Deep into the current recession, the provincial and federal governments in Canada are predicting huge deficits for years to come and that has prompted a hard lesson – Canada can’t escape the effects of its neighbour to the south, Globe and Mail national affairs columnist Jeffrey Simpson told the 50+50 Symposium in his lecture last Friday.
“This recession has really forced a lesson that has clearly emerged over the last number of decades in Canada,” said Simpson. “Although we don’t always frame it this way, our political space is Canada, but our economic space is almost completely North America and therefore although our governments within this political space called Canada can do what they can do, if our American neighbours fall into recession, there is no way we can protect ourselves from that recession. And indeed the difficulty for us is that the epicentre of this world-wide recession happens to be the United States.”
Over the last 50 years, there have been times when the US was governed better than Canada and vice versa, said Simpson, winner of the Governor General’s Literary Award for Non-Fiction, the National Magazine Award for Political Writing and the National Newspaper Award for Column Writing. But in the last 10 years, Canada has unquestionably been better governed. “And that’s why it’s very painful for Canada to be facing this recession because….in the last 10 years or so…we actually did a lot of things right.”
Left: Jeffrey Simpson
The same can’t be said for the US, he said. They refused to deal with many of their deep problems. Now President Barack Obama is trying to get the American people to face some of them while the country’s fiscal deficit heads toward $1.8 trillion. “It’s beyond my capacity – and I’ve been writing about political economy for 30 years – to even imagine.” The Canadian economy is about one-tenth the size of the US economy, so that would be equal to a $180 billion deficit in Canada, said Simpson. Canada just had a huge stimulus budget from the federal government with a deficit of $34 billion.
Add to that, the debt of the US is large and getting larger fast. “The world over the last 10 years became grossly imbalanced in its money flows with the most powerful economy, the United States, chugging and churning along on the basis of debt and on the basis of borrowed money largely from China, which is now sitting on more than a trillion US dollars,” Simpson told the audience.
“It’s the first super power in history that I’m aware of that borrowed massively to maintain its own standard of living so that the asset basis on which it borrowed – houses for individuals, credit cards, government – was not sufficient to deal with the borrowing that just kept going, the good times kept rolling, and the monetary authorities kept interest rates low and the federal government, under the Republican Congress and president, cut taxes at the same time they were waging two wars. Well, that bubble had to burst, and it did and the debt is enormous.”
The US also has a structural trade deficit of some $800 billion a year, which leads to calls for protectionism, and there continues to be an enormous oil deficit, which has been a problem since Jimmy Carter was president. What’s needed now is a massive recapitalization of the whole country, which will take a long time and be extremely painful, said Simpson. “And we cannot be immune, I regret to say, to the immense consequences of that recapitalization.”
Simpson, winner of the Hyman Solomon Award for Excellence in Public Policy Journalism, is a senior fellow at the University of Ottawa’s Graduate School of Public & International Affairs. He is the author of eight books, including Star-Spangled Canadians: Canadians Living the America Dream (Harper Collins, 2001) and Hot Air: Meeting Canada’s Climate Change Challenge (McClelland & Stewart, 2007). He is also an officer of the Order of Canada.
The lecture was moderated by Professor Patricia Bradshaw of York’s Schulich School of Business.
By Sandra McLean, YFile writer