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Edward Greenspon: Good morning, I'm Edward Greenspon, editor and chief of the Globe and Mail. Welcome to the first edition of the Globe Roundtable, the place to go for a thoughtful discussion of the political issues of the day.

The Globe Roundtable is not meant to be your average political panel with partisans spouting precooked party lines and engaging in endless and mindless bickering. We're here today to hold a conversation, an intelligent, informed conversation.

We're going to take back the civil discourse of politics and hopefully set an example for those 308 men and women who will be elected on October 14th.

With me this morning is a trio of tried and tested former practitioners of the craft of politics, all of them well known for the intention to the substantive matters of good government and public policy.

First off is the Hon. John Manley, senior counsel at the law firm of McCarthy Tetrault but best known to Canadians as the minister of everything during nearly a decade in Cabinet, including industry, finance, foreign affairs and deputy prime minister.

Also joining us is Professor Doug McArthur, the distinguished Fellow in Public Policy at Simon Fraser University. And before that, deputy minister to two premiers in British Columbia. And once upon a time ago when I first met him, minister of education in Allan Blakeney's government in Saskatchewan.

And finally, Jodi White, president of the Public Policy Forum, a non-partisan think tank based in Ottawa and once chief of staff to foreign minister Joe Clark and latterly, prime minister Kim Campbell. Welcome everyone.

Jodi White: Hi. Hello, nice to see you.

Edward Greenspon: Okay, well let's get right at it and let's start with the issue that has been dominating the headlines for several weeks now and frankly I think frightening a lot of people — the economic chaos emanating from the United States.

In last night's debate, Stephen Harper was accused by the other four leaders of being blasé about the whole thing. Meanwhile, Mr. Harper accused Stephane Dion of being panicky in bringing forward a 5 point plan the previous night.

So Jodi White, do we here in Canada have something to be worried about and is there anything our political leaders can and should be doing about it?

Jodi White: Well I actually think one of the reasons that — there were many reason for the Prime Minister to decide to call this election, but I truly believe that one of them was that he knew, and that the Department of Finance officials were telling him that our economy is going to get a lot worse. And so that he was a bit cutting his losses in terms of the future unknown.

So I guess I'm a little bit surprised that then there isn't a little bit of a plan from him. I mean he's running on his record in terms of the economy and that's what he seemed to do last night. But it seems to me odd and I think in fact we may now see more specifics in terms of the economy. He did take a little bit of a beating last night over that.

I frankly thought Dion's plan, as he put it out in the Quebec — er in the French debate was quite effective. I thought it was a good move on his part now. Also Harper, as you saw, came right out of the gate last night and attacked him at the beginning on that plan. So Harper obviously thought that perhaps Dion had made some points with it as well.

The one other thing, sort of interesting note I find, one of the Conservative slogans has been: the fundamentals are strong. And I think it's the first time I've ever seen a Department of Finance briefing note used as a campaign slogan. Because I would say for the last 25 years anything that happens on the economy the first bullet for any minister of finance has been to say: the fundamentals are strong in Canada. And we're now having that as a campaign slogan.

Edward Greenspon: The Liberals already used up: the land is strong.

Edward Greenspon: John, how do you see this?

John Manley: I must say, I hadn't thought of it as a Department of Finance note. But Jodi's right. I saw a lot of those notes. And they seem to have gotten into John McCain's hands as well. You know, I actually think that we are facing quite a challenging time but that the numbers for Canada don't really reflect that.

And you know, I was thinking about this after I heard Stephane come out with his 30-day action idea. You know, I think in the absence of an election campaign, when it's more about politics than it is sometimes about sound public policy, what I'd be counselling the minister of finance or the government to do right at this moment is just wait and see how all of this works itself through.

I think that we can reasonably anticipate a pretty severe and probably fairly long recession in the United States and that will undoubtedly have a spillover effect for us. But it's not being really felt yet. Unemployment hasn't started to rise in any great numbers in Canada, even in Ontario yet. Our financial system is quite solid.

So we should now be starting to think about what we will do in the face of a U.S. recession, but I wouldn't be doing anything too drastic now. But politics is different from policy, unfortunately. And at this point in time I think there's been a really substantive change in the way people are feeling over the last week or ten days and the sense of urgency about what's going on in the markets is spreading concern and fear. And I think that the Prime Minister may have left himself somewhat vulnerable by seeming to be too blasé about what people are seeing as a crisis.

