Tuesday, August 14, 2007

Canadian political news

In the news today we had two stories that are both commanding the attention of those who follow Canadian politics. First and foremost there is the Harper cabinet shuffle, which appears substantially driven by the war in Afghanistan. Gordon O'Connor was simply too big a liability to continue in the Defence portfolio. Peter MacKay represents a riding in Nova Scotia, which has significant military establishments. More important by putting Maxime Bernier in Foreign Affairs, Harper acquires a Quebec francophone defender of Canada's Afghanistan policy.

The other is the SES poll, which reports an uptick in support for Dion and the Liberals. Although Harper remains ahead in the popular vote, the seat distribution from my model says the result would produce a Liberal minority government if reflected in an election.

However, the most important story to me today was from the Report on Business; headlined "End of the U.S. consumer boom?", the report from Barrie Mckenna quotes Merrill Lynch economist David Rosenberg:

"There are plenty of signs now suggesting that we may be in the early stages of a consumer-led recession for the first time in 17 years," Mr. Rosenberg warned in a report to clients.

"The future is very likely in the hands of the consumer on Main Street, USA, and the latest sign posts are not encouraging."

Economic stories like this zero in on the economics of recession, but if Rosenberg is right it will have absolutely enormous consequences for politics. We have come through an era where the doctrine of balanced budgets has held sway (at least in Canada) - in a boom this is the equivalent of being born on third base and thinking you hit a triple.

The financial implications of recession for public finance would mean the end for balanced budgets would probably come quite quickly everywhere except in Alberta. Politically recessions are generally devastating for incumbent governments. No matter what choices they make in response to the situation - raise taxes, cut spending, run a deficit - they are likely to be hurt by their actions as well as the overall sense of malaise that affects a population faced by economic calamity and rising unemployment. However, it will take some time for these effects to be felt, perhaps a six to nine month lag from the onset of the problem (which appears imminent according to Mr. Rosenberg) until the polls for incumbent administrations head south.

TC's guess is that among the worst hit would be Bush and the Republicans, but if Canada does not go to the polls until 2008, Harper will feel it too.

No comments: