Front Burner - Year K: The Canadian economic crisis enters phase two

Episode Date: September 22, 2020

On Wednesday, Justin Trudeau will lay out his plan to lead Canada through this next stretch of the pandemic. It comes at a pivotal moment, as CERB and other programs helping people stay afloat are winding down, more than a million Canadians are still out of work because of COVID-19, and infections are on the rise. Today, the CBC’s economics reporter Peter Armstrong joins us to talk about the scope of the economic crisis right now, and what might be done to fix it. This is part of our ongoing series Year K, about how COVID-19 could make Canada a more unequal place.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Canada's about six months into life with COVID and the financial crisis brought on by the pandemic. It's tough, especially if you're one of the more than one million people who are still out of work because of COVID. And it's also not over. But despite that, some of the support programs that have helped people stay afloat are winding down, CERB in particular.

It's a pivotal moment made all the more pressing by rising infection rates. On Wednesday, Prime Minister Justin Trudeau will lay out his plan to lead Canada through this next stretch. So in advance of that, what is the scope of this economic crisis right now? And how do you fix it? This is part of our Year K series, a look at how COVID could make Canada a less equal place. I've got our economics reporter Peter Armstrong with me.

I'm Josh Bloch. This is Frontburner. Hello, Peter. Hey, Josh. Thanks for having me on. It's great to have you. So we're six months into the pandemic here, and this half year has obviously been really hard on Canada's economy and the almost two million people who lost their jobs this spring. So I want to start by getting a sense from you about how the economy is doing right now as compared to the beginning of the pandemic. Well, it kind of depends on where you're looking from, right? And I think we have, that's a big part of the problem, is that if you've got a white-collar job

and the biggest hassle of COVID has been that you had to work at home and the very real hassle of dealing with kids and working around that, but you're able to keep your job, you're able to keep working, then things look like they're recovering pretty well, right? You look around your local main street or the main street in your town or neighborhood and businesses are reopening and sort of shops and restaurants are back at it and things feel like there's wind in the sails. And that's one whole chunk of the economy.

But there's this other whole chunk that have not seen their jobs bounce back. And if they have, they haven't recovered the amount of hours they work, they haven't recovered the amount of money they used to make, they have maybe been able to defer some of their debt payments for now. And for them, the economy doesn't feel like it's back on track at all, it feels like it's way worse than it was, and there's no real hope that it's going to get better anytime soon. And I think that sort of that intersection of those two worlds lies at the heart of this conversation and of most of the conversations happening around the Canadian economy right now. Right. I want to drill down into that a bit more. I mean, what kind of

jobs are we talking about here who are really struggling? Well, I mean, imagine if you work in the hospitality industry, if you work in entertainment, if you work in travel, if you work in the hospitality industry, if you work in entertainment, if you work in travel, if you work in food services or janitorial services, a lot of those jobs, some of them quite good, but a lot of them at the lower end of the economic scale simply haven't bounced back. I mean, you know, we see people in the movie industry trying to get people to go back to movie theaters, but it ain't working all that well. Let's talk about Cineplex. That company has revealed a revenue drop of 95% in the second quarter. Warner Brothers tenant, it grossed over $53 million, would have been considered small pre-COVID. You've got some restaurants have reopened, but at limited scale. And now

we're heading into winter where we're going to lose those patios because it's going to get cold and we don't know how people are going to react about going inside, let alone whether they'll be allowed to. It's still far from normal for Paul Bogner and the 60 restaurants his company runs. Without patios or additional government help, Bogner says he may have to lay off as much as 40 percent of his staff. To realize that you couldn't bring them all back to begin with and now potentially have to lay some more off, it's going to be devastating. And obviously, anything related to travel, if you work in a travel agency that were already in trouble because they're getting eat up by the techification of that world, you're not going back to those jobs anytime soon. And a lot of those jobs are still in the kind of decline that we saw back at the sort of worst of this. I saw that 1.1 million fewer people were employed in Canada compared to pre-COVID levels. And then there's another 713,000 workers who were technically employed,

but have lost half or more of their usual hours due to the pandemic. So that's a total of 1.8 million people whose job has been affected. For sure. And I mean, and we'll get into the details around this in a second. But when talking about the transition from CERB, the big federal relief program, that that's winding down on Friday of this week. When talking about that, Christy Freeland said four and a half million Canadians are still currently drawing CERB. So we're talking about huge chunks of this country that are simply not even back to where they were in March, let alone, you know, sort of getting on top of their bills and their debt.

