Inkless Wells

 Inkless Wells

Paul Wells on all the latest out of Ottawa—along with the occasional post about jazz. Follow Paul on Twitter: @InklessPW

Categories: Capital Read, Inkless Wells

Notes on the coming "historic deficit"

by Paul Wells on Friday, November 27, 2009 1:36pm - 43 Comments

1. As a fraction of the economy, in constant dollars, it is risibly far from being a historic deficit.

2. See (1.)

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  • Dave

    Which is all well and fine, but try explaining that to someone who doesn't know their income is paid as a fraction of the economy in constant dollars.

    Good luck.

    • http://intensedebate.com/people/StephenGordon StephenGordon

      try explaining that to someone who doesn't know their income is paid as a fraction of the economy in constant dollars.

      It would be a problem only if that person had never, ever seen a pay increase in they lives. Everyone else should be able to figure it out.

  • http://intensedebate.com/people/Inkless Inkless
    • http://unambig.wordpress.com Adrian

      Average income two-parent families, one earner: $58,700 net? Phew. Nice average.

    • Dave

      Easy for you? Sure.

      Easy for me? Even easier than it was for you.

      Easy for Frank over there?

      Nope. Not easy.

  • http://intensedebate.com/people/madeyoulook madeyoulook

    Dear next generation: Paul Wells, influential columnist from the early 21st century, has provided us an infinite loop arguing we could have raped and pillaged your prosperity far worse. So, a little appreciation would be in order.

    Signed,

    This generation.

    PS Thanks for the hockey rinks.

    • Andrew (not Potter or Coyne)

      Bingo. These deficits are buying us precious little of consequence.

      • dbk

        Just think of all the pension plans it is paying for.

        Derek

  • http://intensedebate.com/people/jolyon jolyon

    Would it be better if they called it colossal instead of historic?

    And I will tell my nephew/niece not to worry about all the debt we are pilling up for them because in constant dollars it is not that much, really.

  • http://intensedebate.com/people/psiclone psiclone

    Let's say you own a house worth 500,000 dollars and as the years go by you pay of 300,000 dollars leaving you 200,000 remaining on the mortgage – then – a global recession happens and you get together with all of your neighbours and all of you agree to borrow some dollars against your equity and send your children to university. Then after a few years you pay the equity loan off and resume paying off the 200,000 mortgage – then you retire and give the House to your kids – WHY WOULD THEY COMPLAIN!

  • Brian

    It's historic in that it's the first time we've had such a large deficit, and at the same time have a conservative government so desperate to keep power that it refuses to cut even the most obvious waste to actually control that deficit.

    That's a first.

    • Mike R

      It is not the first time we have had such a "large deficit", which is Mr. Well's point. It is not as large as the deficit inherited by the Tories in 1984, nor the one inherited by the Grits in 1993.

      • http://intensedebate.com/people/TwoYen TwoYen

        Mike R,

        You and Wells may be wasting your time trying to explain. These guys don't read. They just attack.

  • Dot

    3. The term "in constant dollars" in 1. is redundant – "fraction of the economy" is implicit

  • Dee

    From a Globe and Mail story on Sept. 15, 2008:
    “I don't think the atmosphere should turn to one of complete doom and gloom,” Mr. Harper told reporters this morning as he kicked off the second week of the Conservative Party's re-election campaign. “My own belief is if we were going to have some kind of big crash or recession, we probably would have had it by now.”

    I don't care if the deficit is "historic" or not. As a taxpayer, I am simply annoyed that the deficit is as large as it is (no matter how you count it).

    And that we have an incompetent government who denied there was a problem very late into the game. And if the Conservatives hadn't followed their boneheaded policy of cutting the GST, they would have a lot more government revenue to avoid the current deficit.

    Prudent financial managers? Certainly not the Conservatives.

    • http://intensedebate.com/people/TwoYen TwoYen

      Duh, Dee. Economists would not agree with you.

      The GST tax cut actually served to provide stimulus to the economy faster than in other countires such as the UK where they cut their own GST equivalent as part of their stimulus program. While you may disagree with Mr Harper's timing of his GST cut, it actually turned out to be the right thing to do if the goal was to stimulate the economy as the opposition NDP?Liberal?Bloc parties were all demanding about a year ago..

      No government needs a surplus just for the sake of having a surplus. That's called overtaxation.

      • http://intensedebate.com/people/Jenn_ Jenn_

        Where do you get his reducing the GST two years early equates to providing stimulus when we needed it? Yes, we have been better off than the UK, but the GST cut had nothing to do with that (it was the prudent banking system). I don't think anyone is arguing against the GST cut itself, it is just the timing–we could have done it when it would have meant something, while having more money in the bank to counter the deficit.

        And come on, a surplus is only a surplus when you don't have a debt. Or it should be.

    • Orson Bean

      Well, at least when the Conservatives promised to do something to/about the GST in an election campaign, they followed through on that promise. Not like Chretien, Shiela Copps & Co. who lied their faces off. Just sayin'.

      • Lord Kitchener's Own

        Yes, indeed.

        Chretien et al made a stupid election promise and upon getting elected took another look at what idiotic economic policy it was and thought better of it.

        Harper et al made a similar stupid election promise and upon getting elected implemented the stupid policy they never should have promised in the first place because, hey, a promise is a promise.

        That's so much better.

  • http://intensedebate.com/people/jolyon jolyon

    'otiose'

    Good word. It is new to me.

  • tobyornottoby

    Maybe it's the Zero to 50 in eight seconds nature of this deficit that's historic. Has there ever been such a sharp turn from surplus to deficit previously? (I'm asking, I don't know)

    • http://intensedebate.com/people/StephenGordon StephenGordon

      It doesn't look like it. OTOH, that's good news: it means that most of the deficit is driven by the recession and will go away when it does.

