The fundamentals of economic failure almost always hinge on one variable: leadership.
Wishing, praying, hiding — the average person’s impotent response to wrongheaded, stubborn or short-sighted leadership — won’t dig the world out of its current economic storm. But for the most part, we have little personal choice besides seeking conservative investments like gold and bonds and heeding the advice of those who preach patience.
And trusting our leadership.
In a country like Canada, and a province like Alberta, so dependent on the policies and performance of other countries — notably the United States — sometimes sound stewardship is just barely enough.
Stock markets around the world were battered on Monday by the news that Standard & Poor had stripped the U.S. of its AAA credit rating for the first time, downgrading it to AA+.
That move came in the wake of U.S. President Barack Obama’s inability to come to anything other than a short-term solution to his country’s economic crisis.
Another year of increased borrowing, and no new taxes to balance out the pain — the deal Obama struck with Republicans in Congress is neither sustainable nor designed to sow the seeds of real economic growth. It is simply designed to cost Obama the next election.
Pushed up against the persistent debt crisis in Europe, and the rising unrest among unemployed and underemployed youth on the other side of the Atlantic, the American debacle is enough to give everyone pause.
Prime Minister Stephen Harper maintains that the Canadian economy can continue its “gradual recovery.”
He is counselling calm, while conceding that his government must continue to manage the economy carefully.
That, of course, is dependent on broader markets also being calm and progressive.
On Tuesday, after a day of freefall, the Toronto stock market surged more than 400 points on Tuesday as investors gobbled up stocks across all sectors that were thrashed the day before.
The main Toronto index’s decline of almost 14 per cent since July 22 showed in the leadup to Monday’s debacle that the investment community was wary of the leadership in both world politics and central banking.
But a day of market rebounding on Tuesday suggests there is hope that we can avoid another recession like 2008.
On Tuesday, U.S. benchmark crude oil prices slipped to US$79.30. But the Toronto stock market energy sector values were up 3.89 per cent.
In Alberta, every tick up is significant. Annualized, a $1 change in the price of oil means $141 million to the province’s bottom line (and our projected deficit is $3.4 billion).
And the projected price of oil is critical for continued exploration — and, therefore, employment.
The prime variable in the Red Deer region’s employment market is the oil service industry.
In July, unemployment hit its lowest level in nearly a year in the region, at five per cent. That news came hard on the heels of a revised projection — upward — by the Petroleum Services Association of Canada. PSAC said that drilling activity this year has so far exceeded expectations, and should continue to do so — providing the oil market doesn’t take a nosedive.
Similarly, planned expansion of oilsands extraction projects depends on the price of oil staying above US$80.
The problem, in Alberta, is that much of this activity is occurring in a political — and leadership — vacuum.
As Premier Ed Stelmach winds down his career, his would-be successors are questioning his economic stewardship.
Ted Morton, a candidate for the fall Progressive Conservative leadership vote, has called for an immediate freeze on all unbudgeted spending (the recently-announced school construction blitz could, for example, be jeopardized).
Given Alberta’s dependence on the volatile U.S. market (every one-cent change in the value of the loonie, annualized, influences the province’s bottom line by $154 million, for example), we cannot afford to be passive.
But we must also be careful not to jeopardize our future by derailing essential infrastructure projects or stalling vital social improvement initiatives.
That means care and attention is necessary. Albertans need to be convinced that Stelmach is on the job — engaged, thorough and agile — as long as economic uncertainty reigns.
John Stewart is the Advocate’s managing editor.