And we always had pretty big debt problems in this country long before all this. Right. Well, and despite how bleak the snapshot looks right now, I mean, things are looking better than just a few months ago, right? Yeah, but Josh, a lot of that is simply because people were able to defer their big debt payments because some of us were, you know, I, for example, kept my job throughout this,

but I didn't have to pay childcare because my kids were cooped up with me. So I saved a little bit extra money and paid down some of my debt. That happened too. And so those two things that happened, somebody who deferred a lot of debt and somebody who was, didn't take on some of those bigger payments during the worst of the lockdown, paid down a little debt, but most of that's coming home to roost.

If you took out, let's say a six month deferral on your mortgage in March, that comes up this month, right? And we'll see that happen on lines of credit. And in some cases on credit cards, the forgiveness period around those is coming to an end. And what's going to happen, there's going to be insolvencies. Insolvencies in Canada are at an all time low.

We've never seen them this low because you've got money coming in from the government to help keep you afloat and keep food in your fridge and a roof over your head. We've been able to defer some of those loan payments, but as those wind down, what's going to happen? There is this tsunami of insolvencies that's just waiting to unfold.

There are very real problems facing an enormous number of Canadians, and we don't really know how we're going to deal with them. As you mentioned, the government had this whole host of short-term programs to try and cushion the economic fall from the pandemic. So there was CERB and the wage subsidy, rent relief for small businesses, among others. How important has that been for individuals to have received this program to kind of weather this really difficult economic time during the pandemic?

It's so hard to overstate how important that has been and how flexible. You talk about the wage subsidy. When it came out, I can't remember the specifics of it, but the business people were like, whoa, man, that's not enough. That's not even remotely enough. Dan Kelly, he's the president and CEO of the Canadian Federation of Independent Business. The 10% is really, really light in terms of offering any support to small businesses who are absolutely panicked. And within days, the government pivoted, shifted, adjusted to make sure more people were eligible, that it would cover more of their salaries. It's becoming clear that we need to do more, much more. So we're bringing that percentage up to 75%. Making it easier for businesses and charities to show their monthly revenue had dropped

at least 30 percent. That flexibility in those early days was crucial in keeping Canadians above water. They came up with this whole host of programs to try to make sure that if you didn't fall into one, well, you'd fall into the other. And the EI was there to help too. And that whole host of programs has been, I mean, unspeakably helpful for anybody who got caught in this. So now CERB is transitioning to EI. You have the commercial rent assistance program. It's slated to end this month. Is there a sense that the economy has rebounded enough to a point where you can take off these training wheels and not worry that we're going to smash into a wall here? Well, I mean, normally, Josh, I'm such an optimistic guy. I can't put that optimistic lens on it right now.

I think the best sense right now is that the recovery has probably stalled and we don't know where it will go. has probably stalled and we don't know where it will go. But I think the pessimists would say the recovery is in very real trouble, especially as we watch the caseload climb across the country. As cases continue to rise, Quebec's public health director says the province is now in dangerous territory. We are actually probably in the second vague. And if people don't follow public health measures, he warns that second wave could be even bigger than the first.

And we're looking at the very real prospect, perhaps not of the full-scale shutdowns like we saw in March and April and May, but more limited ones and more regional ones that are going to cause yet more consternation and more trouble for the economy, for jobs, for those of us participating in it. And so I don't know where we're headed. None of us have a magic lamp to look through here. But it remains a very, very troubling time for the economy. And if anything, we're going to need more flexibility from the government as we transition into whatever this winter is going to look like. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization,

empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing.

In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Well, Peter, when the virus first hit, you spoke with Jamie about what the economic impact could look like. And there were all these letters of the alphabet that you guys discussed. So one model was that things stay bad for a really long time. So you see this precipitous drop, and then it sort of flatlines. And that's the L model. Another one was the V, where you have a significant dip in the economy, but then it's followed by an equally significant bounce back again. I want to talk to you about one model that didn't come up, which is K.

Of all the letters that we thought we were going to look at, I didn't think K would be one of them. Here we are at K. And then that's the idea, which you kind of have been alluding to, that some sectors are bouncing back from the crisis, and they're just fine. And that's the kind of upward arm of the K. And then others are not doing as well. In fact, they're doing quite bad. The service sector, people who are not able to work anymore, people who are searching for new jobs because their sector has just been decimated. And that's the downward branch of the K. Is that something that you're seeing? For sure.

