I tend to be an optimist on the economic front. We have
suffered through 4-5 years of poor economic conditions, which is about the
maximum that can be sustained by the ‘animal spirits’ of the North American
population. This may sound like a weird rationale, but other than the Great
Depression of 1930-39, most bad financial shocks in the US, such as those of
1837, 1873 and 1893, all lasted about this long. People get tired of being
worried and begin to rebuild their usual optimism.
The American Scene
Canadians have suffered less than Americans, and there is a certain
smugness at having avoided much of the American excesses and subsequent pain,
but the condition of the American economy is critical to our prosperity. Even
though the US may be beginning to rise again, it in turn is dependent to a
degree on the ability of Europe and China to rebound. Tom Friedman has written,
‘The World is Flat’ and he is right.
Looking Around
Where do I see ‘green shoots’? Well, we must start with the
simple reason (‘Simple’ covers up a lot of ‘complexity’.) that the American
consumer was overdrawn at the bank when things fell apart 5 years ago and so
consumption had to pull back in order to get on a stable footing once again.
Foreclosures and layoffs added to this challenge, but these all seem to be
stabilizing or declining. Since consumption in the US amounts to roughly 70% of
GDP, compared to the Canadian at 50% and the Chinese at 30%, this engine of the
US economy ought to be sputtering back to life. Unemployment is high, but it is
increasingly concentrated in the young, the inexperienced, the low-skilled and
those living in the wrong location. Companies are awash in cash waiting for the
right time to invest. All of this argues for a sudden comeback in the US,
probably soon as the so-called ‘fiscal cliff’ is avoided.
The Layout
I propose to lay out some ideas relative to 5 factors that
are going to play a role in a return to prosperity. I have gleaned these ideas
from watching the economies here and elsewhere for the past 35 years and trying
to make sense of what I hear and see. I keep in mind that the stock market is
about our only predictor of the way events will go. I interpret its mixed and unstable
action as being hopeful, but also fearful that a cold spell just around the
corner could cause the ‘green shoots’ to wither.
We can look at the following:
1) The US Housing
Mess
There are more people in the US than 5 years ago. People
have to live somewhere. Is the mess cleaned up enough?
As well, the US has to demolish whole neighborhoods of
abandoned houses in its urban centres.
2) North American
Employment
Who is out of work? The US and Canadian employment trends
have been similar, yet also somewhat different. Will the US job machine pick up
again, or is there a ‘new normal’?
3) Energy
$200 oil or $50 oil? Is Romney’s campaign pledge to give US energy
independence going to happen anyway, no matter who’s President? Natural gas is
cheap and the kilowatt cost of solar power has been dropping, while wind power
production has been on the rise.
4) Europe
Everybody’s tired of hearing about the European sovereign
debt crisis. Is it a crisis or a chronic condition? Will the Greeks suffer the
embarrassment of having the prosperous Turks laugh at them?
5) Debt Strategies
The different countries who have borrowed too much, and that
is just about all of the richer ones, can either cut back on expenditures,
causing consumption to decline, especially among the young, and recession to
reappear, or they can have prosperity and gradually ‘stiff’ the savers,
especially older people, by inflating their economies.
No Going Back
Generally speaking, hard times result in a lot of innovation
in businesses and in technology. Once things do turn around, it will not mark a
return to the world as we knew it 5-10 years ago. We are already seeing regret
for the loss of the 1950s-style middle class family income. Everyone in the US
seems to be pledging it will return, but it will not be back. Probably after we
look at whether there is a recovery going on, we should look at what it might
portend. Keep tuned.
James D. McNiven is Professor Emeritus at Dalhousie University and Senior Policy Research Advisor with Canmac Economics Ltd. He was the Fulbright Research Professor at Michigan State University’s Canadian Studies Center in 2010-11.
Until his retirement from Dalhousie, he held the R. A. Jodrey Chair in Commerce in the School of Business Administration and was a Professor of Public Administration. From 1988 to 1994, he was the Dean of the Faculty of Management at Dalhousie. Prior to that, he was the Deputy Minister of Development for the Province of Nova Scotia (1981-88) and the President of the Atlantic Provinces Economic Council (1977-81).
He has been the CEO of a small technology company and has been a member of a number of corporate and government boards, including the Blue Cross of Atlantic Canada and the federal government's International Trade Advisory Committee. He was a member of the federal government's Royal Commission on National Passenger Transportation.
Dr. McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research work has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and still continues to teach at Dalhousie on a part-time basis.
His email address is j.mcniven (at) dal.ca.
James D. McNiven is Professor Emeritus at Dalhousie University and Senior Policy Research Advisor with Canmac Economics Ltd. He was the Fulbright Research Professor at Michigan State University’s Canadian Studies Center in 2010-11.
Until his retirement from Dalhousie, he held the R. A. Jodrey Chair in Commerce in the School of Business Administration and was a Professor of Public Administration. From 1988 to 1994, he was the Dean of the Faculty of Management at Dalhousie. Prior to that, he was the Deputy Minister of Development for the Province of Nova Scotia (1981-88) and the President of the Atlantic Provinces Economic Council (1977-81).
He has been the CEO of a small technology company and has been a member of a number of corporate and government boards, including the Blue Cross of Atlantic Canada and the federal government's International Trade Advisory Committee. He was a member of the federal government's Royal Commission on National Passenger Transportation.
Dr. McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research work has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and still continues to teach at Dalhousie on a part-time basis.
His email address is j.mcniven (at) dal.ca.
