September 12, 2012
Raucous behavior in the party room next door (Part 1)
ALEX CARRICK
Chief Economist, CanaData
It’s going to be a tough choice.
While we here in Canada don’t have a say in the matter, we do have a stake.
A better assessment of the economy’s future is on hold until the Presidential election is decided.
The following sums up my assessment of the political situation south of the border and the possible economic outcomes depending on whether the Democrats or the Republicans win in November.
Keep in mind that for Canada, life beside America isn’t just about economics. There are many other matters that crop up between neighbours.
Interaction with other nations is also part of the mix. That’s why some of what follows examines how our “friend” is getting along with the rest of the world.
But mostly it’s about the economy.
The Republicans, if they prevail, will be more ruthless when it comes to cutting government spending and promoting private sector job growth.
Mitt Romney, even in appearance, is the embodiment of corporate America. Dressed for success and perfectly turned out on all occasions, he’s the poster boy for entrepreneurial money.
In the previous Republican administration, fiscal restraint was hardly a priority. It was lacking every bit as much as in the early stages of the Obama Presidency. (The last year doesn’t count since there has been a budgetary gridlock over what measures are most appropriate to reduce the deficit.)
George W. Bush, faced with his own economic dilemma after the dotcom collapse, didn’t suffer agonies of self-doubt when he launched his still-in-place tax cuts while keeping no rein on spending.
This time around, though, if the Republicans take control, a stiffer backbone will be provided by the Tea Party faction in the House and the Senate.
The template has been provided by Scott Walker, the Republican Governor of Wisconsin. That state’s budget has been largely fixed by cutting public sector wages, benefits and employment levels.
Under the Republicans in Washington, expect more of the same. Measures favourable to business will be pumped up to bolster employment in the private sector. But if you have a government job, watch out.
To the Republicans, it’s more than a fair trade off. The vast bulk of work still remains on the corporate side.
The Democrats’ record on employment hasn’t been as bad as one might suppose. There have been 22 straight months of period-to-period increases. Employment in the services sector, which accounts for 70% of total jobs, has nearly returned to its previous high before the tumble in 2009.
The recession cost jobs, but two extraordinary circumstances worsened the effect.
The drop-off in housing starts beginning way back in 2006 took a huge bite out of employment. Housing starts are finally trending upward again as of this summer.
Jobs in the manufacturing sector went into freefall in the early to mid-2000s coincident with the upsurge in the emerging world. Labour costs in North American and Europe couldn’t possibly compete with large pools of poor workers mostly in Asia.
Only lately have manufacturing jobs — aided by major ownership changes and massive debt restructuring in the auto sector — been showing signs of stabilizing and picking up once again.
For Canadians, a Romney Presidency will be good for our energy sector. Approval for construction of the Keystone XL heavy oil pipeline to the Gulf Coast will be fast tracked.
The Democrats have been wishy-washy on energy projects, with environmental issues often taking precedence over capacity expansions.
The Democrats’ success in promoting cleaner energy projects (e.g., solar, wind, geothermal) has proven spotty. Subsidies have gone to firms (e.g., Solyndra) that haven’t been able to deliver what was promised. Without large grants, such projects still aren’t cost effective.
There’s irony in the U.S. energy landscape, however. Under the Democrats, the U.S. has been moving quickly towards energy self-sufficiency. In fact, a booming energy sector has been one of the stars of the recovery.
North Dakota stands out for its strong energy-related investment, but many other regions have also benefited from greater extraction efforts.
Much of this activity has come from a joyous embrace of new “fracking” technology to greatly expand recoverable reserves of natural gas and oil trapped in shale rock.
The potential danger to groundwater has been noted, but not allowed to stand in the way of rapid development.
In Canada and Europe, environmental activism has brought similar investment to a standstill.
The Republicans want a return to the “glory days” — to the America of old that was the shining beacon of freedom and free enterprise to the entire world.
It’s hard to argue with that.
For many people, though, the philosophical divide lies in the desire to move backwards on social issues.
The threat of abortion bans, religious intolerance and denied access to health care are all subjects that are worrying for many Americans.
For immigrant arrivals, there is uncertainty about legitimacy and whether or not their families will be allowed to fully integrate into the American fabric of life.
Continued in Raucous behavior in the party room next door (Part 2).
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
