By: Sebastian Rosemont on
Stephen Harper, Prime Minister and Conservative candidate for Calgary Southwest, in the Maclean's leaders debate on August 6, 2015
If we ignore the major (and greater) instability of the Great Depression and look at the intervening years only, the claim is accurate. Although the 2008-2009 recession did not affect Canada as much as the recession in 1981-1982, it caused an upheaval in the global economy from which countries are still recovering at different rates, with an ongoing impact on Canada.FactsCan Score: True
In the first leaders debate of the election, Stephen Harper began his first rebuttal of the evening with a claim about the exceptional economic conditions his government faced in office. He said, “the past ten years … [was] a period of unprecedented economic instability.”
The Prime Minister’s statement refers to the 2008-2009 recession triggered by the financial meltdown in the United States. This check assesses if the disruption to the economy over the past ten years was unlike any seen before. A period of instability in this check is interpreted as a major recession. There are other factors that can create economic instability (like elections), but we’ll focus on recessions given the context of Harper’s remarks. The C.D. Howe Institute, an economic think tank based in Toronto, broadly defines a recession as “a pronounced, pervasive, and persistent decline in aggregate economic activity.”
Past major recessions
In 2012, the C.D. Howe Institute published a report on Canadian business cycles since 1926. The report lists all recessions in this time period and ranks their severity from one to five (five being the most severe).
The only two recessions to score a five both occurred during the Great Depression, in the early and late 1930s. The Great Depression has become the baseline for economic downturns and created a new understanding of modern economics. All major recessions since are compared to how close they came to being another depression.
Because of the profile of the Great Depression, and its status as the standard for global economic collapse, we are setting it aside to assess Harper’s claim. Although Harper’s office did not return our request for clarification, we assume he did not mean to say the 2008-2009 recession was worse than the Great Depression (that would be false).
Moving on to other recessions: Since the Second World War, four recessions received a score of four, meaning “a substantial decline in both real [gross domestic product] and employment, usually for a period of about a year or longer.” These category four recessions hit in 1953-1954, 1981-1982, 1990-1992, and 2008-2009.
Although the 1953-1954 recession got the same ranking, it was not as severe as more recent recessions in length or change in GDP and employment. The past three major recessions each stand out in their own way.
The 1990-1992 recession was long lasting and and included “an unprecedented year of little or no change in real GDP.” Unemployment also jumped during this time period.
The 1981-1982 economic downturn had a still greater increase in unemployment than the early 1990s, and in general is considered by the C.D. Howe Institute the worst of the two. It consisted of six consecutive quarters of negative growth and a significant spike in unemployment. According to the report, the 1981-1982 recession “continues to show the largest peak-to-trough decline of any downturn since the 1930s.” The peak refers to the highest point of economic activity before a recession, while the trough is the lowest point of activity and where the economy begins its recovery.
Finally, the 2008-2009 recession. Here, the economy declined for three consecutive quarters, albeit sharply, and employment did not fall as significantly as in the 1981-1982 recession. This one appears less severe than some others, and that would make Harper’s claim untrue. But there’s more to the story.
A deeper look at 2008-2009
Unlike previous recessions, the 2008-2009 instability was uniquely global.
Paul Beaudry, an economics professor at the University of British Columbia, said that while the domestic effects of the 2008-2009 recession were comparable to those of 1981-1982, the recent recession was unprecedented because of the global scale and impact.
“The main element that sets the recent recession apart from previous recessions is the international dimension: It was large and highly correlated across all major rich industrial economies,” he said.
Philip Cross, co-author of the C.D. Howe Institute report and the former chief economic analyst at Statistics Canada, agreed the international dimension increased the instability of the recession years.
The 2008-2009 recession was the “Great Recession,” Cross said, “even if the drop in GDP and employment was less than in 1981 or 1990, because there was the risk of the global economy falling into a depression like the 1930s.”
Cross also cited a 2010 speech by Mark Carney, former governor of the Bank of Canada and head of the institution during the recession, who likewise called it the “Great Recession.” Carney argued that “to claim otherwise with simplistic comparisons to prior downturns is to ignore both the rapidity and the scale of the policy response, as well as the likelihood that the aftershocks from the crisis will persist for years.”
Carney pinpointed four areas of fallout from 2008-2009: The pace and variability of global growth in different countries; higher volatility of commodity prices; a “radically altered” global financial system; and uncertainty about the openness of goods and capital markets.
Harper said the past decade was a period of unprecedented economic instability. Taking into account effects beyond the immediately domestic and with the qualification that we look at the the economy after the Great Depression, he is correct – according to expert analysis about what constitutes a period of instability.
Within Canada, the effects of the 2008-2009 recession were not as severe as the recession in the early 1980s, but the international upheaval and the uncertainty it created for the future set the past ten years apart from previous periods of economic instability.