One of the great, not entirely discreditable, boasts of the current federal government has been its masterful handling of both the national economy and the public books during and after the Great Recession of 2008-09.
And, indeed, the world looked on in envy, as a piece in The Economist this past May reminded readers: “In the government’s retelling of the crisis, it alone stood between Canadians and doom.
“(The country) weathered the financial crisis well. No bank needed to be rescued: the World Economic Forum anointed Canada’s banking system the soundest in the world. Mark Carney was exported to the Bank of England in large part because of his work at the Bank of Canada. Stephen Harper, the prime minister, took to describing Jim Flaherty, who died on April 10th just weeks after leaving the cabinet, as “the best finance minister on the planet’.”
Of course, as The Economist writer, and many others, point out, Canada’s performance during the downturn owed as much to the sturdiness of its financial traditions and institutions than to the foresight of the sitting government.
But whichever successful combination of policy and regulatory fiat did the trick, the timing of Canada’s financial fortitude was inarguably auspicious.
Is it so today, 62 months into the recovery?
The question is more than merely academic. Lately, the dreaded ‘r’-word has been making rounds, if not yet headlines, in the world’s increasingly turbulent capital markets, leaving many economists to ponder when the dominoes will again begin to fall, and which nations are most vulnerable when they do.
According to London-based economist Philip Pilkington, writing in Aljazeera America last month, “The current consensus among American policymakers and commentators, including Federal Reserve Chairwoman Janet Yellen, is that the U.S. economic recovery is well underway. But not everyone agrees with this assessment. One firm in particular, the Jerome Levy Forecasting Centre a New York–based economic consultancy, warned that the world economy might plunge into another recession in 2015 that will take down the U.S. economy with it.”
What makes this all the more troubling is that these guys are no Chicken Littles. When they say the sky is falling, they’re always right. Mr. Pilkington notes: “Levy economists. . .use The Profits Perspective forecasting model developed by Jerome Levy in 1908. . .(and) have accurately predicted every major financial event in the past few decades, including the financial crisis, which many mainstream economists said was unforeseeable.”
All of which leads Mr. Pilkington to conclude that U.S. policymakers continue to underestimate the impact emerging economies, whose growth rates have substantially slowed in the past couple of years, have on developed ones.
“They have once again become hypnotized by their overly simplistic, abstract models, which exposed their failure in 2008,” he writes. “This generates a rather bizarre argument about what constitutes slow wage growth. Meanwhile a storm that could tip the world back into recession seems to be gathering in the emerging market economies. It is perhaps time to listen to and engage with the economists who saw the last crisis coming. If these self-reinforcing tendencies within the profession continue, it seems unlikely that we could effectively face down future economic problems.”
Has any of this showed up on the radar in the war rooms of Ottawa’s economic planners?
Certainly, Parliamentary Budget Officer Denis Frechette and his researchers wonder what justifies collecting billions-of-dollars more in Employment Insurance premiums than are required to pay for the system over the next two years – a circumstance that, they insist, will likely suppress job creation.
“PBO estimates that the Small Business Job Credit will create 200 new full‐time equivalent jobs in 2015 and 600 new jobs in 2016,” their report to Parliament stated last week. “PBO estimates the premium rate freeze will reduce full‐time equivalent employment by 2,000 jobs in 2015 and a further 8,000 jobs in 2016.”
Just in time, perhaps, for the next great, jobs-devouring recession.
Brilliant, boys and girls!
That’s how the onetime envy of the world becomes its laughingstock.