The Global Economic Crisis: A Canadian Dimension Roundtable On
Canadian dimension posed a number of questions to three well-known economists: Jim Stanford, Marjorie Griffin Cohen and Sam Gindin. We asked them to answer at least three of them.
1. The 2007-08 financial crisis marked a major turning point in the world economy. From your perspective, why was the recovery so weak and why did economic stagnation continue to characterize the core capitalist countries?
Back in July 2009, just ten months after the Lehman Brothers collapse, Bank of Canada Governor Mark Carney officially declared that the recession was over. This verdict was celebrated with a banner headline on the front page of the Globe and Mail. According to the narrow, technical definition used by economists (namely, that the recession is over as soon as real GDP starts to increase again, instead of shrinking), Carney was right. But the same was true in 1934--and the Depression wasn't even half over! The so-called recovery has not been a recovery at all; rather, the economy's been "bouncing along the bottom," never gaining the true, broadly based momentum that characterizes a genuine recovery. Now, with financial markets and investor confidence roiled by the escalating eurozone crisis, it is very likely that we're headed back into a true "double dip" (where real GDP begins to actually contract once again). But that, in a way, is almost beside the point: for most Canadians, it never felt like a recovery at all.
Indeed, for working people, it's been non-stop crisis. The best measure of the state of the labour market during weak times is the employment rate. Unlike the unemployment rate, the employment rate is not distorted by the fact that many discouraged job-seekers just drop out of the labour market altogether. (In contrast, the official unemployment rate "looks better" when discouraged job-seekers give up looking, because then they disappear from the official statistics.) The employment rate fell steeply from autumn 2008 through summer 2009. Then it stabilized, and clawed back about one fifth of the previous decline over the next year. But since summer 2010, the employment rate has stagnated; whatever jobs have been created by anemic growth since then have barely kept up with population growth, and have not been sufficient to repair any more of the damage from the meltdown. Now the labour force statistics indicate that jobs are disappearing rapidly (over 50,000 in October alone), an almost sure sign of another recession.
In retrospect, the growth that occurred in Canada and other recession-wracked countries from mid-2009 to mid-2010 was entirely due to the massive but temporary stimulus measures that were adopted by most governments. Ultra-low interest rates have lost their stimulative power (debt-constrained consumers can't spend any more anyway, despite low rates), and fiscal stimulus has been converted prematurely into austerity (most dramatically in Europe, but elsewhere, including Canada, too). Government spending is no longer growing in Canada, and in many program areas is being clawed back. With consumers on the sidelines for now, that leaves it up to business capital spending (which is supposed to be, after all, the "engine" of growth in a capitalist economy) to lead growth. But Canadian corporations are sitting on their cash, not reinvesting it, for a whole host of reasons. Corporate cash hoards now exceed a half trillion dollars, and have grown steadily right through the crisis. With no leader, economic growth is going nowhere.
I project that the OECD countries (including Canada) are experiencing the beginning of something Like a depression: many years of uncertain, near-zero growth, with chronic mass unemployment and resulting fiscal problems. The contractionary balance sheet effect of consumer and mortgage debt issues in the US, now accentuated by similar problems for many governments, will drag down global capitalism for many years to come. …