Dr Nouriel Roubini is a world-famous economist. He is Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates. He was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His views are certainly worth our serious consideration.
In an article in Project Syndicate, he says that “With the COVID-19 pandemic still spiraling out of control, the best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.” What is far worse than the Great Recession of 2008? Well, for one thing, the Great Depression of 1929-39 was worse and Nouriel Roubini writes that “The shock to the global economy from COVID-19 has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in three weeks.“
He explains that “every component of aggregate demand – consumption, capital spending, exports – is in unprecedented free fall. While most self-serving commentators have been anticipating a V-shaped downturn – with output falling sharply for one quarter and then rapidly recovering the next – it should now be clear that the COVID-19 crisis is something else entirely. The contraction that is now underway looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting … [as it did in late 1929; and, he says that] … Not even during the Great Depression and World War II did the bulk of economic activity literally shut down, as it has in China, the United States, and Europe today … [and then he posits that] … The best-case scenario would be a downturn that is more severe than the GFC [Global Financial Crisis, AKA the 2008-09 Great Recession] (in terms of reduced cumulative global output) but shorter-lived, allowing for a return to positive growth by the fourth quarter of this year. In that case, markets would start to recover when the light at the end of the tunnel appears.” So, one of the world’s foremost economists says that the “best case” is likely to be something worse than 2008-09.
I was predicting a recession before the pandemic, but no one cared because I’m not an economist. My point, back in October, was that Canada was ill-prepared to face a financial crisis because Justin Trudeau and Bill Morneau had been borrowing (not always a bad idea when interest rates are at historic lows) too much and, worse, spending it on things and in ways that did not benefit Canada’s economy.
“Unfortunately for the best-case scenario,” Dr Roubini writes, “the public-health response in advanced economies has fallen far short of what is needed to contain the pandemic, and the fiscal-policy package currently being debated is neither large nor rapid enough to create the conditions for a timely recovery. As such, the risk of a new Great Depression, worse than the original – a Greater Depression – is rising by the day.“
Unfortunately, for Canada, it doesn’t have the capacity to generate, rapidly, its share of a “fiscal-policy package” that is as large as Dr Roubini thinks is necessary. We could have in 2015. Stephen Harper left the public purse in good shape. The budget was balanced, even in surplus in 2015 …
… but, after four years of Justin Trudeau, we are back in the red. Justin Trudeau did not push us as deeply into debt as his father did in the 1970s and ’80s. But it took Mulroney, Chrétien and Martin nearly 20 years to undo the damage Pierre Trudeau did in his terms in office. Stephen Harper then faced the Great Recession and borrowed heavily to fund recovery as John Meynard Keynes suggested and as the Liberal and NDP opposition parties demanded. (Prime Minister Harper, you will recall, had a minority government in 2006 and, again, in 2008.)
Now, the whole world is in financial trouble again. Professor Roubini concludes on a deadly serious note: “In any case,” he says, “even if the pandemic and the economic fallout were brought under control, the global economy could still be subject to a number of “white swan” tail risks. With the US presidential election approaching, the COVID-19 crisis will give way to renewed conflicts between the West and at least four revisionist powers: China, Russia, Iran, and North Korea, all of which are already using asymmetric cyberwarfare to undermine the US from within. The inevitable cyber attacks on the US election process may lead to a contested final result, with charges of “rigging” and the possibility of outright violence and civil disorder … [and as he has argued previously] … markets are vastly underestimating the risk of a war between the US and Iran this year; the deterioration of Sino-American relations is accelerating as each side blames the other for the scale of the COVID-19 pandemic. The current crisis is likely to accelerate the ongoing balkanization and unraveling of the global economy in the months and years ahead … [thus, there is a] … trifecta of risks – uncontained pandemics, insufficient economic-policy arsenals, and geopolitical white swans … [that] … will be enough to tip the global economy into persistent depression and a runaway financial-market meltdown. After the 2008 crash, a forceful (though delayed) response pulled the global economy back from the abyss. We may not be so lucky this time.” Canada is, certainly, not so lucky this time. After the 2008 crash, we had Stephen Harper who took very appropriate actions and restored our fiscal situation in just a few (five) years (2009/10-2014/15). Now we have Justin Trudeau.