      The really bad times were when we had huge deficits when we weren't in recession.

      • Mulletaur

        + inflation and labour unrest.

  • http://intensedebate.com/people/Jack_Mitchell Jack Mitchell

    It must surely be the quickest deficit we've had. Only months ago we liked to pat ourselves on the back for the surplus.

    • http://intensedebate.com/people/psiclone psiclone

      strange things happen when the global markets all lose 30% + overnight

      • Orson Bean

        Yes Jack, and it's probably because at no previous time in history have we seen so many people — including, most notably, business elites — almost uniformly morph into hyper-Keynesians overnight. I remember what it was like around the time that Bear Stearns was going under, etc., being at cocktail parties and listening to pinstriped business people talking about how we either had to open up the spending spigot or court doom. Quite extraordinary. This is why I find it risible to have people now dumping all over governments (not just ours, note the dialogue in the US) for the deficits — you asked for it, you got it.

  • Jonathan Dursi

    Paul: It's even less historic in terms of the size of the economy (eg, as % of GDP) — <3-4% in 2009 as vs >8% in 1985. And it's size of the economy that actually matters, as it's that's what'll have to be tapped to pay for it in the end. See Stephen Gordon's blog at http://worthwhile.typepad.com/worthwhile_canadian… It looks even more innocuous when looking at debt, http://worthwhile.typepad.com/worthwhile_canadian… . That's not to say that the money's been spent wisely or well, but breathless hyperbole doesn't help anyone.

    • YSP

      By the same mathematics, I made 10% more in constant dollars at Burger King in 1985 than I do as an accountant in 2009.

      At the end of the day, the current ratio (ie, can you pay the bills today) counts as much as long-term projections, which are full of estimates, assumptions & best guesses. I haven't heard anything about distribution of income within the economy and how taxation is applied different sectors of the economy. In 1985, corporate income tax rates were much higher than now in 2009, while individual rates haven't dropped very much. That 3-4% of GDP is being paid for by a much smaller part of the economy than the 8% was in 1985.

  • http://intensedebate.com/people/Inkless Inkless

    Ah. So since accuracy doesn't matter when describing deficits, could we have broken out the attack headlines a lot earlier and called it "historic" when it stood at a buck and change? And when it actually grows to historic proportions, I assume all you guys who equate deficit spending with "rape" — oddly unsurprising how it's guys doing that — will refrain from calling it historic then, the reserves of hyperbole already being exhausted?

    • http://intensedebate.com/people/madeyoulook madeyoulook

      A: I never called it historic. Two: accuracy does matter. C: it is minimizing the complete insanity of our current fiscal approach that guarantees we will continue along this pathetic road. Four: if you don't like rape-and-pillage (long used as a figure of speech, so do be so kind as to spare us the tut-tutting) what exactly would you call what we are presently doing to the prosperity of future Canadians? E: When did we decide that economic cycles could never have another downturn without throwing everything and then some at it?

      • Anonymous

        Unlike the last time, I'll be championing all those younger people who'll suggest defaulting with dignity. We should have done in it the early 90's, when the idea first surfaced.

        If anything, the suggestion sure puts the fear of God into the oligarchs.

      • http://intensedebate.com/people/sea_n_mountains sea_n_mountains

        so much to work with so little time….

        so because something has been around for a while automatically means it is not ludicrous?

    • http://intensedebate.com/people/robert_mccl6309 Robert McClelland

      Well we have to call it something. I suggest Harperstoric.

    • http://intensedebate.com/people/Lord_Bob Lord Bob

      I'd keep it simple and call it "wasting a fantastic amount of money". I mean, no need to deaden our argument with hyperbole, really? At least if we lit it on fire somebody could tell us what a billion dollars burning smelled like.

      (Of course this isn't historic. No small part of the reason my generation is in such deficit trouble is that the generation previous helped themselves liberally. But that's no excuse to compound the stupidity.)

  • http://intensedebate.com/people/jandrewpotter andrew potter

    Making the whole post ipso facto otiose.

    • Dot

      Which also may not be historic.

    • http://intensedebate.com/people/Crit_Reasoning Crit_Reasoning

      Dot made a good point.

      1. As a fraction of the economy, andin constant dollars, it is risibly far from being a historic deficit.

      There. Fixed it.

      • http://intensedebate.com/people/Inkless Inkless

        I'm buying all my opinions off the rack these days from Otiose Joe's.

        • http://intensedebate.com/people/Jack_Mitchell Jack Mitchell

          Nothing bespoke from Germane's?

  • shouldIsellyourwheat

    Obama's target by the end of his 2nd term is going to be about a 3% GDP deficit, which is what Canada has at the depth of the great recession.

    The European Union's typical deficit target for member countries during good times is 3% of GDP, which is what Canada has at the depth of the great recession.

    No increases in discretionary spending for a couple of years, a civil service hiring and salary freeze, an end to ill-advised Liberal wars, and raise the GST a couple of points, and the deficit will be close to balanced.

  • jkl123

    If only the market for dudgeon weren't a buyers market, blogs and those who comment upon them could rescue the economy.

  • Lord Kitchener's Own

    I refuse to acknowledge there's a deficit at all.

    The Prime Minister told me that we were never going back into deficit. I don't know what all of you are talking about.

    I refuse to believe that the nice man in the blue sweater lied to me.

  • Loraine Lamontagne

    I wonder what the deficit to GDP ration was back in the sixties to early seventies when Trudeau was prime minister – and before interest rates started to shoot up.

    I wonder what would happen to the finances of Canada if interest rates were between 10 and 15 percent. What would it cost to service that debt – what share of the pie of government spending would servicing the debt occupy?

    Is it totally impossible for us to consider that interest rates could rise – fast – and to fifteen percent?

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