Blogs & Comment

Smackdown: Optimists vs. pessimists

There’s a fight shaping up in Ottawa and Toronto and it’s not a Conservatives versus Liberal battle royale. On one side of the ring are the optimists, people like the Bank of Canada’s governor Mark Carney and, now, Prime Minister Stephen Harper, while, scowling on the other side, are the pessimists. That team includes most economists, President Barack Obama (for the most part) and, now, Carney’s predecessor David Dodge.
In the Globe and Mailtoday, Dodge, who’s a senior advisor at the law firm Bennett Jones, called out Carney and Harper’s rosier view of the economy, saying Canada’s recovery “is not going to be as quick as everybody thinks… It’s totally unrealistic.”
(Quick recap: Carney expects Canada’s GDP to grow by 3.8% in 2010, Harper thinksCanada’s economy will recover faster than other developed nations.)
Dodge told the Globe that he expects the unemployment rate to hit 10%, while the auto and newsprint businesses, among other mature industries, will face permanent contractions.
He also added that the government shouldn’t develop short-term plans, but rather create programs and initiatives that will benefit the country decades down the road. Everybody was afraid to do anything that has a tail because of the sense that this was going to be short and sharp, says Dodge. But I just don’t think it’s going to be short and sharp, not because of what we in Canada are facing, but because it’s going to take a while for the world to come back.
Dodge’s opinion carries a lot of weight in economic circles, so it’s a big deal if his view is diametrically opposed to what the current BoC governor thinks. It also begs the question of whether or not Harper and Carney are out of touch, or at least a little too hopeful. Or maybe Dodge is just a curmudgeon.
Of course, we won’t know which team will win out until at least the end of the year when we finally get to see if everyone’s growth predictions are accurate or not, but until then it’s likely the battle between good news and bad news will continue to rage on.
The problem, though, is that these two positions Canada will rebound quickly or it will take longer than we think confuses many Canadians. There’s no easy way to reconcile the two views. On one hand, most economists didn’t see the financial meltdown coming, so you should take what these guys say with a grain of salt. On the other hand, they’re theoretically more in tune with what’s really happening than the average Canadian is. If anything, we just have to wait and see how indicators like jobless numbers and housing starts fare in the coming months and then we can decide which bandwagon we should jump on.