Categories: Andrew Coyne, Capital Read

Hate to say I told you 50000000000

by Andrew Coyne on Wednesday, May 27, 2009 7:11pm - 124 Comments

Understand: there will be no going back from this, for the party or for the country. Whatever the budget’s soothing talk of “temporary” this and “extraordinary” that, and for all its well-mannered charts showing spending obediently returning to its pen, deficits meekly subsiding, multi-billion dollar “investments” repaid in full, we are in fact headed somewhere we have never been before. We are on course towards a massive and permanent increase in the size and scope of government: record spending, sky-high borrowing, and — inevitably — higher taxes…

If everything the budget foretells comes to pass, we might not come out too badly. A $34-billion deficit, after all, is only 2% of GDP, and even four years of deficits, if the budget’s projections hold, would barely budge our debt-to-GDP ratio. But if they do not — if the economy fails to recover on cue; if inflation spikes when it does, and interest rates soon after; if all those billions in new spending, once in place, do not prove so easy to trim back; if the assets the government acquires with all of its borrowed money do not turn out to be worth what they cost — then we will head into the approaching demographic storm loaded down to the gunwhales. It’s a monumental, even reckless gamble…

– A. Columnist, Maclean’s, Jan. 29, 2009

Sigh. It is so tedious being proved right. Mind you, a 50% over-run inside of four months wasn’t quite what I had in mind.

This is just a total, steaming train-wreck, economically and politically. As Terry Corcoran points out in the Post today, this has very little to do with the state of the economy and everything to do with years of runaway spending. Had spending been kept under the slightest semblance of restraint, there would have been ample margin for even the worst downturn. I’m sorry, but I’m going to have to quote myself again:

It was in the 2000 budget, the deficit vanquished but memories of it still fresh, that Paul Martin promised to hold future increases in spending to no more than the rate of inflation plus population growth—“the benchmark used by most economic commentators”—or about three per cent per year. Yet hardly had he issued the pledge before he broke it. Program spending that fiscal year jumped by nearly $12 billion, or 10 per cent, twice as much as forecast. This was followed by increases of 5 per cent, 8 per cent, 6 per cent, and an astonishing 15 per cent in 2005. The Conservatives followed with increases of 7 per cent, 6 per cent, and 4 per cent—again, well in excess of the inflation-plus-population growth standard.

It is worth considering where we would be today, had governments of either party stuck to the not-terribly-exacting standard of fiscal discipline Martin promised in 2000. Had program spending been held to 2000 levels in real per capita terms—that is, allowed to increase by no more than inflation plus population growth—it would today be just $165 billion, or some $43 billion less than currently projected.

Just to update those numbers (that was written last fall, after all, which was, like, months ago): spending as of fiscal 2010 would be $169-billion vs the budget’s projected $229-billion, or whatever ghastly sum it’s at today: a difference of at least $60-billion. Even if the Tories had only held real per capita spending at 2006 levels, the deficit would be less than half its current — as of this afternoon, call back tomorrow — figure. But then, if I may quote myself yet a third time:

The $22-billion the Harper government will pile on top of program spending this year, adjusted for inflation and population growth, amounts to an increase of more than 10.1 per cent. That’s a larger rise, in real dollars per citizen, than anything the Trudeau governments ever attempted, even in the heady days of the early 1970s, when they were putting in place the institutions of the modern welfare state. (Its only possible rival is 2005, when spending increased by a similar amount — though its abrupt decline the following year suggests this was as much an accounting achievement as anything else.) For the record, it’s more even than in the infamous first budget of Bob Rae’s Ontario government.

No government in our history has spent this much, this fast. Before this budget, no government had spent more than about $6000 per citizen, in 2008 dollars — no, not even in the depths of the 1982 recession. This budget blasts through that ceiling, all the way to $6500, and stays there: four years from now, after the recession is presumably a memory, the government will still be spending nearly $6400 per capita. At the start of this decade, it was spending just $4800. Somehow the federal government is now finding ways to spend a third more inflation-adjusted dollars on each of its citizens.

So a field day for the Loyal Opposition, right? Not exactly. One, as the second quote above makes clear, the Liberals contributed more than their share to this mess, having raised spending even faster in Martin’s last years than the Conservatives have. Two, they voted for the Tories’ record-breaking January budget, taking credit for forcing them to spend more than the fall update had planned. Three, since then they have been urging the Tories at every turn to spend more (an extra round of stimulus!), faster (shovels in the ground! money out the door!), and with even less long-term direction (an extra five weeks of EI? That’s nothing! Make it nine weeks’ eligibility!) than was already the case.

Bitching about deficits is all right for green-eyeshade types like me. For born-again Keynesians like, well, everyone in Canadian politics, these should be glad days indeed. They wanted more “stimulus,” they got it. Instead, the Grits want to have it both ways, blasting the Tories for running deficits while complaining that very little extra spending has actually taken place, as in this Liberal press release:

Having arrived at Finance Minister Jim Flaherty’s 120-day self-imposed deadline for stimulus spending, the only result the Harper Conservatives can point to is a record deficit of at least $50 billion and stalled stimulus projects throughout the country…

Well, yes: more proof, if any were needed, of the futility and waste of deficit spending. But if you believe in Keynesian demand management, it really doesn’t matter a whole hell of a lot how the deficit happens: what matters is that there’s a deficit — more money being “put into” the economy than “taken out.” I know, I know: the “multiplier” is greater for spending than for tax cuts. But still, a deficit’s a deficit. And $50-billion is $50-billion.

On the other hand, if you believe such old-fashioned “pump priming” is a theoretical absurdity and a proven real-world failure, you will recognize where all this is headed.

Tags: Budget, conservative party, deficits, Jim Flaherty

More by Andrew Coyne

Jarrid

Michael Ignatieff and the Liberals are such cynical hypocrites.

Mulletaur

Perhaps, but at least they can count.

Jarrid

They want to spend even more with their EI reform.

They also want to spend a ton of money fighting global warming, even though the planet is actually cooling. Or have they now dropped that pie-in-the-sky nonsense?

Mulletaur

They want to spend about $1.5 billion more with EI reform which will put money in the hands of people who need it and will spend it right away, providing much needed economic stimulus. By the time Harper’s bridges to nowhere are under construction, we will be out of the recession and the spending will be inflationary.

Not sure what could be more costly than carbon sequestration which the Harper government has committed $2 billion to – and carbon sequestration doesn’t raise any revenue.

Jarrid

Still beats paying Russia 10 Billion dollars for carbon credits pursuant to the Kyoto Protocol, no?
madeyoulook

Jarrid, would Russia take a post-dated cheque?
Mulletaur

Was that part of the Conservative platform ? I must have missed that.
Ilovecanada

Duh, Iggy was in a rush to sign the budget, nobody twisted his arm so, he can’t have his cake and eat it too!
Mulletaur

Wow, that’s relevant ILC.
Jarrid

“Was that part of the Conservative platform ? I must have missed that.”

Ahem… more like I realize that full blown implementation of the Kyoto Accord was a cornerstone of the Dion Liberals but I really want to forget about that and hope Canadians do too. Didn’t Dion name his dog Kyoto? And didn’t the LIberals and the other opposition parties threaten to bring down the government for failing to implement Kyoto during Harper’s first term. Ah we have short memories. Not to mention the Carbon Tax, a.k.a., the Green Shift, was originally Iggy’s idea.
Mulletaur

Gordo Campbell seemed to do alright with the whole carbon tax thingy, maybe Coyne is right, there is some hope for principle based politics.