And like the K is actually really good because it's sort of split in the middle. So the top half go up and the bottom half go down. And we're seeing that. We're seeing, you know, white collar workers, the better paid among us, have done fairly well, in some cases quite well. And if you look at, you know, sort of people's investments in the stock market, etc., the stock market's been going like gangbusters through this. But that the bottom part of the economy, those lower paid wages, those people with more vulnerable jobs. So of course, we're talking about women, immigrants, people of color. They're worse off today than they were

in January. Janice Briones was trained as a teacher in the Philippines, but wasn't qualified in Winnipeg. So she worked in restaurants. Most of the restaurant is closed. And my resume is all about the restaurant. How can I, How can I get a job? And even more troubling within that, they can't look out at the economy today and say, you know what, it's been a rough couple of months, but boy, this fall is looking good. Because it's not. Lorna Paragas was happily serving cups of coffee for 11 years. She misses a job so much, she still wakes up early. So every time I wake up at 4 o'clock, I cry. It's hard for me to accept that I don't have my full time job because I have my bills to pay.

And all of a sudden, it's gone. And then there is that other arm of the key, the one that's pointing upwards. You know, according to Forbes, the total wealth of Canada's 20 richest billionaires increased by $37 billion. That's obviously the far end of the spectrum. But who in Canada is making more money than they were pre-pandemic?

Well, people who had billions of dollars invested already, right? So I think they're talking about the Thompson family and the Weston family and, you know, individuals that have vast wealth and that is stored in the bond in the stock market. And, you know, if you look at from the bottom of the stock market in March, when it bottomed out, it's gone up 42, 43%. It's selling off this week. So if you are in the investor class, you've done great. But at the end of the day, I'm not entirely convinced that the stock market value of the Thompson family gives us a very clear picture from a policy perspective of what we need to do to address low-income workers in Canada. Right. But obviously, that's the extreme example, the wealthiest Canadians. But as you mentioned, I mean, people, my friends in media, professionals, a lot of people I know have been able to transition to working

from home with relative ease. It hasn't been that difficult when it comes to their professional life. Whereas people I know who are artists or work in the service industry have not been able to make that transition. And so you really do start to see that idea that we're all in it together, that slogan from the early days of the pandemic doesn't seem to be bearing out six months later. No. And that's where you get into the policy riddle about how do you address the confidence that is needed in the economy to get people to go back to restaurants and bars and get us to a place where we're safe enough that people feel safe enough to do that, right? That those jobs can rebound.

Because right now, if you, you know, 10 bar, your ability to 10 bar is largely dependent on how we do on the health crisis. That if the caseload continues to climb, more bars are going to close. And they're already working at limited capacity and they're already looking at a lot of their customers sitting out on patios on the streets and however it works in your town or neighborhood,

those are going to start to wind down too because it's going to get cold and people won't be able to sit out as much. So what do we need to do to help and support and build up scaffolding around those industries and around those workers in this moment of crisis? Because as I say, the prospect that they're looking out at is pretty grim right now. Well, and this seems to be the question that Trudeau is facing as he's about to lay out

his government's new spending priorities. I mean, what do you think needs to happen right now to make sure the economy keeps working for people as we continue to try and navigate life under COVID-19? You know, it is such a great question. And I have no particular insight into what the government's going to do. You know, we heard a few weeks ago that the government was really considering whether it's UBI or some big silver bullet social program that might fix everything. I think the thing I heard at the outset that I'd like to amplify now is that that flexibility is going to be key. And what do you think could happen or should happen specifically to try and address that inequality gap? Well, so Heather Schofield is the economics reporter for

the Toronto Star. And I think, you know, word for word, one of the best writers on these issues in the country. And she wrote a column that looked at the debate over should we go with a sort of universal basic income. And she suggested the far better, more efficient, more effective program to try to put out there and address some of these needs is more of a national childcare program. That, you know, economies grow based on the number of people working. That if you've got more people earning and building stuff and making stuff. They're making money and spending money. And one obvious key to that is child care. And if you look at the child care program, for example, in Quebec. Here, parents will eventually pay only $5 a day for every child in daycare.

