The Great Recession nearly killed Harper's government and COVID-19 could be worse

The crises of the first two months of 2020 the shooting down of PS752 over Iran, the initial outbreak of the coronavirus in China, the Indigenous protests that blocked Canada's major railways, the cancellationofthe Teck Frontier oilsands mine now seem like prelude tothe grand global crisis that came into view this weekend.

A dispute between Saudi Arabia and Russia has driven down oil prices and COVID-19continues to spread. Stock markets are panicked. A global recession is possible.

It is too early to know where this is headed, but it does not feel great.

"Obviously, people are quite anxious, looking at the changes in the stock market today," Finance Minister Bill MorneausaidMonday afternoon, stating the obvious in his usual unexcitable manner. "We're seeing a good deal of anxiety because of the issues that we're seeing in terms of the potential economic impacts of COVID-19."

Shortly afterward, Prime MinisterJustin Trudeau appeared before the cameras to offer his condolences to the family of the first Canadian to die from the virus, and also to "reassure Canadians" that this country's "top medical experts" and "top scientists" are on the job and everything is being done to align with the World Health Organization's guidelines.

Trudeau on 1st COVID-19 death in Canada

5 years ago

Duration 0:33

Prime Minister Justin Trudeau offers condolences to the family of the first victim of the coronavirus outbreak in Canada, and says the federal government is doing everything it can to keep Canadians safe.

It's a clich now to say that Justin Trudeau, his agenda or his government are being "tested." There have been any number of great "tests" over the last five years. But the test it faces now might be new a test of whether he can soothe Canadians' anxiety when they have abundant reasons to be anxious and the threats are not easily contained.

The opposition parties are eager to establish that the Trudeau government might share some kind of blame for whatever is about to happen.

In question period, the Conservatives were determined to argue that the Trudeau government had put Canada in a bad spot long before COVID-19 began to spread that "six years of eroding Canada's economic foundation" had left this country "weak and vulnerable." They also poked and prodded the government's outbreak response vaguely suggesting that Canada's borders should be tighter or that coordination with the provinces should be smoother.

For their part, the NDPalleged that provincial health care systems have suffered from "cuts" in federal funding federal transfers have increased in each of the last four years, but New Democrats arguethe rate of the increase should have been higher.

The Liberals have counter-arguments to such charges, but Monday's questions and critiques underline the political risks of this moment.

How much elbow room does Morneau have?

On the federal budget, in particular, the Liberals still have room to spend, at least technically. According to the parliamentary budget officer, the Trudeau government could increase the current annual deficit by another $41 billion before federal finances would be fiscally unsustainable.

Speaking to reporters on Monday, Morneauwas adamant that the federal government is in a "strong" fiscal position.

But a deficit might become a real political liability long before it hits the point where it's fiscally unsustainable.

The most recent point of comparison for the current moment could end up being the Great Recession of 2008 and 2009. Butas difficult as the global banking crisis was, a global health emergency might be something else entirely.

One important difference is already apparent.In 2008, the American government's response managed to limit the damage. In 2020, the American government's response seems to be making the situation worse. For at least as long as Donald Trump is president, the Trudeau government cannot take for granted that the United States will be a predictable or reliable actor, particularly at times of global unrest.

The Harper government's approach to crisis

Stephen Harper famously fumbled his government's initial response to the Great Recession and nearly lost his government in the process.

Given a month to recalibrate, Harper's Conservatives came back with "Canada's Economic Action Plan" a plan to spend billions of dollars building and doing things, and then to spend millions advertising what was being built and done.

The exact degree to which the fiscal stimulus worked to enhance the Canadian economy can be debated.But the success of the marketing effort is unquestionable Canadians were assured there was a plan andthat action was being taken. Harper successfully held himself up as a source of stability in the election that followed, incontrastwith the supposed instability of an opposition coalition.

Millions in ad spending wouldn't have worked in the absence ofan articulated plan, and if the economy hadn't seemed to recover well. But the lesson still seems to bethat crisis leadership is nearly as much about communication as it is about policy and governance.

For Trudeauin this moment, there is the added challenge of opposition claims that his leadership is "weak." The Liberals also have vowed to not engage in the sort of self-promotion that the Harper government indulged in.

But Morneau's appearance on Monday seemed designed to offer reassurance.

The finance minister assured Canadians that they had a strong health system and a strong balance sheet. He said the government's efforts would be focused on supporting the health care system and those businesses and individuals affected. New measures, he said, would be announced later this week.

Asked about the possibility of a recession or stimulus spending, Morneau hedged.

"What we do will be very much about the facts," he said. "We're going to look at the facts of the situation to determine the right response."

It's usually a good idea to avoid getting ahead of yourself particularly when you'reresponsible for managing a G7 economy.

But the facts don't seem likely to become comforting anytime soon.