Recession and Perception

Recession Street

We’ve all heard the bad news. Plants are closing, unemployment is rising, and our governments are madly shovelling money into the economy in order to prevent a credit collapse and to save our ailing automotive industry.

I know that times have gotten harder. The Region of Waterloo has had to dip into its reserves to cover its rising welfare case load, and Toronto’s costs are sure to be increasing. However — and I am wary of saying anything lest the fates hear my words, decide them to be a challenge and thus make things much worse — I have to wonder just how bad things are.

A recent article in the Toronto Star talked about an experiment its reporter did, dropping twenty wallets loaded with cash and ATM cards at random places throughout the City of Toronto, and waiting to see which ones, if any, were returned. Apparently Torontonians scored a decent percentage of over 75% — fifteen wallets returned promptly, with calls to return two more wallets made over the phone but not returned at press time. While patting Torontonians on the back for their honesty, the writer goes at great length to talk about whether or not our economically dark times increases the temptation to keep the wallet and the cash or possibly makes us more generous. Indeed, the writer goes on at length about the economic conditions, at one point saying:

What we can say is in Toronto - now, in the worst recession since the Depression…

Really? Because I can’t see it yet. I’ve been into Toronto many times, and i don’t see closed storefronts. There is still a river of humanity marching up from Union Station every morning going to jobs which are still there. And though I worry about the fiscal picture in 2010, the city managed to balance its books in 2009, and is engaging in major projects investing in the infrastructure for the future.

And the fact that the Region of Waterloo is dipping into reserve funds to handle its increased welfare caseload actually tells us that the Region has a reserve fund to dip into, rather than raising taxes. This reserve fund was set up in the mid 1990s after the Region encountered a harsher recession that increased welfare caseloads to a greater degree, and which the region had to pay for through property tax increases. In other words, the Region of Waterloo is better prepared to face this recession than the last one.

It has been said that a recession is a recession when you know of a friend who has been laid off. A recession becomes a depression when you are laid off. And while I don’t mean to diminish the suffering of the 8.8% in Toronto who are unemployed — a disturbingly high number — I remember the 1991-92 recession, where unemployment rates were in double digits nationally, where the City of Toronto went into a deep financial spiral and a flight of businesses to the suburbs that caused many to wonder if the city was going the way of American centres like Detroit in experiencing inner city blight. I remember federal and provincial governments at the end of over twenty years of massive deficit spending, wondering just how long those deficits could continue. I remember the 1981-82 recession, and the sense of panic among families close to me as taxes went up and plants closed.

Where is the sense of panic today? It’s there; you read it in the news, and there are plant closures aplenty that we need to be concerned about (including significant layoffs at a company a friend of the family helps run), but it’s muted by the fact that most of us are still employed. Most of us appear to be shopping. And unlike the United States, most of our houses seem secure from foreclosure. We’re about to head into a big bout of deficit spending, yes, but at the end of ten years of massive surpluses which significantly reduced our debt-to-GDP ratio rather than at the end of years of more red ink. As bad as the recession could still get, it strikes me that we’re better equipped to handle it now than we were the previous two recessions. Though I don’t want to jinx things, I’m feeling optimistic.

And that’s what’s missing from this recession compared to the two beforehand: pessimism. Toronto and Ontario are still building for the future. Waterloo has reserve funds to handle the present. Investment is still taking place in certain industries. And while it could all still go south, there seems less fear around that we won’t make it.

Is it just my own skewed perception? Or do the power of recessions mostly come through perception? Is it true, as FDR said, that the only thing we really have to fear is fear itself?

Keep your fingers crossed.

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