In any case, carbon sequestration, which is Harper’s only policy on global warming, would involve a massive transfer of tax revenue from ordinary Canadians to regionally based resource extracting industries, many of which are foreign owned. Harper wants to give big oil a licence to print money – our money. It would use tax money to protect jobs where oil, gas, bitumen and coal are taken out of the ground, and cost the rest of us money. Not likely to be so popular in places like Ontario which don’t have petroleum and where manufacturing is in trouble.

http://mbedore@rideau.net Margaret Bedore

planet cooling!! go walk with the dinasours

http://bigcitylib.blogspot.com bigcitylib

You’re blaming the Libs for a Tory deficit? Yeah, right.

Your problem, Andrew, is that you are having an ideological midlife crisis: the past seems wasted, and the future unclear. I’d send you a LPoC registration form but you’ll probably do something crazy and join the Liberteranians.
Gene Rayburn

I’d love it if Coyne could explain how he thinks the world got out of the Great Depression

http://carnewsandviews.com jwl

Not to speak for AC but I think WW II had a significant role in ending Great Depression.

Gene Rayburn

And I’d totally agree. The government’s demand for tanks, clothes, food, etc required to fight the war shook the economy out of its slumber (I don’t think it was the private sector that declared war on Germany). Plus, wanna know how the government paid for it? Massive deficit spending — US public debt surpassed 100% of GDP immediately after WWII, but was subsequently paid down after the government reigned in its spending.

That’s why I don’t think this is Coyne’s answer — he’s not a Keynesian fan (not that I am either, but I do consider it a necessary evil).

http://carnewsandviews.com jwl

A significant portion of the war material Americans/Canadians produced had foreign buyers and millions of men were shipped overseas so pool of domestic labour was drastically reduced. And when the war ended, Europe was flattened and needed to be re-built.

So unless you are proposing we start WW III to get out of recession, not sure what lessons are to be learned.

Gene Rayburn

There’s no doubt North America did export a lot to, say, Britain, but the US public debt wouldn’t've skyrocketed from 60% of GDP to 120% of GDP during the war years if the government weren’t doing much of the buying. As for reducing the pool of domestic labour, deployment of troops is economically analogous to a New Deal-style arrangement where the government directly hires people out of the workforce, thereby reducing the numbers available to the private sector (increasing salaries). Finally, as for the flattened Europe, the same can be said for crumbling bridges — yes the bridges don’t share quite the urgency as rebuilding a continent, but again, it’s economically analogous (having the government pay people, through debt, to rebuild infrastructure).

Which is all to say, yes, the war does in fact speak a lot to what we’re doing today (save for the direct hiring component); there need not neceesarily be another war.
neilt

Pardon me for jumping in here, but I think GR’s point is that in a very real sense it didn’t much matter what was being built during WWII, jus that they were being built. The standard answer to “what ended The Great Depression?” is “World War II”. But what is left out is the fact that if Canada and the US had built all that machinery and weaponry and dumped it in the ocean it would’ve had the same effect.

Also, one minor point about Coyne’s assertion that had the Feds kept Martin’s promise to hold spending to inflation plus pop. growth that they’d be sitting on a mighty fine rainy day fund. Well yes, that’s objectively true, but I think we all know that politically it’s not all that simple. I’d imagine there would be even louder cries of “fiscal imbalance!” and more calls to use spending power in the provinces. I can’t imagine any gov’t (especially a minority one) making the pitch to prudently stay the course, that seems like a surefire recipe for a confidence motion. It seems to this amateur that there was only two options – increase spending to keep the surplus in check or cut taxes to do the same. Perhaps the problem was that both Governments tried to do both? (the most obvious and boneheaded example is the infamous GST cut).

And one final point – I pretty much disagree with everything Coyne writes, but damn I enjoy reading someone from “the other side” who argues in good faith. I am so glad that I stumbled upon this blog!
Gene Rayburn

I agree wholeheartedly with neilt’s clarification vis-a-vis dumping stuff in the ocean. The connection between WWII and now is that governments are spending, through debt, in order to make up for a decrease in consumption. Whether or not they’re building tanks or bridges or oversized aquarium accessories is irrelevant.
madeyoulook

But what is left out is the fact that if Canada and the US had built all that machinery and weaponry and dumped it in the ocean it would’ve had the same effect.

Um, no. Dumping all that machinery and weaponry in to the ocean would have meant North America would be under the spell of Adolf and his cronies. Very different effect.

I sincerely hope we are not required to engage in such a similar targeted investment now (amassing a huge military industrial complex to save us from a formidable enemy). And I wish we would avoid the alternative of building stuff and dropping that stuff in the sea, or digging holes to refill them, or whatever euphemism you can apply to meaningless make-work junk that adds no long-term value to those future taxpayers stiffed with the bill.
Jenn

I understand a lot of wars in history were started because war is such a proven recession-buster. Really, North Korea–you wanna go?
Gene Rayburn

I don’t think I ever advocated a war for the superficial objective of solving a recession. That said, WWII acts as an example of massive, debt-fuelled economic recovery in my opinion. We only need to replicate that aspect of WWII — we can build new bridges and buildings instead of tanks and guns. The war part itself is irrelevant.

Orson Bean

Besides which, I think the problem reflected in the $50 billion number is the absolutely indiscriminate nature of the spending that’s been going on. This is reflected in turn by this particularly irritating habit that politicians, interest groups and other rent-seekers have adopted in Canada recently, in which every effing bit of government spending, every damn program, is referred to as “stimulus”. Because how can you possibly be opposed to stimulus? It’s like being opposed to mom, apple pie and cute little puppies.

I don’t think any sensible, thinking person (or at least any true Keynesian, as opposed to the many fakers out there) disputes the fact that certain targeted government spending can have a salutary stimulative effect on an economy during a downturn. But what’s been going on is like the fiscal equivalent of a coke-&-hookers binge in Vegas.
http://economics.about.com Mike Moffatt

“Not to speak for AC but I think WW II had a significant role in ending Great Depression.”

This argument never made any sense to me, given that both of the downturns in the Great Depression (the ’29-’33 depression and the ’37-’38 recession) were over well before the fall of 1939.

sf

I agree, I’ve never liked that argument either.

http://carnewsandviews.com jwl

Non snarky question: What is the argument against WW II ending Great Depression?

krrh

The argument that the pent up consumer demand *after* world war II had a bigger effect in rebooting the economy always made a lot more sense to me as well. WW II was hardly a great time to be working or living. The citizens of the US and Canada were severely rationed, and a large portion of industrial production was allocated to making things that weren’t useful to citizens day-to-day lives.

After 4-5 years of that sort of living it’s no wonder that people had a lot of spending to do, families to start, homes to have built, and durables to purchase. Not that we should impose rationing, but a bit of austerity and delevering of private debt seems like a more rational solution to a crisis in part caused by over-borrowing and over-investment than more debt and more investment.

