Happy Days Are Here Again, Aren't They?

Mark Carney would have us believe the recession is over even if recovery will be somewhat slow. However, look at what Mr. Carney said one year ago, two months before the global economy crashed:

The Canadian economy is judged to have moved into slight excess supply in the second quarter of 2008, and this excess supply is expected to increase through the balance of the year. High terms of trade, accommodative monetary policy, and a gradual recovery in the U.S. economy are expected to generate above-potential economic growth starting early next year. This will bring the economy back to full capacity around mid-2010.

On the other hand, here is a transcript of an interview with Nouriel Roubini, who foresaw the crash coming, on PBS's Nightly Business Report about what we might expect now:

PRATT: So what is your forecast for the recovery right now? I've been hearing sub par growth. What exactly does that mean?

ROUBINI: First of all, in my view the recession is going to continue through the end of the year. It's not over yet, and while potential growth rate for the U.S. economy is 3 percent, I expect that the growth rate of the economy is going to be very anemic, below trend, then on 1 percent for the next two years. Why? You have U.S. consumers are shopped out, saving less debt burden. They're not going to consume very much. Your financial system is severely damaged, and credit growth is going to be limited, and now we have also this massive re-leveraging of the public sector with a large budget deficit and increases in public debt are going to eventually crowd out the economic recovery of the private sector. So I don't see a lot of economic growth ahead of us.

PRATT: Are you worried at all about a double-dip recession?

ROUBINI: Yeah, the risk is that by the end of the next year, if budget deficit remains very large, around $1.5 trillion, and if the Fed keep on monetizing them, essentially printing money to try to prevent increases in interest rates, expect that the inflation is going to go up, and if expecting inflation were to go up, long-term government bond yields would go up, and mortgage rates will go up. Borrowing costs for consumers (INAUDIBLE) will go up, and that's going to crowd out the recovery, so there's even a risk of a double-dip recession.

This looks very much like the early nineties but perhaps worse. The political toll then included the defeat of the Bush I administration in the U.S. despite the political highs it achieved following victory in the 1991 Gulf War and the reduction of the Mulroney-Campbell PCs to 2 seats in 1993. The political toll substantially lagged the economic one but it was just as devastating when it appeared.

Did Joe Biden offer a prediction on the Canadian election?

Joe Biden acknowledged this past weekend that the Obama administration underestimated the depth of the recession. "We misread the economy", he told George Stephanopolous of ABC.

Polls in the past month or so in Canada have shown some strengthening on the part of the Conservatives. Frank Greaves of Ekos Research, which is doing weekly large sample IVR polls on party standings, sees this improvement as linked to the economy:

An increasing number of Canadians say they are already feeling more optimistic about the economy than they were three months ago, and they are naturally concentrated among the most prosperous. This could generate a drift of voters back to the Conservatives from the Liberals in this demographic even as working-class voters become more distressed and perhaps antagonistic to the Conservatives.

There was a rapid run-up in the markets from March until mid-June unsupported by the fundamentals (the economy has continued to decline) and this certainly led to a great deal of speculation about the economy turning the corner and headed upwards. Indeed so optimistic was Jim Flaherty that he thought it was time to think about ending the stimulus.

The positive impressions from media coverage of day after day of positive market news helped the Conservatives as Greaves points out. What then to make of an economy that may stagger for the rest of the year. Following the negative U.S. jobs report last week, Nouriel Roubini commented:

The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.

If Roubini's prediction holds true the impact on Canada would produce a similar story. The political implications are clear. Assuming the government falls on a confidence vote in early autumn, the subsequent election would be certain to produce a change in government, most likely a Liberal minority and quite possibly one where the NDP would hold the balance of power.

Will Hudak Become Ontario's Premier?

Margaret Wente is a generally small 'c' conservative Globe columnist (remember her persistent denials about climate change earlier in this decade) so her perception of the neo-Harrisite party that just selected Tim Hudak as their leader as "a bunch of old white guys so lost in the woods they make Stephen Harper's crowd look enlightened", should be making the Tories nervous. Wente is also a Torontonian.

Memories are short. The big victory of the Harris Conservatives in 1995 included victory in a majority of the constituencies in what is now Toronto (they won most of Etobicoke and Scarborough plus ridings like Willowdale and Don Mills, even the downtown riding of St. George-St. David). Merely to recount this is to say how much the world has changed since then. The context that permitted Harris to be successful in 1995 is no longer around with one exception.

Mike Harris was elected at the end of a long economic downturn. The Ontario Liberals will be coming to the end of their second term in 2011 and the economy could still be quite weak. This would be a potential electoral asset for Hudak depending on many circumstances currently unknown.