Edward Greenspon: Doug, are you noticing that, people beginning to feel a sense of urgency, a stronger sense of concern about this?

Doug McArthur: I think it's a growing concern. You can pick it up. People are more anxious. I don't know whether I'd say there's a real sense of urgency yet. But certainly you can't have what's been happening in the market for the last couple of weeks without causing people to feel anxious, even if they don't have money directly invested in the market.

I must say that I found the debates on — both debates on the economy very, very disappointing. It seems to me that we do have to recognize that there are really big problems on the horizon and that some of these are embedded right within our own economy.

When you listen to the leaders, virtually all of them talked only either — Harper tried to avoid the issue which isn't going to do anything substantively or I think politically for him. And the other leaders all talked in terms of what I was — what struck me was old-fashioned fiscal policy ideas: taxes, spending, balancing the budget. All of these kinds of things which just are completely off the mark as to what is going on in this economy.

We have a real problem in the credit side of the economy and there's no talk about how to use credit instruments, how to increase liquidity, how to approach this question. I don't mean getting into it in a complicated way, but I really found the discussion disappointing and in some odd way quite uneducated.

Edward Greenspon: Well since we're educated — at least you three are — let me challenge you a little bit on where you would go. John said that we should start thinking about what we would do in the case of a severe U.S. recession. What should the government be doing to get prepared for that. John (overlap)-

John Manley: Let me though pick up on Doug's point because that's exactly right. The financial issue including in Canada is a credit issue and a liquidity issue. There are companies, sound companies with good business models, that are getting close to hitting the wall and we're going to start in Canada. We've been seeing companies hit the wall in the United States. They simply can't get the credit.

Fed rate is at 2%. LIBOR yesterday morning — I haven't seen today — was at 7% which means essentially the banks aren't lending to each other. This is causing the whole system to grind to a halt. And until Congress really deals with their side of the border I don't there's a whole lot more that we can do, other than what the Bank of Canada has been doing which is to continue pushing money into the system. But you know, I could tell you, there's a real sense of caution on the part of our lenders waiting to see how all of this plays out, waiting to see if the — what has been essentially a residential mortgage problem becomes a commercial loans problem, an auto loans problem, a credit cards problem, which would affect all of the system.

Jodi White: I really felt that we haven't had an economic strategy and that the country has needed it for probably — I mean longer than even the Harper government. I don't think for the last 5 or 6 years there's been — and I think there's a need for a discussion about. It may be almost getting too late.

I mean I think really in many ways the Harper government should have almost called something like an economic summit about a year ago. And if it wasn't seeing these issues, I think generally across the country and the regional differences in terms of what's happening on the economy, needed to be addressed with a lot of people around the table. A very inclusive kind of thing, not left to just politicians but get labour and get private sector in there as well.

And it may be that that still is something that should happen, because I do think besides this specific crisis that's happening in the United States that as a country we have no had a real strategy about where we think our wealth is going to come from in 10 and 15 years from now.

Doug McArthur: The process I think is, you know some process of involvement, participation certainly as we go down the road has its attractiveness. One of the things about Dion's 5-point plan is if you look at it, there's no substance, it's all process. It's ask financial system raters to look at something, gather economists together, direct the Finance Department to do something, meet with premiers, work with provinces. That's his 5 points.

What I found really disappointing, and particularly from Harper who is the Prime Minister, is the complete failure to address the finance and credit side of this problem and we have this problem in Canada. There are ideas that — I know they're not common amongst many economists right now. Economists are quite silent on this problem. But we need to know, what is he going to do with respect to the freezing up of the credit and financial system here in Canada, which is also happening.

It's not good enough just to say, well we're doing alright so we should just slide along with this. People are right. Not only does he not have a plan, but he couldn't even articulate anything at all about where the problem rests and he had two long periods and two debates to do this.

Edward Greenspon: What would that look like? What instruments, you know, you talked, Doug, about the very old-fashioned responses you heard from the other four leaders.

Doug McArthur: The fiscal, focusing on the fiscal side, yeah.

Edward Greenspon: What would a response look like? What sort of things would you be looking for Mr. Harper to say?

Doug McArthur: Well I often think back to courses I took once from Milton Friedman. And one thing he convinced me about was the quantity of money is the most fundamental thing you've got to look at. And less so in his case, but still he would also have shared the view that you have to have appropriate regulations that fit the structure of the financial sector that you have.

