RECENT ECONOMIC EVENTS

In late November 2001 the U.S. National Bureau of Economic Research announced that the United States had been in recession since March. Unemployment increased to 5.4 % in October. 4 million Americans claimed unemployment benefits, the highest number in two decades. Further statistics seem to indicate that the U.S. economy has shrunk slightly in the last two quarters.

In a statement the same November week the prime minister of Canada, Jean Chrétien (1934-    ), talked optimistically of Canada's avoiding a recession. He is almost certainly wrong.

In general, recessions in Canada begin some months after recessions in the United States, but persist for many months after the United States has recovered. This, I think, is because Canada's economy is so integrated into that of the United States, by far its best customer. (Currently, nearly 85% of Canada's exports go to the United States.) The Canadian economy is also much smaller than the American one (about one-eleventh the size), and therefore less diverse, flexible and sophisticated. The Canadian economy also seems to take longer than the American to correct its excesses and recover. Perhaps because of Canada's greater number of social welfare measures, our economy may do slightly less well than that of the United States most of the time, and carry a higher base level of unemployment. (But see the recent books of Canadian journalist Linda McQuaig for a contrary view.)

These vexing economic problems are among those that caused the former Canadian newspaper tycoon Conrad Black to give up on the country and become a British citizen. (Another reason was his desire to accept a British peerage.) According to Black, Canada has a continuing cultural failure: it fails to offer its most dynamic, productive people sufficient reason to remain in the country.

Canada, for Black, is inadequately entrepreneurial. The federal government's policies are too socialistic, too oriented to state welfarism. Levels of taxation are confiscatory; they discourage the best and brightest from remaining here. Ahead of them the dynamic American economy and society glitters and beckons, full of opportunity and reward, and prompts them to emigrate. Black feels the news media of Canada have failed sufficiently to warn the Canadian people of the continuing failure of their culture to be as exciting and productive as the United States. Canada is just not exciting enough to offer wealthy international sovereign individuals like Lord Black a "competitive" citizenship.

Therefore Black renounced his Canadian citizenship in late 2001, adopted British citizenship, and was at once elevated to the House of Lords by a presumably grateful Tony Blair government.

I'm sure we Canadians envy Lord Black of Crossharbour, and wish him well.

It is early March 2002. Indications now are that the economies of both the United States and Canada grew in the last quarter of 2001, Canada faster than the United States. This means -- I think -- that we have perhaps escaped a real recession, but by the skin of our teeth.

It is now October 20, 2002. The American economy has had a few months of recession recently, with further fallout from the Enron scandal and the widespread discovery of accounting scandals. The Dow-Jones stock market index has fallen as low as about 7500, but has recently recovered slightly. September was a terrible month for North American stocks. Unemployment in the U.S. has risen to 5.7% and is biting into consumer sales. (Chrysler sales, for instance, are down more than 30% in the U.S. The housing boom in the United States and Canada seems to be about over, though there has been no crash yet in real estate prices.

In Canada, strangely, there has been no recession except for the softness in British Columbia's economy due to the American tariffs on Canadian softwood lumber. Unemployment is basically steady, and the economy has grown rapidly at a pace better than 5% per year.

I can't believe Canada has been so lucky so far.

It is now June 1, 2003. The Canadian economy has kept growing. The American economy is not doing well, although consumer confidence is rising.

The Canadian prime minister has just been caught boasting about the strength of the Canadian economy and deprecating the economic policies of American president George W. Bush. Bush just got a tax cut of over $300 billion dollars passed, which will stimulate the American economy in a year or so. It is, being a Republican measure, somewhat slanted to benefit the wealthy.

But I wonder if America isn't sliding into trouble.

The deficit will be huge this year. The tax cut will deprive the government of some revenue, making the deficit worse. The American dollar has begun to slide relative to a basket of world currencies, making even the Canadian dollar strong. America's trade deficit remains huge. The country requires two billion dollars of foreign investment a day to keep afloat. A report (suppressed, but leaked) of a board of the Treasury seems to say that the United States will require trillions of dollars of tax increases over a period of years to support Social Security and other debt.

Significantly, almost no one is mentioning these matters.

I am familiar with the 1960s when Britain and its currency was declining. It too had problems like this which were not addressed for years. Will the United States address its economic problems? My guess is that it will, and more rapidly than the British did under Thatcher, but not until after the 2004 election.

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Last modified: 7:05 PM 20/10/2002