What to do?
The answer, for me, is simple; revolutionary, but simple. The Liberal Party must, now, step up and save Canada … actually, the Liberal caucus in parliament must do the job. It must withdraw its confidence from Team Trudeau ~ from the prime minister, himself, from Chrystia Freeland, from Bill Morneau and Patty Hajdu and from Catherine McKenna and Ahmed Hussen and Bardish Chaggar and Carolyn Bennet, and, and, and …
… the Liberal survivors (the insurgents) must then choose an interim leader and prime minister ~ I have already suggested Marc Garneau for those two roles ~ and a new Finance Minister, perhaps someone like Michael Levittt or ⇐ Sukh Dhaliwal or Élisabeth Brière ⇒, people not too close to Team Trudeau, would be acceptable to a government of national unity which is a) what I think is needed, now, and b) would have an equal number of Conservative and Liberal ministers and one or two each from the BQ and NDP, too.
I am advocating nothing short of a political revolution in Canada. But I believe that nothing short of that will save Canada.
If the economic (and consequential social and political) fallout this pandemic is as bad as Dr Roubini suggests, and his views deserve our attention and respect, then Canada is facing a crisis of a sort that we have not faced since 1929 and, again, in 1939. In 1930 Canadians defeated a strong Liberal minority government and elected a stable Conservative majority. It was unpopular, because of how R.B. Bennet handled the Great Depression, and it survived only one term, until 1935 when Prime Minister Wiliam Lyon Mackenzie King was elected (again) and then served until 1948, when he handed the reins of power over to Louis St Laurent. For most of the periods of two successive crises, Canada had strong, stable, majority governments with generally adequate if quite uninspiring leadership. That is not the case in 2020. I doubt that anyone, save, perhaps, Gerald Butts thinks that Prime Minister Justin Trudeau is even a barely adequate leader, certainly not one like Mackenzie King, uninspiring though he was.
Canada needs a new government: a Government of National Unity which should have a defined (and agreed in writing by the four official parties (BQ, CPC, LPC and NDP)) lifespan of just over two years, until, say mid-May 2022 when Canada will go to the polls. Both the CPC and LPC should agree to hold leadership conventions in the winter of 2021/22. In the interim, Marc Garneau will serve as Canada’s 24th prime minister, and someone like Erin O’Toole or Marilyn Gladu,* a sitting CPC MP and leadership candidate, will be selected by the CPC caucus to be deputy prime minister and Minister of Foreign Affairs. A Liberal will be Finance Minister and a Conservative will be Minister of Industry and Innovation, and so it will go, portfolio-by-portfolio, until a cabinet agreed by both Garneau and Gladu or O’Toole is seated. The two new party leaders, elected during nearly coincidental leadership conventions in the winter of 2021/22 will not take over their parties until the writs are dropped for a general election to be held on, say, Monday, 16 May 2022, the second Monday in May.**
As I said, I am advocating a political revolution, but if Nouriel Roubini is only half-right then nothing less will do if we are to face a Greater Depression or the Greatest Recession.
* But the interim (2020/22) CPC leader will be allowed to run for the permanent leader’s job, unlike what happened in 2017 when Rona Ambrose was not allowed to run.
** An alternative. might be to have the National Unity Government survive only until 18 October 2021, the third Monday in October, keeping with the recently established practice. That might be enough time for the pandemic to run its course and for the National Unity Government to take some effective actions and for the Conservative and Liberal Parties to have thorough, open and fair leadership races that are decided in, say, late August 2021, just before Labour Day when Canadians, traditionally, start to thinks seriously about politics.