The only period in American history where US military spending clearly pulled the economy out of deficit was the spending associated with the Korean war, and the end of that conflict and draw down in defense spending also seems to have sparked a recession. But WW II is a less cut and dry example, and a historically unique event (as is the great depression). It’s not usually a good idea to draw conclusions from a sample of 1.

Chris S.

The world is a much different place today.
Justin Wordsworth

<font size="13">Wars do not fix economies!</font>

In wartime, huge amounts of land, labour, and capital are invested into production that contributes NO net increase to wealth. Of course, wars are sometimes necessary (particularly for defense because the enjoyment caused by wealth is significantly decreased when you are dead), but wars are strictly an expense, and an expensive one.

That wars save economies because they get everyone back to work is an argument of such contorted and tortured logic that one would think it could be legally constructed only at Guantanamo Bay.

The idea that directing production to things that just explode (like bombs and bullets) is a boon to the economy is logically identical to the following analogy. You buy a piece of land and intend to build a house upon it, to increase your wealth. Each day you build, and then at the end of the day, you burn down everything you just assembled. No matter how long you keep this up for, the net increase to your assets is 0. Furthermore, your wealth has actually been diminished due to the wasted time, energy, and productive capacity.

War is only beneficial to the economy in two ways. First, if your side wins and you take all the wealth of the vanquished. Second, it removes poor people from the welfare rolls and puts them into coffins.

War. What is it good for?

Next to absolutely nothing.

hosertohoosier

Thank you so very much Mr. Wordsworth. The "WWII ended the recession" crap is one of the most annoying arguments in history. It presumes that the only problem with an economic downturn is that people don't have jobs. Yet, why do we work in the first place – to earn money which we can use to consume things usually other than war bonds and tanks.

Major wars are also historically followed by economic downturns. The wartime levels of unemployment are unsustainable, inflation that has built up in the war comes home to roost, and governments must deal with large deficits. This is not to mention the destruction of capital or loss of life (and all the accumulated human capital), the opportunity cost of X years of research and human capital accumulation being directed to military uses. The impact of that after WWII might have been limited compared to other major wars because of the deflationary spiral that preceded it, but even then there was a sharp downturn after the war.

sf

This post is a good one, although I have one minor quibble:
the “multiplier” is greater for spending than for tax cuts
That’s hogwash, the multiplier is a figment of the imagination, it is the result of an incredibly simplistic look at the economy.

http://andrewcoyne.com Andrew Coyne

Um, I think that was my point, actually.

sf

In that case, I agree with the whole thing! I didn’t catch the meaning of the quotes around multiplier.

madeyoulook

On the other hand, if you believe such old-fashioned “pump priming” is a theoretical absurdity and a proven real-world failure, you will recognize where all this is headed.

Sigh… Yup.

Can nobody on the national scene besides Andrew speak honestly to Canadians with the insultingly simple truths espoused here? Sadly, the answer is no. And here we are.

Oh, and Jarrid, spare a “cynical hypocrite” charge for the people who capitalize the word Conservative in their party name.
http://carnewsandviews.com jwl

I want to know the over/under for this year’s deficit. Does anyone believe we won’t be hearing something similar from Flaherty in a few months time telling us about his ‘complex’ file and we are now looking at $60 … $70 … $80 billion deficit.

http://andrewcoyne.com Andrew Coyne

You mean he’s the new Minister of Complex Files?

Mulletaur

If the ‘stimulus’ money isn’t yet out the door and unemployment is not yet up in double digits, the only reason we could have a $50 billion debt projected at this point in time is all the spending the Harper government did before the effects of the financial crisis hit the real economy. But I don’t even think that could account for the huge increase in the deficit figure from $34 billion to $50 billion over four months. Professionals in the Department of Finance could not have been that wrong over such a short period of time, they just don’t make mistakes on that scale over such a short time span.The $50 billion number is something Guy Giorno pulled straight out of his posterior in order to knobble the Opposition’s calls for EI reform. More politricks by the PMO. Huh.

In any case, we are still just about at the Maastricht criteria for Eurozone convergence of 3% of GDP, so it’s not (yet) the end of the world. Too bad Harper cut revenues by more than $11 billion with useless GST cuts which didn’t do anything to stimulate demand while making the deficit worse. That revenue will be needed once the economy recovers and we need to reduce the deficit to make Canada more attractive for investment.

Once last comment : the way out of a liquidity trap is not by way of bridges to nowhere. Getting out of a liquidity trap is best accomplished by helicopter. Or at least helicopter money. EI reform is helicopter money – cash given to individuals who need it and will spend it immediately. Infrastructure projects which start just as the economy is starting to recover will be inflationary. Welcome back to the 1970′s, Jim Flaherty.

madeyoulook

Mulletaur, helicopter money is money for EVERYBODY, not just those on EI.

But the point about money-for-nothing expanding the money supply and therefore inflation is still valid.

Mulletaur

Fair point, MYL, but perfection should not stand in the way of doing something sensible, and reforming EI to make it easier to qualify and giving longer benefit periods is a pretty good approximation. Personally, I think they should just skip the infrastructure projects and cut us all cheques …

Stephen

We spent the 80′s and 90′s getting out of the EI mess from the 70′s. Sorry but this is a big mistake because it saps productivity in a really bad way. Commission after commission went after it.

The last one that was finally acted on was the Forget commission.

55% of the Canadian economy is consumer spending, 70% of the US economy is consumer spending. And Canada imports significant amount of consumer goods. Leakage is huge.

Extension of bennies 5 weeks was fine, it clawed back some of the more nasty provisions Martin had put in to pay for the last bender we went on starting in 1974. But to make this polictically saleable the Libs went to the bottom of the barrel for qualification periods.

I share the skepticism over the spending increase required, but that horse left the barn in the sturm and drang in the winter. But lets see the cause of the increase in the projected shortfall. For those looking for answers, remember its a projection, change the forward looking assumptions, and we are at the beginning of the Feds fiscal year, then you change the result at the end.

Is it real, is it political is it both….who knows? We need info, I mean they could be projecting that they can spend more before the end of the FY than they originally thought…who knows…..there have been no details, more signal less noise please.

Mulletaur

The deficit figure quoted by Flaherty outside the House yesterday was either a lie or an admission of total incompetence in managing the Canadian economy. Making EI the same across Canada is about fairness above all. But it also has the potential to get some money into the real economy much faster than the bridges to nowhere Harper’s government is proposing to build.

sf

Whatever happened to the concept or earning money? Whatever happened to the idea that you get stuff when you produce stuff?

Now you propose the concept of giving stuff to the people who are most likely to deserve it the least, the people that have been released from their jobs because they would not produce as much stuff as their colleagues.

Mulletaur

You can’t earn money when there is no job for you. That’s what the social welfare net is for.

Are you saying that all those who are unemployed were fired because they were the least efficient in their jobs ? Who are you really, Guy Giorno ?

Stephen

People get new jobs…..we still havent plumbed the depths of previous Unemployment levels. We cannot spend our way out of this. We do what we need ot do while the major players, Europe, US and China fix themselves.

And if they cant, well thats when we will truely need the money.