And we have a Bank of Canada which still only talks largely about inflation targets and then about bailing out a little bit — helping out the United States a little bit. But no idea about how to put liquidity back into these markets, how to use effective regulation to loosen them up, how to ensure that you don't get bubbles, which is really what we have had here badly in both United States and Canada is a big housing bubble, partly because of the mismanagement of the money supply and regulation within it.

So these are things that — I mean I could go in a lot more detail, but this is where the core of the solution is going to be found. And we're not doing anything in that direction here in Canada either other than claiming that the Bank of Canada is loosening up the money supply here and there.

Edward Greenspon: John, if you were minister of finance now, what would you be doing?

John Manley: Loosening up the money supply. Well at least I'd be encouraging the Bank of Canada to do it. I don't quite see it the same way. I think that credit has tightened up, as I say, in Canada but that's in large part because our institutions are looking at what's happening south of the border and globally. And prudence and caution are the order of the day and need to be, because banks after all lend other people's money, including their shareholders' money.

The Bank of Canada flushed 4 billion into the — another 4 billion into the system just a couple of days ago. And Mark Carney is on the phone essentially daily with banks, trying to make sure that his message which is you do need to be out making loans is heard by them. And I think the response to that is: fine, but we've got, you know, we don't have balance sheet issues but we do have issues around where the economy is going and we need to exercise some prudence so —

Doug McArthur: But John, your argument is a bureaucratic defence of what's now being done by the Department of — the Bank of Canada and I suppose the Department of Finance. But that defence of what they're doing now does not constitute a forward looking plan that sets out how we're going to go through this thing. And I think this is the mistake that Harper has made is that he's saying, what we're doing now is okay; what we're doing now is the right thing.

I'm sorry, unless leaders and people like Harper and leaders in government actually set out what it is substantively they're going to do to address what we all can see is coming down the road here, there's very little chance of there being any confidence in the management of the economy. And I think it's going to hurt Harper politically to some degree. I think that he did badly in these two debates, largely because he could not respond in a positive way about the economy.

John Manley: Fortunately I don't have to have a plan because I'm not running (overlapping)…

Doug McArthur: No, I agree.

John Manley: And it's not surprising that somebody wouldn't have a plan for something that is really truly unprecedented. That's why I started by saying, well if I were asked for my advice, in the absence of a political context — the political context I totally agree, and I think the Prime Minister is at risk because he doesn't appear to either really appreciate that this is something that people are worried about or doesn't have the ability to come up with a plan.

But the reality is absent the election, ask me for my advice, I'd say, yeah the Bank of Canada needs to make liquidity available. I don't think that we have regulatory handicaps at the present time in Canada, unless you mean the Basel 2 rules which are maybe a little pro-cyclical. But I don't know that anybody has seen anything like this before and therefore it's not surprising that it's not easy to come up with a five point solution to it.

Jodi White: And his calculation in all of this is that his numbers are very strong as leader and as Prime Minister in terms of peoples' perceptions. He is definitely way out in the lead on perceptions as a leader, although there's been some weakening in that.

And so within the electoral bubble, why would you get into this? Most Canadians don't understand it a lot. I think the anxiety is rising and his calculation for the next 10 days really is going to have to be are his numbers softening on his leadership abilities because he isn't addressing a little more the economic issues. And are we going to see therefore more of their ads, try to address the economic issues.

I don't think it will ever be to the extent that John and Doug are talking about in terms of detail, but so that people can relate to it, you know what I mean.

Edward Greenspon: Let me just move to a slight knock on effect which I want to ask you about which is are we in jeopardy of falling back into deficit and does that matter?

Jodi White: Oh yeah, I think it matters big time with the people. And it matters to the — to the current government although they may be the cause of us slipping back that way basically. But I think they're bound and determined not to have that happen because I think they know it is a huge issue with the public.

Edward Greenspon: John?

John Manley: Well, I think again the political answer to that, Jodi is quite right. I mean we've adopted balanced budgets as a kind of religion in this country. I'd hate to be the finance minister that first admits that the deficit has returned.

In economic terms, one of the reasons we did all that cutting and saving and generating of surpluses and reducing our debt to GDP ratio for ten years was so that if things got really tough we could actually run another deficit without the bond markets throwing in the towel.

This is the kind of time where you have to be beginning to think about not only do we prime the pump — it's a little hard to do that — but how do we address some of the real need that's going to come about and let's not worry about whether we have to borrow on the government's line for a little while to do it.

Doug McArthur: If you listened to what people said in the debate last night, they all said they would not tolerate a deficit. We're going into a recession or downturn certainly. Harper won't admit that it looks like a recession, but we'll see.