A key difference is going to be strategic voting - not a factor in 1995. The election of Hudak is potentially a disaster for Andrea Horwath's Ontario NDP: many New Democrats will vote strategically to avoid a return to the Harris years. Numerous others will be receptive to Liberal messaging we will soon hear over and over again that attempts cement the impression of Margaret Wente in the minds of the Ontario electorate.

Many neocons here yearn for the Harris years the way Republicans yearn for Ronald Reagan - a return to a mythical glamourized past. A Hudak premiership will more than likely be comparable to the regime of George W. Bush, ideological to be sure, but ultimately a political disaster. However, Hudak may never make it that far.

NDP Win coming in Nova Scotia

The NDP will win a substantial majority tonight. They should gain at least 33 seats and it could well be more.

Nova Scotia Election Poll - Outcome becoming clear

There is a new poll out in Nova Scotia today from an unfamiliar name in polling: Nova Insights. The sample size is only 408 but the net outcome of the race is becoming increasingly clear. The NDP will win.

This survey says they are headed to a majority. Here are the numbers and the projection from my seat model (Nova Insights does their own calculation of 30 certain NDP seats with a possible 4 more):

	Poll	Seats
NDP	45	33
LIB	25	11
PC	24	8

Nova Scotia Election Poll

A new Corporate Research Associates poll out this week reports the NDP continues to lead, with the Liberals and PCs evenly splitting the remainder. The poll numbers translate (in my seat model) into a small majority for the NDP:

	Poll	Seats
NDP	37%	27
LIB	31%	13
PC	28%	12

A new release from CRA not on their web site yet, but reported in the Chronicle Herald, tells us that 40% see the economy as the leading issue, followed by 33% who say health care. The Liberals have a plurality of 25% as the party best able to handle the economic issue while the NDP is seen by 31% as the party best able to deal with health.

The question going forward is: will the poll numbers cause some PCs to switch to the Liberals to stop the NDP or will the PCs, who are still close to the Liberals, hang on to their partisans, allowing the NDP to win a majority with less than 40% of the vote?

BC Election - TC's Explanation

There has been an abundance of commentary, much of it off-base, to explain the B.C. results. As it turned out there was almost no change from four years ago. In any event what determined the outcome in TC's view was largely the context, not the parties' campaigns: we are still mired into the deepest economic downturn since the thirties and we aren't getting out of it any time soon.

Indeed the polls confirmed that the economy (meaning the downturn) was far and away the number one issue. The polls also made it clear, for example this Mustel survey on page 2 and this Angus Reid poll on page 10, that the Campbell Liberals were seen as those best able to deal with the economy.

The local analyst who seemed best able to state the obvious was Vancouver Sun political columnist Vaughn Palmer, who wrote on the day after:

From start to finish in the 2009 election campaign, B.C. Liberal leader Gordon Campbell never wavered in his definition of the ballot box question.

“Ask yourself: Who is best able to lead us through troubled economic times?”

He pitched 100 variations on those words, but the message was always the same: Don’t risk a change of government in an economic downturn.

The polls, even those that put the New Democratic Party in a competitive position, suggested that voters agreed with the way the Liberals framed the campaign.

The economy was top of mind and the Liberals were the best choice to manage it.

In general small 'c' conservative parties have an advantage in perceptions of economic competence but it is not absolute. In BC's case the Liberal advantage was likely strengthened by lingering suspicions of the NDP dating from the Glen Clark era. What destroyed Clark was the fact that the fiscal situation of his government turned out to be much worse than he would acknowledge on the eve of the 1996 election.

It seems to TC that the shoe may now be on the other foot. The deteriorating economy could cause permanent political damage to his government. This downturn remains in its relatively early stages. Its full political consequences have yet to reveal themselves. When they do, don't count on Campbell being able to maintain a public image of economic competence, even if there is a strong economic recovery by 2013.

The Green Vote

A key error made by the NDP, although it probably did not have a material impact on the outcome, was their decision to oppose the carbon tax. TC discussed this earlier. The NDP faces potential negative consequences in the longer term because there is a large small 'g' green vote in BC that will continue to matter one way or another. TC did some analysis of the Green Party vote and discovered that, like NDP voters have done in federal elections, many Greens cast a strategic ballot this time, voting for their second choice in close races. The evidence for this can be seen by comparing the average Green vote to the margin between the top two parties, (in almost all cases the top two finishers were either Liberal or NDP).

This table tells the tale:

Margin	Average Green Vote
0 to 10%	6.9%
10 to 20%	7.25%
20 to 30%	8.6%
30% +	9.1%

The closer the race, the smaller the Green vote. While there was considerable variation, the correlation evident in the table can mean only one thing. The second choices of Green voters matter a great deal - something for the NDP to ponder in the future in BC and elsewhere.