Mulletaur

If we ‘can’t spend our way out of this’, why is Harper’s government trying to do just that with a $50 billion dollar deficit ? Are you saying that they are pissing our tax money away for nothing ? It’s your Party, perhaps you can enlighten us all, Stephen …

DT

“Professionals in the Department of Finance could not have been that wrong over such a short period of time, they just don’t make mistakes on that scale over such a short time span”

how do you know they couldn’t have been that wrong? Is it just a feeling? a hunch? A gut take? after all they are professional after all right?

from CTV 2004:

“The federal government announced it had recorded a surplus of $9.1 billion in the last fiscal year — but not everyone is celebrating the greater-than-expected coffer.

The $9.1-billion surplus for the year ended March 31 is about five times more than the $1.9 billion Finance Minister Ralph Goodale forecasted in his budget last March.” presumably the ones working for Martin were also professional?

Tthat was a 478% error. The horror, the horror.

keith c

thank god someone is pointing this out. Liberals lied repeatedly about all their surpluses! not tnat I especially mind as it kept some of the interests baying for cash at bay. though as Coyne points out many of those interests were rewarded in big program spending. Coyne is not so useful in pointing out where some of the huge spending increases were and why they may have been unnecessary. Liberals will say those spending increases were necessary to undo 1990s cutback damage, so some specifics opposing that view might have been helpful.

John

The politics of this are just awful. Flaherty’s deficit projections are wildly inconsistent. I don’t think the Conservatives can really get out of this one.
neilt

“Um, no. Dumping all that machinery and weaponry in to the ocean would have meant North America would be under the spell of Adolf and his cronies. Very different effect.”

Wow, two shiny quarters for madeyoulook…Top Prize for missing my point completely.

madeyoulook

I will return those quarters to you for having missed my point. All that “targeted investment” made a difference to the future of the country. The “value” of Canada as a country was enhanced by whupping Nazi butt at Normandy and beyond. Big time. Think of it as a “capital improvement project,” if we must stay cold-hearted number-crunchers.

Now go back in your time machine and dump all that targeted investment into the sea instead. How does the “value” of Canada look to you now?

To totally ignore the different outcomes of using the economic output of the day (for an essential military victory) versus tossing it away, you fail big time in reaching the “same effect” conclusion even if you stick merely to economic thinking. And that gets to be dangerous thinking indeed if lesser-watted decision makers choose to justify meaningless economic activity now, financed by the future, with such arguments.

neilt

Nah, you better hold on to them shiny quarters…you’re still not getting my point.

Obviously it wouldn’t make sense for Canada or the US to make war machinery and dump it in the ocean when there was an actual war going on, you seem to think I’m saying that, I’m not.

What I AM saying is that one can separate the “war” aspect of the war, and the economic consequences of the war. From this viewpoint, the stimulus provided to North America wasn’t that there was a war going on and we beat the Germans, it was that the government was pumping gobs of money into manufacturing. This was why WWII ended the Depression…the fact that we were spared some Philip K Dickian dystopian nightmare was just icing in the cake :)

neilt

clearly me and HTML don’t get along very well….sigh.
madeyoulook

Forgive me for reading what you wrote and believing that’s what you meant.

And with your clarifications, you’re STILL mistaken, unfortunately.

Go ahead and build thousands of tanks and rifles and aircrafts and shovels and axes and bullets and helmets. Go ahead, do it. Then throw it all away. What have you got? A micro-burst of false prosperity (call it a “military bubble,” if you like), followed soon after by a massive bill for all that work and absolutely nothing to show for it. Just the bill. With interest. Same effect? Nonsense.
sf

MYL is right. There is absolutely no benefit to working hard for no reason. So what if you’ve got some GDP numbers that are larger: the net result is that everybody is poorer, who cares what the GDP number is.
keith c

when we ask what ended the depression, we’re really asking how we started off the 1950s wave of prosperity, aren’t we? since it’s self evident that massive shift of men into uniform and women into factories, government directed war spending was a vastly different economy from the 1930s. We’re really asking if there was a government choice that had long term impact when the war was done.

it seems to me that the post-1945 U.S. boom had, rather, a lot to do with pent-up demand, more than anything- natural demographic shifts. People hadn’t bought anything nice for themselves since 1929, and lots more young people who weren’t born then were itching to get started in life. A 15-year depression happened a couple of times in the Victorian era – 1875-1890 i believe was not very much fun for early post-confederation Canada.
At some point, generations create their own spending booms. I remember this from my life in late 1990s Quebec. At some point people just started renovating condos and new restaurants started opening, even while the government was cutting back and the economic fundamentals, while better than the early 1990s hell, weren’t exactly buoyant. At some point every Montrealer who had been scarred by nasty recession, Meech lake and the referendum just decided that they had to live life, or they had a kid on the way or needed a bigger house, or that they had enough cash to look for somewhere else to go for a drink. postwar America (and its Canadian branch plant) was that on a grand scale, helped out by the fact that economic competition from Europe and Japan had been completely destroyed by the war. (Europe was “booming” too as far as economic figures went, but was a hellish place to live after a century’s wealth and infrastrucure and a quarter of the population was wiped out, thus accounting for the zillions of Frank Stronach-era immigrants.)

All this to say that I don’t believe wartime deficit spending is much of a model or case study for whatever is going to happen to us now.

Gene Rayburn

huh? Touchy-feely thoughts of nationalistic pride don’t build buildings — heck, North Korea is the perfect example of that. Don’t tell me you’re actually trying to argue it was that aspect which brought our economy back to life (not that I’m dismissing the human sacrifice or “touchy-feely nationalistic pride”, it’s just that wasn’t the element that got the money flowing again)

madeyoulook

Gene, I am not talking about touchy-feely pride. I am talking about having a country at all versus, well, not. That capital-preservation project (again, speaking in bean-counting terms only) was one the population was willing to embark on and willing to pay for at the time and later. Dearly. It provided something of value, for which the bill made perfect sense.

Dumping all that output into the sea would have passed along the bill to the future, and nothing else. Even without WWII.

Gene Rayburn

You have to understand that the economic, and purely economic, output that those tanks and guns had in and of themselves was zero. Economics doesn’t care whether or not that gun was used in combat or not — all it cares about was that it was made. Guns don’t fire money.

As for the protection of the country, that (oddly enough) isn’t an economic concern. I admit, it’s an odd argument to make, but the fact is, stimulus spending on guns for a war is in no way more ‘stimulative’ than spending on bridges. There’s isn’t something magical about wartime money. Now, the fact there’s a war does mean that the population may be more willing to stomach the temporary spending (as they acknowledge that they won’t have a country otherwise), but that’s a purely political concern. As long as the bridges are built efficiently and money is targeted correctly, there’s nothing different between that and war construction.
madeyoulook

Well, at least we have a bridge now, instead of a heap of scrap metal on the ocean floor. We’re making progress. Can we have a bridge to somewhere, or does a bridge to nowhere still have the “same effect” ?
David in Ottawa

I think there’s more to the war’s economic effects than just spending a lot of money on weapons. Total wars do a number of other things including constraining the supply of labour and constraining private consumption. They also promote private saving and thrift. Under these conditions the economy is forced to innovate, to become more efficient as a matter of survival. Once the troops return home and the other constraints are relaxed, there is massive expansion in the economy due to the combination of an enlarged workforce working with a more efficient economic infrastructure trying to supply a hitherto suppressed demand. These circumstances would be difficult to duplicate in peacetime but spending on productive infrastructure is about the closest one can get. Just spending on anything and everything won’t cut it.
http://carnewsandviews.com jwl

Gene R

I was unaware Canada was experiencing a shortage of bridges. How many do we need to build?

