do something, anything, to bring the country out of this spiral.

Of course, there is very little governments can do but that argument never works when this cycle takes hold. As well, the situation leads to alot less tolerance of the partisan antics we have been seeing the last few years. When things are good citizens ignore the government. When they are bad they look to government for solutions and they do not tolerate games.

As well, when times are bad voters in this country become more left-leaning, which should have an interesting effect on the political dynamics in this country, both at a macro and micro level.

The reason why my stomach sank is the sentiments expressed in that story indicate that the Conservatives still do not realize the gravity of the situation. I believed Mr. Harper's sanguine reaction to the economic crash last month was just him playing politics. However, that story last night seems to indicate that the Conservatives still have not fully grasped what is heading our way.

That is bad news for Canadians.

The Conservatives and Canadians find themselves in the unhappy situation of heading towards a recession that could rival some of the worst recessions of the last quarter of the last century.

For the Conservatives that means they could find themselves in a no-win situation, where they are constantly trying to put out the giant economic forest fire with a garden hose, where their
political agenda is totally hijacked by the economic fire and where Canadians angry at their lack of results in turning the economy around leads them to desert the Conservatives in droves at the ballot box.

For Canadians, we could be heading towards another recession where unemployment increases to double digits again, and where whole swaths of our society are decimated by a long and deep recession and its aftermath.

Sometimes, I do not know whether I should laugh or cry.

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