Bad U.S. News Affects All of Us

Bad U.S. news affects all of us

This’ week’s grim financial news – the bankruptcy of a venerable American investment bank (Lehman Bros.), the fire sale of another (Merrill Lynch), the death throes of a huge insurance firm (AIG), the near-collapse of a major airline (Alitalia), and a meltdown on the world stock markets – was a stark reminder of how interconnected the global economy has become, for better or worse.

And while Prime Minister Stephen Harper was right to say, “Canada is not in the same situation as the United States,” there is no reason for us to be smug about it.

It is true that because our financial sector is more prudent by nature and more concentrated in structure than in the U.S., there is no Lehman Bros. on the horizon here.

But the repercussions of Lehman Bros. et al will surely be felt here.

If the result of Monday’s news is a further loss of consumer confidence in the U. S., that will lead to a drop in spending by Americans. For Canada, especially here in the industrial heartland of Ontario, the U.S. is far and away our major export market. The Canadian economy is already teetering on the brink of a recession, with negative growth in the first half of 2008. If Americans start buying even less than they have been so far this year, that will drive Canada further into an economic slump.

All of which means our political leaders ought to be spending more of their time on the election campaign trail telling us how they would respond to a recession. Would they, for example, insist on a balanced budget at all cost? Or would they countenance a deficit if the slump is severe? Do they agree with the current monetary policy?

Yesterday, Harper was at a spa in Ottawa to talk up his proposal for parental leave for self-employed Canadians; Liberal Leader Stéphane Dion was in Newfoundland to promote his program to protect fish stocks, and NDP Leader Jack Layton was in Halifax to pitch his plan to increase the number of medical and nursing students in Canada.

There is nothing intrinsically wrong with these ideas. But to borrow a phrase from Bill Clinton’s 1992 presidential campaign, “It’s the economy, stupid.”