I actually wish we had more infrastructure spending but with massive cuts in other departments. Infrastructure is one the things government should do and, as a bonus, is half decent at.
Gene Rayburn

I would agree with David. I’m not at all advocating the building of ocean-destined tanks, but you have to understand that the vast majority of the economic stimulus comes from the flow of money involved in construction. In other words, if you assume a war provides 100% of economic potential from a dollar of stimulus, then building bridges to nowhere provides 95% (for example). You still get most of the benefit, and still makes that program worthwhile. However, we happen to have even better options such as building streetcars or green-energy technologies which will provide secondary benefits down the road. We have no reason not to invest in those instead of water-logged scrap heaps. My only point is that war dollars are not magical and that the stimulative effects of wartime spending can easily be replicated today, since the majority of the resulting (short-term) stimulus comes from the resultant flow of money in and of itself. That’s all I’m trying to say, trying to dissuade the notion that something magical was happening to the debt-fuelled spending of the 1940s versus today.
Gene Rayburn

@jwl: I use bridges as a shorthand for ‘non-military’ tasks. Most definitely there are many other projects worthy of stimulus funds in this country.

knick

Not to worry, the Harper Party plans to pay off the massive debt they’re racking up with ‘Flaherty money’ – it’s inflation proof, recession proof, and the value of it changes at the Minister’s convenience.
Sisyphus

Let a hundred flowers …..

http://news.bbc.co.uk/2/hi/asia-pacific/8065525.stm

Mulletaur

Ahhhhhh, verrrrry nice. I want my cheque !!! Especially if I have to pay for all of this spending later …

Orson Bean

A bit of irony here, too: if an election were to be held in the next while, I presume that two main refrains from Iggy and the Liberals would be:

1. The Tories have run the deficit up to $50, which is the height of irresponsibility and fiscal imprudence.

2. We the Liberals will implement EI reform (which, by our own estimates, will add another $1.5 billion annually to that $50 billion figure).

Orson Bean

umm, obviously I meant $50 billion. Kind of a material difference . . .

http://skinnydips.blogspot.com Skinny Dipper

I think Harper needs to pay a visit to Nunavut. If Harper doesn’t want to eat any seal, maybe the seals will want to eat Harper.
BobbyB

What we have now in this economic tornado is no different than a pandemic but in this case it involves the sickness in the economies of the world and not the population. The attempt at solutions are no different. if we had a flu pandemic then $ resources would be brought to bear to fight it, either in vaccines, in reduced travels, in health costs for the sick and dying, etc etc. The dollar factor to fight a viral pandemic cannot be exactly known but it would be enormous. How long the before the pandemic ends would not be known exactly but we would put everything we could from an economic point of view into play to address the pandemic and we would do that sooner than later. We know the longer we wait the worse the situation. Of course we could sit by and watch the death and let the pandemic take its course until it died out.

Which is the way you would want to see your government act …. watch the deaths or try and spend to save as many people as possible (even though it may seem like a small number of lives are saved)?

We may have to spend and go into large long deficits but that is what I would rather see done to fight this panecodemic than watch people loose their jobs, their homes, and see technologies stagnate while we wait for the economies of the world to fix themselves.

madeyoulook

We may have to spend and go into large long deficits but that is what I would rather see done to fight this panecodemic than watch people loose their jobs, their homes, and see technologies stagnate while we wait for the economies of the world to fix themselves.

So, it’s no longer permitted for cyclical economies to have downturns? It’s improper to allow the false prosperity built only on a foundation of debt to collapse? The only solution to keeping the bubble from bursting today is to blow the beast up even bigger?

Gee, thanks. Do you have kids, BobbyB?

(Oh, shush, Jack, I’ve been good for a long time…)

Mulletaur

“So, it’s no longer permitted for cyclical economies to have downturns?”

I think we have to rewind a bit here. On 10 October 2008 when the TED spread was 464 basis points we were on the verge of a cataclysmic financial and economic event that could have crashed the whole world economy. Sure, the normal cyclical upturns and downturns are permitted, although there is an obvious political incentive to keep the downturns as short and painless as possible. But this was a possible second Great Depression event. We are not out of the woods, Bretton or otherwise, quite yet. Large banks and financial corporations are still very fragile. Large corporations are also still teetering. When the danger has truly passed, we can start talking about ‘normal cyclical upturns and downturns’ again.

madeyoulook

Sure, the normal cyclical upturns and downturns are permitted, although there is an obvious political incentive to keep the downturns as short and painless as possible.

And therein lies the problem. Not only is no one allowed to suffer anything, ever, at least in the developed world, but we are apparently not allowed to even return to the standard of living of a dozen years ago. Even if that’s all we as an economy are capable of.

But this was a possible second Great Depression event.

That may well be. But it would have been a richly deserved one. Doing what we’re doing to avoid some people suffering from a “great depression” now only punts the misery forward in time.

“Hey, don’t make me suffer at all. Screw the kids instead.” A fitting epitaph to an unworthy generation.

Mulletaur

I don’t want to go all moralistic here on you, MYL, because I enjoy sparring with you, but if you have any relatives still alive who grew up during the Great Depression, you really must ask them what it was like. Nobody deserves that. Nobody. And we live in a world now that has nuclear weapons.

If you believe that stimulus spending is just spreading out the pain (which I don’t), it is still a very good option. If you believe that investment in infrastructure and industry is good because it helps us realize our full economic potential (as true Keynesians do) than you believe that such stimulus spending creates extra wealth that the economy would probably not have created on its own.
madeyoulook

Get as moralistic as you like, Mulletaur, because I am making moral arguments here myself. Nobody deserves a Great Depression, you say, so why have we just upped the chances of one in the future? This stimulus spending is NOT spreading out the pain; it’s passing it on to alleviate our own.

As for infrastructure: There is an argument to be made that proper thoughtful investment in infrastructure is sound. Buying materials and labour now for that infrastructure is even smart, because everything just went on sale. But if you believe (as Keynesians must) that GOVERNMENTS are capable of thoughtful, targeted investments that will enhance future prosperity, more often than not, at the best of times, well sit back and buckle up, because you’re not going to like the road ahead. These will not be investments to enhance future prosperity — these are rubber cheques to “get Canada back to work.” And the bubble gets bigger…

Stephen

The TED Spread has fallen quite nicely in the month of May. Down to about 50 basis points. And you point crrectly to the source of the problem, thecredit and banking system. This is the thing to heal….all the other stuff is collateral damage to the hole blown in balance sheets.

This is not over until the very real losses that happened are realized and written off.

In normal times GM would have rolled over its debt, it would hav had money for incentives…car leases etc and that might have bridged them to better times. Or there would have been private credit facilities available to handle bankruptcy. The earthquake in the credit system meant that these things were no longer available.

Extending EI benefits or dropping money from helicopters wont solve the problem. Unfortunately, healing the financial system will….it isnt people friendly but thats were the problem started and the secondary effects wont end till this system is stable and growing.

Mulletaur

“The earthquake in the credit system meant that these things were no longer available. Extending EI benefits or dropping money from helicopters wont solve the problem.”

