COLUMN

The season for plain truths

Dian Cohen December 3 1984
COLUMN

The season for plain truths

Dian Cohen December 3 1984

The season for plain truths

COLUMN

Dian Cohen

There are two sure ways to tell Christmas is approaching. The first: retail stores start putting up Christmas decorations. The second: forecasting groups make a special effort to polish their crystal balls and predict what will happen in the new year.

In the good old days of the 1960s and early 1970s forecasting was easier. There were some serious downturns in the economy, to be sure, but they were clearly business cycle downturns that were relatively short-lived. The economic environment was basically one in which those ups and downs were superimposed on a trend line that had been rising steadily for 20 years.

Not only was it easier to forecast in the good old days, it was easier to forecast “the right stuff.” And it was definitely easier to listen to the financial experts when their pronouncements rang with phrases like, “All we have to worry about is how to divide the pie” or “We think things will be better next year if we all go out and borrow. Then we’ll have a consumer-led recovery.” Now, the underlying trend line is not so clearly on the rise. But habits of a professional lifetime are hard to break. More often than not, our bankers and politicians see it as their duty to be mechanically optimistic about the future. Gloomy forecasts are not in fashion. If we all think good thoughts, according to the conventional wisdom, good things will happen. Maybe so. But our blind optimism is preventing us from looking realistically at the future and assembling a short list of options we can act upon. Public debates about the future performance of the economy have bogged down. Now we ask whether forecasts are optimistic or gloomy, with virtually no discussion about what our options are.

John Kettle, editor of the forecasting publication The Future Letter, observes that the late American futurist Herman Kahn made a career of being flamboyantly optimistic. Noted Kettle: “Kahn said that the world can sustain a population three or four times its present level, with a per capita income around the world of an upper-middle-class American. But when you look closely at his numbers, what he actually forecast for North America was an annual growth rate in the next 20, 30 or 40 years of about three per cent.” Kettle says that when he translated Kahn’s rates into current Canadian dollars he found “over

and over again that he was forecasting, in fact, straight line growth. In Canada’s case, we’re growing by about $15 billion a year. Kahn’s figures would suggest that the Canadian economy will continue to grow at $15 billion a year (in constant 1984 dollars). But that really means a declining growth rate because $15 billion will be a smaller proportion of the total. Interestingly, if you go to other forecasters, they are making similar forecasts without saying the same glowing things.”

The most important thing that comes out of Kettle’s analysis is the fact that the so-called “gloomy” and the so-called “optimistic” forecasters are only half a percentage point apart. Kahn got lots of mileage in the press for taking issue with the gloomy guys, but his own forecasts were only slightly different. What is genuinely remarkable is the degree to which the forecasters agree that growth is likely to be in the 2.5to three-per-

‘We have no money, and we aren't solving our problems. That realistic assessment is a starting point for planning'

cent range. Yet here in Canada we assumed constant growth of at least five per cent a year and did not even begin to question that assumption until years after we had failed to achieve it.

The pressures to be optimistic have been even more amplified this year because we have had both a leadership convention and a federal election campaign. Few of the candidates were very brave about making detailed economic forecasts; they were even less so when they thought they might have to tie their election promises to economic improvements. John Turner promised $5 billion worth of new spending; Brian Mulroney owned up to $4 billion in new programs. There was virtually no mention of projected growth rates or the likelihood of job creation. Michael Wilson, even before he became finance minister, was one of the few who were visibly cautious, tying additional spending to a pattern of future, although unknown, growth.

The result of an entire generation of professional forecasters growing up with the notion that “normal” economic performance is at least five-per-cent

growth a year is part of our inability to face our future realistically. It is part of the reason that our leaders want us to believe that if we cross our fingers and think that things will be better, then maybe they will be better. Remember former finance minister Marc Lalonde saying that “pessimism is the greatest danger to the Canadian economy”?

“I was at first shocked by how many so-called leaders were afraid to talk about their real concerns for the future,” says Kristin Shannon, chairman of Canadian Trend Report. “But then many of them reconsidered, saying our choices are now too important to disguise.” There is a fallacy in adopting an optimistic, possibly unrealistic attitude about the future. If we avoid confronting the toughest problems and if we tiptoe because we are afraid we might be called pessimistic or even downright unpatriotic by calling it as we see it, then we will never get around to facing our choices. We won’t even know how to weigh the trade-offs.

The starting point for pragmatism is to understand that 30 years of aboveaverage economic growth, like 30 years of warmer than average temperatures, is not something to count on forever. For 30 years we have solved our problems by throwing money at them and by growing out of them. Those are not options today. We have had sufficient surplus, what with the demand for our raw materials and our resources, to be able to absorb our inefficiencies and our animosities and our adversarial predilections and still be better off.

The demand for our resources is not likely to return to past high levels. We can no longer compete in many areas where we once did. More than ever, the problems demand co-operation—in labor-management relations, in provincial-federal relations, even among political parties. We must talk honestly about our future and not just wait for next year’s “recovery” to bail us out. It may not come soon enough.

It is neither optimistic nor pessimistic to look at Canada’s economic future and say, “We are not growing, we have no money and we aren’t solving our problems.” That is a realistic assessment and a starting point. “Maybe our politicians’ optimism was once enough to stimulate the consumer—but not any more,” says Shannon. “The Canadian public wants to hear the real news and the real options.”

Dian Cohen is a Montreal-based, economics writer.