We've had increased spending with multi-elections. We've had tax cuts. And so it will not be surprising if we push up against the deficit — against the deficit in the next 12 to 18 months. However, what's going to happen, I assume, is because they've all given this political promise is then we're going to have to go into counter cyclical fiscal measures which actually harm the economy.

That is to say we're going to have to have cuts in spending and I don't suppose —no increase in taxes but there will be various ways to take revenue out of the economy. We put ourselves in — we essentially eliminated the use of fiscal policy for economic management with the box that you saw everybody put themselves in.

Where do we go from there? Well again, I don't think then we can look there for any of our solutions. And yet last night that seemed to be all anybody had any thought about was the taxes, spending and deficit.

Edward Greenspon: Let me shift the conversation. Actually let me green shift the conversation for one moment, if you will. In the lead up to the election, climate change was a very big issue. Stephane Dion made it a big issue. Canadians said that this was a top-of-mind. It really hasn't manifested itself in a big issue. Indeed, you know, Mr. Dion doesn't seem to have done well with his green shift.

Elizabeth May is moving up. I don't know if that has anything to do with environmentalism. I want to ask you that. But has the economy just trumped the environmental issue and is it stillborn?

Doug McArthur: I don't think it's trumped the issue, but I think Dion was largely stillborn. He's run a terrible campaign and his first big dead weight he had to carry around was the way he put it way out in front, ahead, what the conditions were going to be when the election was held, put this green plan way out in front.

I noticed last night he tried to redefine it a little bit by saying it's not a tax on consuming carbon, it's tax relief for those things that don't use carbon. He's trying to give it some — and I thought he was quite effective in some ways when he put out that statement.

But the environment is not going to be vote determining here. I think that people want some — I think that people want some comfort that the environment is going to be — they're going to pay attention to the environment. I think it's hurt Dion. His carbon tax has hurt him, certainly has hurt him badly out here in B.C. where the Liberals are in danger of slipping into third place.

So environment not a big factor. Elizabeth May — I think Elizabeth May has accomplished everything she could have wanted to accomplish in this election. She's got profile. She held her own in debate, looked quite good. And she's been able to expand the idea of the Green Party as something more than just about the environment.

Edward Greenspon: Jodi?

Jodi White: Yeah, I really agree with that. I think the environment has never been a vote driver historically. And a year ago, as you said, people were talking about it and were convinced that would be the deciding issue in this campaign. And I think I was always dubious of that and I think it's proven again that people go to things like leadership and the economy and especially now that we have this very concerning future in terms of the economy.

So, and I think Mr. Dion's biggest problem was that the word tax was used in his green shift and the Conservatives just pounced and to some good effect. So I'm not sure if it will ever be a vote driver, especially in a country like Canada where there are such huge differences in terms of the basis of economy such as Alberta and their different views on environmental issues.

So hard to have that as a vote driver when you've got a country of this size with so many different regions playing into it.

Edward Greenspon: John, is anybody going to touch the climate change file for a while now?

John Manley: Well it will come back. I think that there's a good question about whether the green shift was either strategically or tactically a wise thing to do. It's usually better when you're an opposition party hoping to form a government to let the government be the issue rather than make yourself the issue.

And I think that that was from the outset part of the problem with the green shift. It tried to define the issue as something that the Liberals thought was better ground for them than it would be for the government, but ended up putting themselves on the defensive. And then when the economy really did become an explosive issue, people would look at the green shift and say, well this is kind of a risky thing to do when we're not quite sure about what the rest of the world is like.

So I think it hasn't played well. But, you know, I think we saw over the last couple of years for a variety of reasons the emergence of climate change as an increasingly salient issue for people just wondering what the effects were going to be. And the need for governments to address it is real and I think it will come back.

Will it drive an election at some point in the future? You know, who knows. But it's below the rubble on Wall Street right now

Jodi White: I'm sure some day we will see a carbon tax and it might even be a Conservative government that brings it in.

Doug McArthur: I think the best in the debates on the environment has been Duceppe who actually sounds like he knows what he's talking about.

Jodi White: Mmm.

Edward Greenspon: We'll get back at that at a later date I'm sure. We'll come back to this issue and many more issues as we do this on a weekly basis. I want to thank you all — John, Jodi, Doug. Your fundamentals were very strong. I appreciate the contributions today and we'll be speaking to you again very soon. Thank you.