Obviously not, that is not what I was arguing. If you are going to spend money on stimulus because the economy is flagging and a massive deflation is threatening, giving cash directly to individuals (helicopter money) is the most efficient means of doing so.

David in Ottawa

I don’t know why you bother referencing Terence Corcoran. He’s been writing for years to not just cut spending but to cut taxes as well so that the government runs no surpluses. According to several pieces he penned in the last year or so, governments should never pay down debt because all that does, apparently, is avoids lowering taxes sooner. That appears to be Corcoran’s soul focus on government fiscal policy: doing whatever it takes to lower taxes in the here and now, everyone else (including future taxpayer/debt servicers) be damned. Once we’re out of this, whenever that is, and the government finally gets into surplus (hope springs eternal, I know), Corcoran will be back out demanding that the surplus be used to lower taxes rather than reducing the debt burden.

Jenn

Could we at least learn from this? Just as in real life, when you get a little money ahead, the first thing you do is pay down your debt. Then, you can get a little money further ahead, pay down more debt until finally–finally! you have no debt to pay down. What you DON’T do is say to your income source, “Oh, I don’t need so much. You can keep this.”

Stephen

Its a balance between things that make sense for debt and levels of taxation required to support the debt. As well, a very political point that if government doesnt have the money ot wont be tempted to spend it.

The UK is a place where spend and tax and spend has happened. Now they really have no tax capacity left and they are going to have to go through some wrenching changes. Until relatively recently, certainly the early Blair yars they were running balanced budgets that kept amping up spending.

I have argued before that for all its faults and deficits that the US retains a high level of tax capacity. A lot of it is that the US is one of the few jurisdictions left that do not levy a GST….a they spew cash…..

Lo and beold what shows up today in the news.

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909_pf.html

It will happen, the US will get its debt under control, eventually…..the UK….they are on a path to a choice between Thatcher like cuts or sovereign default. This is why I dont like spend and tax.

http://worthwhile.typepad.com Stephen Gordon

Two points:

1) Why are you choosing 2000 as the base year? That was the year in which federal program expenditures as a percentage of GDP was at its lowest in our lifetimes.

2) Tax cuts – especially the GST cut – have also played a role.

http://andrewcoyne.com Andrew Coyne

I’ve never found percent-of-GDP a useful measure of spending: it implies that spending should always grow, not because it needs to, but because it can — because fiscal capacity has grown. Indeed, so long as spending growth does not exceed growth in the economy, it is deemed not to have grown at all.
It seems to me a more meaningful yardstick would measure spending, not against fiscal capacity, but against the needs to which it is put: the real volume of goods and services a government delivers to each of its citizens, which is spending adjusted for increases in prices and population.
On that measure, spending in 2000 was indeed low by recent standards, but not as low as all that: the Martin cuts merely returned spending, in real per capita terms, to the levels last observed in 1975 — after all of the major institutions of the welfare state had been put in place.
I have no problem with measuring spending against that benchmark, adjusted for inflation and population growth — that is, against the level implied by holding real per capita spending constant at 2000 levels — particularly since that’s what Martin said he would do. Instead, incredibly, Ottawa is now spending one-third more real dollars per citizen than it did just a decade ago. Are you getting one-third more services from your federal government?
But as I say, if you’d prefer to take 2006 as your benchmark, be my guest: if the Harper government had merely frozen spending, real per capita, at that level, the feds would be spending $30-billion less today than they are. Or make that closer to $40-billion, since I’m basing that number on the January budget. That’s how much they’ve run up spending over the levels required to keep pace with prices and population, in just four years.
Had they held spending to any sort of reasonable path, the GST cuts would have been easily affordable. That doesn’t mean I like them, any more than you do. The forgone revenues, while not needed to support spending, would have been better used to cut income tax rates, a point on which I think you and I are agreed.

http://worthwhile.typepad.com Stephen Gordon

Okay, but real per-capita program expenditures is what it was 25 years ago. They fell during the assault on the deficit, and the recent increase is our peace dividend,

http://andrewcoyne.com Andrew Coyne

Nuh-uh. Real per capita program spending is at an all-time high! At $6500 (as of the January budget — it’s probably closer to $6800 now) in 2008 dollars, it’s almost $500 higher than at its previous peak in 1983.

Even on a share-of-GDP measure, program spending, at roughly 15% of GDP, is the highest it’s been since 1996.

I see no reason why real per capita program spending has to be any higher than it was in 1975, when we all thought spending was out of control. The “peace dividend,” post 2000, was supposed to be tax cuts.

DR

It doesn’t seem likely to me that all of this money is actually spending. Much of the run-up has been due to transfers to provinces. Just like the 70′s!

We don’t really know if that money is used for spending or tax cuts.

Well, except for that one time in Quebec…

Dot

Re: GST tax cuts vs income tax cuts.

In the short term (apart from the immediate loss of revenue), during this deep recession, do you really think the manner in which taxes were cut would have made any significant difference to the size of the deficit?

I doubt it. More of a longer term strategy effective in more stable times, I would think.
http://intensedebate.com/people/acoyne acoyne

Testing.

BobbyB

No I do not have kids. In the context of what I wrote if I did have a child and that child were sick I would mortgage my house, I would go into as much debt as it would take to make my child better. If that meant to go into hock way way over my head then so be it. The alternative would be to admit that there is nothing to be done and let the sickness take its course and perhaps loose my child. What parent would take the wait and see approach?

The sickness in the economy we have right now is not simply a profit or loss, or an up cycle or a down cycle, or something that will autocorrect. It is affecting the ability for people to live, and I don’t mean make a profit, I mean to live. The jobs that are lost, the inability to stay afloat and take care of families, it is more than an inanimate thing.

Sure I invest money I loose money I make money my house value goes up my salary increases the markets tank, all of those are innanimate things. What we are experiencing started as a recession or had the boundaries of what we knew looked like a recession. It has exceeded what we know as a recession, it has ballooned and we have no experiences for getting out of this panecodmic!

Maybe if we started to build weapons which we ultimately dump in the ocean we could manufacture our way out. At least people would be employed. But short of building weapons the bottom line is we still need large amounts of capital injected into the market economy that we have built our society on to get us out of this global mess.

Everything that we see in the existing economic machinations that does not work needs to be tweaked, changed, fixed. This has been started on Wall Street. Regulations can’t stop another economic crisis but changing the ones that allowed the current crisis to take hold have got to be fixed/tweaked or written off. And if this means that there are other areas of our economics that need tweaking at this time such as EI and how it works or pension plans and how they are funded or how large corporations can get so large we are forced to keep them afloat even though they are tanking certain sectors then so be it, let’s start fixing/tweaking them!

Sure cyclic economies can have downturns. But when the downturns are global and run rampant I believe we need to take action and in my opinion that means injecting money, after all it is the financial system that is broken and if we wait we run the risk of many more being unemployed for a long time until all the interconnected economic systems have recovered.

madeyoulook

Very nicely put, BobbyB. Here comes the rebut:

The metaphorical child is not sick, here. The father has a gun pointed at him because the loan shark is fed up, and Dad has made a deal with the gunman to hold fire for at least ten years in exchange for aiming at his three children instead at that time if the doubled-down debt is not paid by then. What kind of parent makes that choice?