The PQ government says the idea was hatched to make it easier for women to go back to work. I was a political reporter in Quebec in the late 90s covering this when it was coming up. And the consensus of the smartest people in the country from an economics perspective and markets perspective said that it was crazy. I don't know if you remember the debates around this. People thought they were lunatics.

Philip Merrigan is an economist at the University of Quebec in Montreal. He's studied the new policy and concluded that most families would be worse off because those earning middle to high income are no longer getting family allowances. 70% of the families in Quebec are getting less money with the new policy because you're redistributing the money from middle and high income families toward low. And yet, go from 1997-ish, when the program started, just to 2008, we saw an increase of like 70,000 more women into the workforce. It pumped like $5.2 billion into the economy.

For every dollar they spend, Quebec recoups $1.05, but Ottawa gets another 44 cents. So it's had this enormous benefit. And if you think about those that have been hardest hit in this, women, in jobs that can't be done from the house, so they need to be able to leave and go out to the workplace. So I think one of the things I'll be looking for is childcare in some form or another.

I mean, it's anticipated that they are going to be talking about spending a lot here to try and carry the country through this economic crisis created by the pandemic. And it's something that the government's already faced a lot of criticism for. And I know it's something that economists are divided on in terms of, you know, the implications of this kind of huge amount of government spending. What's your take on the potential impact of this down the road when you take on large deficits like this? Well, listen, I think we are changing the nature of the conversation. And, you know, you think back to, again, late 90s when I had, you know, when I was reporting on politics out of Quebec,

we were looking at Paul Martin slaying the deficit. We believe there is nothing more ludicrous. This is salesmanship. The big screen TVs to the side of the minister displayed charts and graphs and important sounding statistics to back up what is essentially a single, simple argument. For two decades now, we have spent more than we have saved. And the orthodoxy then was that you had to have a certain sort of debt to GDP ratio. The bond market and the thinking and the orthodoxy around that has changed. We

don't really know, Josh, where it has landed, let alone will land, but it is certainly more flexible. And the depth and severity and the profound nature of this current crisis and that it's a health crisis, but it's also an economic crisis and that it's a demand shock, but it's also a supply shock has made us change the conversation. And all of these governments, not just Canada, around the developed world are trying to figure out where that conversation is headed and where it's going to land. What else will you be watching for from the throne speech? Well, just general tone. I talked a lot about stimulus programs back in, I don't know, maybe April or May, that in a traditional crisis, you would say it doesn't really matter what we spend

the money on. Build a bridge, pave a road, build a community center. This is different. You can't build your way out of this crisis. And a lot of what governments can do is to leverage their confidence and leverage their trust into the economy and say, look, we're dealing with the health crisis, so you can go back to work. And as I say, all of those people on that bottom leg of the K, the people who haven't had their jobs come back or haven't had their hours come back and are in deeper trouble now than they were in January, one of the K, the people who haven't had their jobs come back or haven't had their hours come back and are in deeper trouble now than they were in January, one of the biggest problems is that they don't see a path out of this. They don't know where and how and when any of this is going to get

better. They just keep looking out at the landscape and it just keeps getting worse and it keeps getting more troubling. If the government can try to marshal some of their resources to say, here's what we're going to do to get the health crisis under control, to move the economy along, they can inject some faith and some hope into that sort of bottom end of people that are suffering as its own kind of stimulus,

that I'd feel more confident going back into local stores and getting a haircut or going to a, you know'd feel more confident going back into local stores and getting a haircut or going to a, you know, man, imagine going to a concert, things like that, that that is a kind of stimulus in this environment.

It's a kind of stimulus unto itself. Peter, it's great to talk to you about this. Oh, great to chat. Thanks. Before we go today, some news. British Columbians are heading to the polls. Yesterday, B.C. NDP leader John Horgan called a snap election for October 24th. This pandemic will be with us for a year or more, and that's why I believe we need to have an election now.

Horgan is going into the campaign with his party up in the polls and with the highest approval rating of any premier in Canada, according to a recent survey. The new leader of the B.C. Greens, Sonia Firstenot, said it's a completely unnecessary election. And BC Liberal Party leader Andrew Wilkinson called the move cynical and self-serving. For no good reason whatsoever, we're now being forced into a general election that nobody in British Columbia wants except the NDP.

The only reason for this general election is to try to secure the jobs of the NDP. That's all for today. Thanks for listening to Frontburner. For more CBC Podcasts, go to cbc.ca slash podcasts.