The impending (or current, depending on who you listen to) economic recession could be the best thing that ever happened to us.
I came into the last two months – months ripe with talk of economic gloom, devastation, closures, job losses, bankruptcies and recession – fairly unaware of what the heck a recession was. The last purported recession took place in the early nineties, when I was barely into junior high school and obviously not earning nor spending my own money yet. Back then, I didn’t have much in the way of personal savings, a job or a mortgage.
But today the barrage of economic talk, the headlines, panel discussions and interviews, coupled with a deliciously addictive American election and an equally entertaining Canadian parliamentary quarrel, makes it impossible to ignore. Thankfully, it’s not really that complicated.
A recession fundamentally occurs when a major economic force halts the economy – say, like your car stalling on the side of the road. As I understand it, in real life, this recession occurred after mortgages failed and credit evaporated for both businesses and citizens down in the States. Millions of mortgages collapsed after people and banks ran out of money (because of sub-prime interest rates, lengthy and unrealistic maturation terms and accumulations of debt), which destroyed numerous banks who watched their liquidity literally disappear. When these banks crashed, so too did their remaining clientele who had honest mortgages, loans and other day to day debts, not to mention investments and savings. Those banks left standing became both tight on their remaining credit and careful with their spending, and as a result homes were foreclosed, developments ceased and contracts torn up. As a result, businesses started to lose revenue: small ones went bankrupt, followed by bigger ones. People started to lose their jobs which prevented them from paying their bills, and the dominos kept falling – they began losing their homes and assets, and eventually, the whole economy began to receed. Like your car happened to stall on a hill and your e-brake wasn’t working. Well, good ol’ America, king of the capitalist hill, has an economy that affects several other countries, whose imports, exports and thousands of real jobs are directly tied to it. So wasn’t soon after that our economy began to feel the strain.
In a recession, to get the car started again, government is compelled to spend money. Lots of money. They need to spend outside of their normal budgets and spending habits in order to get things rolling again. People who’ve lost their jobs need new ones. People who are scared to spend money (probably includes everyone to an extent) need to be reassured that it’s okay to spend.
So the government steps in with what we taxpayers hope is the mother of all rainy day funds, inputting boatloads of cash – tens of billions of dollars – into the economy in hopes of getting it running again. This comes by way of lowering interest rates for borrowing, tax cuts for business owners, grants to start new businesses, income tax breaks and lots of spending on projects which will employ people and put money into the very basis of the system.
The key, as I’ve learned, is to make sure the economy gets restarted quickly. The trick, I assume, is to balance the speed of the recovery with as little an expenditure as possible, because miring our government into debt becomes a short term fix and a detriment the next time we need to do this again. Recessions seem to happen about every ten years.
The Conservative government in Canada has said that tomorrow’s budget will result in a $64 billion deficit over the next two years – that is to say, we’re about to spend $32 billion more than we’ll make in 2009, and another $32 billion more than we’ll make in 2010. Our borrowing will be added to the federal debt of approximately $550 billion. The last few years we’ve been paying down the debt to the tune of about $5-$10 billion, so say good-bye to the last 8 years of debt repayment.
Whether $64 billion is a number that is adequate or outlandish, I am not able to tell you. But what I can say, and the purpose of this post, is that if it must be spent, then we are perhaps fortunate to be living in times when we are otherwise in need of a dramatic and purposeful transformation.
We need to ensure that what is spent works fast. Like fast-acting Tylenol Cold medication. Make that chest cough and congestion go away now! This is why infrastructure spending is often the route governments take – because the plans are already drafted, the reports and analyses are in, and the people have been polled. There are innumerable bridges, buildings and roads just waiting for a shovel – and money. And the workers who are both capable and hurt the most right now happen to be in construction and manufacturing.
Well, in fact, the research has been done. The reports are in. Our economy is the priority, but on a larger scale, the environment is up there too. If we’re going to invest in infrastructure, make it mass transit. Make it parks. Make it schools and increased urban utility. Not roads. If we’re going to subsidize industry, make it solar, wind, hydro and other renewable fuels. Not oil or the auto sector. If we’re going to give corporate tax breaks, give them to upstart businesses with a green philosophy, or to those implementing energy efficiency. Not to fossil fuel conglomerates. If we’re going to force people to act, make them act responsibly and with an eye on the future, not the past.
These are exciting times to be determining new directions. Too often it is impossible to provoke the government into spending money, especially of this sum, on new, innovative or big-picture items. However, these days, now that we know money must be spent, perhaps this is our great opportunity to focus on the future and spend big on the environment. All of the government’s quick-fix schemes: of municipal and provincial infrastructure, of job training, of grants for businesses big and small, and of tax breaks should have a green tinge to them. Lest we further subsidize archaic and backwards-thinking industries like mining and automobile manufacturing, if we can get it together and invest in the future we’ll not only get our economy going again, but we might actually come out the other side leading the pack – further defining ourselves and selling our technologies for a premium.
As Canadians we pride ourselves on innovation, ideas, education and resourcefulness (or is that resources?). However, these are increasingly old-fashioned monickers that only apply to our country’s accomplishments decades ago. Today we struggle to find an identity, but perhaps this is our big opportunity. The path has been laid by our neighbors to the south: Obama has expressed that one of his mandates is to advance the American workforce and create green-collar jobs. There’s no reason why this can’t be something that we hone in on as well.
Who knows – perhaps this global recession is what our environment, and advocates of it, have been waiting for all along. Forced spending. The fact is, public opinion regarding the environment is at its greatest. Never more has data been so compelling in realizing the true state of the world. Technology, solutions and practical individual household applications exist. The right American President is in office. What else are we waiting for?
About the author cdub
Welcome to the Family
Very thoughtful post Craig, and I think you’ve completely nailed how I feel about it too. Now is the time to rethink how we go about our daily lives, and start supporting infrastructure that is sustainable and will support us and generations to come after us. Great post!