The jobs that are lost, the inability to stay afloat and take care of families, it is more than an inanimate thing. So, what you do when your system permitted you undeserved prosperity in a developed country? You do everything you can to sustain that undeserved prosperity. Nice.

It has exceeded what we know as a recession, it has ballooned and we have no experiences for getting out of this panecodmic! I think I follow your new word, but please explain why our lack of experience should make us decide to punt? Can we look at other choices, and rationally think about long term consequences of each? Please?

But short of building weapons the bottom line is we still need large amounts of capital injected into the market economy that we have built our society on to get us out of this global mess. But, here’s the secret: the large amounts of capital are not around.

or how large corporations can get so large we are forced to keep them afloat even though they are tanking But here’s the secret: we were not forced to keep these large parasites afloat. We chose to.

and in my opinion that means injecting money But here’s the secret: we don’t have any money.

BobbyB

If we don’t have any money then how can we have deficit spending? I understand it is (may I call it) un-money but it does pay bills and it does keep economies afloat. I understand that there are limits in spending or having scads of un-money but I also see that when economies cannot pay down their debt these over extensions may be forgiven, like what the IMF has done over and over again. In a market economy there are as many IOUs as the government wants (hence the increased deficit number now at $50B) and there are equally many times that a government can take the balance sheet and strike a line through all that un-money and write it off!! Yes it would be a large write down but tell me write downs could never happen?

In a market economy we can’t all at once reduce costs. While inflation may spiral upwards deflation first has to go through stagnation before it starts to spiral downwards and I don’t think we want deflation to be the goal or that deflation could be classed as recovery!

As for companies that are supported and kept afloat I agree, if they fail they fail and we should not be pumping billions into automakers. I would have seen the market forces decide if we needed three NA automakers rather than pump about $10B into them and if any folded such is life. However, while they went through their gyrations of whether they would stay afloat or not I would have protected those industries under the automakers, the ones that make the parts and all the insundry industries and spin-offs that feed the automakers. These companies if left to fold with the demise of the automakers would have caused the same effect as we would have with so many layoffs and spiral down of the workers that the economy again would have gone bust. I would have injected support monies into this layer and once the automakers in NA had settled out to two or one from three I would have started the retraining of these parts manufacturers towards a greener economy such as wind power or other renewables and their spinoffs.

I guess what I am saying is that the government weather we like it or not cannot go bust and they have as much money (either real dollars or un-dollars) that they need to stay active. A deficit may not be nice but they do print the money and they do have the ability to write off bad debts.

madeyoulook

My dear BobbyB, please (re-?)learn some basic economics. CREDITORS are the ones who write off bad debts, by swallowing the loss. And the numbers don’t just go poof; the creditor is suddenly poorer for having lent the money to the deadbeat. DEBTORS do not write off bad debts; they default on them.

and there are equally many times that a government can take the balance sheet and strike a line through all that un-money and write it off!! Yes it would be a large write down but tell me write downs could never happen? Proudly proclaimed by BobbyB from the rooftops while governments around the world are trying to issue bonds. Hey, rich people and companies! Please lend governments your wealth, and by the way, we call it a loan today, but BobbyB has plans for the balance sheet — hope you don’t mind. While this approach has the virtue of brutal truth-in-advertising, BobbyB, I fear it will seriously hamper your ability to raise the dough.

As for your argument that GM, Chrysler and Ford deserve to die, but their suppliers deserve present and future taxpayer wealth to re-tool? Why? What made them so special?

BobbyB

When you say the numbers just don’t go poof can you explain how then a government can enter a transaction with GM to lend them money and also know they will not get their money back and accept that as prudent or appropriate? If this can be done with GM then explain why not with others? Is the government not implictly telling us that money will be leant to GM but they don’t expect it to be all paid back and isn’t GM implicitly also saying they want to borrow money from the government but can’t assure anyone of paying it all back? That would mean they all agree this un-money will go out but will not all come back to be accounted for! So the government already in a deficit deficit position will give GM some un-money! For this the government of Canada will have a stake in GM and hey, who knows if it will be worth the same amount down the road as when they provide the un-funds? Maybe and maybe not! Their agreement will in effect say that GM will not have to pay the government all the money back and the government is not expecting all the money from GM. The question remains whether the government will be able to cover the shortfall in the form of Canadian tax revenues! And if not, well I believe then the outstanding amount gets written off.

From todays Financial Post at http://www.financialpost.com/news-sectors/story.html?id=1636149

Stephen Harper, the prime minister, and Jim Flaherty, the federal finance minister, have been steeling Canadians in recent days for the possibility that the aid for GM will be large.

“Look, it will be a very expensive proposition” helping the Detroit automakers, Mr. Harper said in Calgary last Friday. “That said, the reality is that not doing anything would be a lot more expensive, a lot more damaging.”

“The General Motors negotiations are not finished, but the figure will be substantial,” Mr. Flaherty told reporters in Ottawa Tuesday, adding auto aid is a major component of the $50-billion-plus deficit his goverment is projecting for this year.

In booking such a big number for auto loan assistance, federal finance officials are “implicitly assuming they won’t be repaid,” one source close to the government said. “[That] sounds prudent and appropriate.”

He estimated the federal portion of the GM aid at $7-billion, which would bring total federal aid to the two companies to more than $10-billion.

Tony Clement, federal industry minister, said Wednesday that it’s possible parts of the loans made to the car makers will have to be written down. Asked if Ottawa would take a stake in GM, he said: “We are continuing to nail down certain aspects of a deal.”
madeyoulook

When you say the numbers just don’t go poof can you explain how then a government can enter a transaction with GM to lend them money and also know they will not get their money back and accept that as prudent or appropriate?

Care to show me where I consider this prudent or appropriate? Please do not put words in my mouth. It is not prudent. It is not appropriate. IT IS INSANE!!!!! A loan for which the creditor is, in advance, waiving any claim to repayment, is NOT A LOAN.

If this can be done with GM then explain why not with others?

See above.

That would mean they all agree this un-money will go out but will not all come back to be accounted for!

It’s not un-money, and it is still accounted for: As a liability for future taxpayers.

Wow, Bobby. I hope you have cleared up the difference between a creditor and a debtor. Next lesson: correct your thinking about this “un-money” of yours by working on the following concept: there are no free lunches. Don’t worry, take your time; you are certainly not the only one having trouble with that concept. But please work on it.

madeyoulook

And, right on cue, the consequences of a flippant attitude towards honouring your increasingly overwhelming debt obligations are appearing:

CNBC: New Investor Worry: Treasury Selloff Spiking Interest Rates

http://www.cnbc.com/id/30968861

JP

The real question is what is the plan to turn around these deficits after the economic crisis subsides. Anyone?…Bueller?…Bueller?

What’s it going to be? Spending cuts? If so, by how much and to which programs? Raising taxes? If so, which taxes and how much? A combination of both? Or is the plan to hope that economic growth will turn around the deficits? If so, what, if anything, can the govt do to encourage such growth?

Answers to THOSE questions would help Canadians make an intelligent decision about which party to support next election. Now what do you figure the chances are that we will get straight answers about that?

Orson Bean

Interestingly, this may put the Liberals (not to mention the Dippers) in a bit of an uncomfortable box come next election, because up until now, the refrain from the Liberals (and especially the Dippers) is that we should be spending even more than we are (cf., e.g., EI Reform). I think even the most disengaged, apathetic member of the public can figure out that if somebody is advocating spending even more money than we already are, absent significant tax hikes, that ain’t exactly a recipe for getting us out of deficit.

JP

I don’t see why the opposition parties are any worse off than the Conservatives on this question. I haven’t heard any party provide a plan for getting out of the deficit. The Conservatives SAY the deficits will be short-term, but don’t explain HOW that will be the case.

I actually think the Conservatives have more of an obligation to present a plan since they’re actually the government and have access to more information and resources than the opposition parties.

Mulletaur

Taxes will need to be raised just like Prime Minister Stephen Harper said in the House of Commons yesterday during Question Period.

Al Heck Brakes

“So a field day for the Loyal Opposition, right?”

Yes, it’s a field day for them but maybe not in the way that you think. Endless debt, mismanagement, inflation, unemployment and poverty are a boon to political parties. As are war, famine, and just about everything else which is bad for you and me. Right up to the point of revolution when they might have to flee or be strung up by their heels, everything which screws up the country benefits the political class.

Your factory is closing down? Call your MP, if he can arrange a bailout or if he can put you and your buddies on a cushy multi-year retraining featherbed then for sure he’ll be remembered at election time.

Your Mom’s savings have been wiped out in the stock market and she can’t afford a nursing home any more? Get on the blower to your MPP and get her name on the list for government nursing homes.

Scared about what’ll happen between now and next year when your MRI is scheduled? Keep calling the Premier’s office until he, you know, makes things happen for you.

If you weren’t in misery and stuck in a jam like this needing Big Brother to help you, then where would these people be? Picking their noses and working the jobs they had before they got into politics (if they ever had a real job outside of politics, which of course many of them have not). They would have no choice but to mind their own business, instead of minding yours.

Not only does this Keynesian nonsense buy elections right here and now, but by killing jobs and savings it’s like a wonderful gift bestowed on future generations of politicians.

So yes, it’s a field day for the opposition, and for everyone else who gets more business brought to their door the more they screw up.

Mulletaur

“As are war, famine, and just about everything else which is bad for you and me.”

Yes, you have always reminded me of one of the Four Horsemen of the Apocalypse. Not sure which one, I am thinking Famine.

seaandthemountains

I hate to remember that you also endorsed this gvernment over the Libs becasue Dion could not be trusted to run the economy vis a vis Harper.

http://andrewcoyne.com Andrew Coyne

I don’t recall doing that.

seaandthemountains

Sorry I should clarify (I shouldn’t post when in too much of a hurry). Apologies for the misconstruing this, I didn’t mean that you formally endorsed Harper in that manner, but you did unleash a series of post on Nov 8th and 9th that skewered Dion in the dying days of the election on his criticisms of Harper on the economy/economic issues and defending the Harper position on buying opportunities, the recession will not.

madeyoulook

Gene, higher up: Economics doesn’t care whether or not that gun was used in combat or not — all it cares about was that it was made. Guns don’t fire money.

Oh, dear, this country is in bigger trouble than I thought. How you apply your resources — to respond to a real demand vs. towards thin air — is of no concern to economics? Really? Care to rephrase?
Michael T

14.67 billion due to lost gst revenue, according to the Fraser Institutes Patrick Gervais in a paper entitled “How effective are GST cuts?”

“The reduction in federal government revenue resulting
from the July 1, 2006 GST cut was an estimated $3.52 billion
in 2006/07 and $5.17 billion in 2007/08, for a total loss of
$8.67 billion in the first two years following the cut (Canada,
Department of Finance, 2006). The second GST cut, which
came into effect on January 1, 2008, cost an additional
$6 billion in federal government revenue in its first year,
a figure that will increase to $7.1 billion by 2012/13, for a
total loss of $34.2 billion in the five years following the cut
(Canada, Department of Finance, 2007). The combined GST
cuts are estimated to amount to $72.7 billion in lost revenue
between 2007 and 2013 (Canada, Department of Finance,
2007)”
No Con

Look. When a self confessed social democrat like Coyne can pull a “j’accuse” on the so-called Conservatives, Harpo’s crew is b-b-b-b-usted.

They are done.

Harpo should hang it up now — or else run this thing right into the ground in the hopes something better would HAVE to succeed his horrnedous period in power.
YTZ

How much of this deficit is related to the auto industry bailout?

And how many jobs are we talking about saving? Andrew…….have I missed the headline (a definite possiblity)? As the Big 3 do major restructuring, they all have plans for how many remaining jobs will exist in Canada….I hope. How many will be left? What is the per job saved amount of money being spent on the auto bailout? Any clue?

Anybody seen these numbers anywhere?

Sisyphus

I expect , like the deficit , It’s all still a moving target. It remains to be seen what the effect of cranky bond holders and a probable bankruptcy proceeding on the US side is. Meanwhile …..

http://www.progressive-economics.ca/2009/05/28/dont-blame-auto-bailout-for-50-b-deficit/

YTZ

Interesting.

My big, big beef with Jim Stanford is that his analysis is often disingenuous. For example he compares the $200B (I don’t think the # is that high but whatever) bank liquidity infusion with a the auto investments. The provision for losses on the mortgage purchase should be 0 — they are insured.

Lending or investing in General Motors is like making a horrible sub-prime investment. The odds that it will be written off are high (a point Stanford acknolwedges but glazes over) give that GM is about to go bankrupt…and I can’t believe that Canada will the most senior debt. If what Stanford says is true…than the deficit has the potential to be even higher.

Finally, his argument about the auto sector’s overall economic impact — it assumes that if these jobs evapourate that they will not be replaced. In reality, they will be replaced both by non-big 3 players but also in other industries. In fact, as a taxpayer, I would much prefer that my government invest in areas of growth to help manage the transition into a more sustainable industry.

Bemersoon

As a Reform, Alliance, and now conservative supporter (and donor), I think I might, for the first time in my life, vote Liberal.

I can’t support any government that spends like this. What do we get for it? Seriously, can anyone point to something substantial we have gained from all this extra spending? Are we better off for any of it? Can someone show me even a single child that has lost weight because of the Children’s Fitness Tax Credit? Are there any stats showing that this credit has resulted in a boom for children’s sports programs?

Harper has completely disappointed me with his short sighted politicking in a desperate attempt at gaining a majority. It’s never going to happen with him at the helm, so he might as well just give up and try to govern like a true conservative. At least he’d go down with a little dignity. At this point, I want to vomit every time I see this guy masquerading as a Liberal hoping to win over Canadians for the next election. Hey Harper – if we wanted a Liberal in office, we’d vote liberal!

Iggy doesn’t appear to be as left wing as he would like us to think. I think if he gets elected he’ll govern more like Chretien – talking the left wing talk, but governing like a centrist. I hated Chretien, but I think someone like that would make a safe ‘time-out’ PM while the conservatives reboot. I’m taking the self-destruct option here…. My hope would be that with Harper gone, The conservative party manages to find a true conservative, who doesn’t look like he’s addicted to sedatives, and has a chance of getting a majority government.

It’s too bad the Libertarian party is such a joke, I’d love to give them a try.