Canada’s Parliamentary Budget Office recently projected that Canada will remain in deficit until 2014, with a total deficit of $156 billion to be accumulated. Those are figures that should be worrisome to everyone, even if you accept the argument that the consequences of being more fiscally prudent would have been even worse, because they would have caused a deep recession and exploding unemployment.
What seems most regrettable to me about this is that we have basically failed to use the opportunity to make necessary investments in reducing greenhouse gas emissions. In exchange for the support given to carmakers, for instance, we could have demanded a lot more movement on efficiency and the deployment of hybrid and electric vehicles. More of our infrastructure spending could have been directed at the energy sources of the future (renewables) and less at perpetuating activities that climate change and dwindling fossil fuels have rendered unsustainable. We need to realize that many aspects of how we now live simply need to change – particularly dependence on fossil fuels for both wealth and our energy needs.
Canada has too many future liabilities to be unconcerned about our degraded financial position. Inevitably, the money we are borrowing is going to need to be paid back with interest and, when we are not using it to invest in productive future assets and capabilities, the cost of that will inevitably be borne in future service cuts and tax rises. As a general pattern, it is awfully frustrating how Conservatives everywhere like to cut taxes without decreasing spending, wreck the financial balance of countries, lose power, and then leave it to the next government to repair. They can then win power again and restart the cycle.
The Globe and Mail has more on the announcement.
We shouldn’t be surprised at this debt financing. It’s the best way to justify both nominal cuts to social programs when “balancing the budget” is required later one, and inflationary cuts to wages when printing money is required to reduce the national debt ala late 70s and 80s. The conservatives don’t hate prudent fiscal policy, they just hate the poor even more. Or, to speak more strictly, they hate the “welfare state”.
Economics focus
The lessons of 1937
Jun 18th 2009
From The Economist print edition
In a guest article, Christina Romer says policymakers must learn from the errors that prolonged the Depression
Now is also the time to think about our long-run fiscal situation. Despite the large budget deficit President Obama inherited, dealing with the current crisis required increasing the deficit substantially. To switch to austerity in the immediate future would surely set back recovery and risk a 1937-like recession-within-a-recession. But many are legitimately concerned about the longer-term budget situation. That is why the president has laid out a plan to shrink the deficit he inherited by half and has repeatedly emphasised the need to reduce the long-term deficit and put the debt-to-GDP ratio on a declining trajectory. In this regard, health-care reform presents a golden opportunity. The fundamental source of long-run deficits is rising health-care expenditures. By coupling the expansion of coverage with reforms that significantly slow the growth of health-care costs, we can dramatically improve the long-run fiscal situation without tightening prematurely.
As someone who has written somewhat critically of the short-sightedness of policymakers in the late 1930s, I feel new humility. I can see that the pressures they were under were probably enormous. Policymakers today need to learn from their experiences and respond to the same pressures constructively, without derailing the recovery before it has even begun.
Ottawa likely stuck with deficits for a decade: economist
Government refusal to raise taxes will require 10 years of growth to get out of the red, top private-sector forecaster contends
Steven Chase
Ottawa — From Friday’s Globe and Mail Last updated on Saturday, Jul. 18, 2009 03:32AM EDT
Stephen Harper’s fresh refusal to raise taxes to balance the budget – even if it means jettisoning his government’s five-year target for eliminating the deficit – is sparking private-sector predictions that it may now take a decade to pull the federal government out of the red.
Speaking after a Group of Eight meeting in Italy last Friday, the Prime Minister ruled out raising taxes even after the recession has ended and said his earlier pledge to eliminate the deficit by 2013-14 may be set aside if the economy doesn’t recover fast enough.
“We will allow the deficit to persist if necessary,” he said. “We will not, in order to meet some timetable, start raising taxes and cutting programs.”
“Governments, imperfect reflections of ourselves, usually assume that bad things won’t happen. They put together economic forecasts and produce budgets assuming that the unexpected and the bad won’t happen.
There are exceptions. Former finance minister Paul Martin used to include a large slice of fiscal prudence in his budgets. The Conservatives, unhappily, have done away with that slice. They preferred to budget without prudence, and that remains their preference.
If you study Conservative projections, they are based on the assumption that bad things will not happen, that the economy will recover rather smartly, that growth will resume, that revenues will rise rapidly and that, by 2015, Canada will be out of deficit.
Their bet comes with long odds, given the huge uncertainties that face the world economy: America’s staggering $9-trillion indebtedness, its very slow and hesitant economic recovery, the almost certain likelihood of higher interest rates, the inevitable decline of the U.S. dollar and the concomitant rise in the relative value of other currencies, including the Canadian dollar, plus the very real medium-term risk of inflation.
No one can predict with certainty which of these bad things will occur, but you’d have to be wearing rose-coloured glasses to assume that none will.”
“Tensions rose when a happily beaming Obama demanded to be riddled. After a string of well-received topical posers, Motley asked the following:
A pocket-hole that grew so large,
A giant couldn’t eat it.
A cache of gold that never was,
But nonetheless depleted.
When the President confessed to being stumped, Motley revealed the answer to be “the National Debt, of course.”
Witnesses said Obama’s mood immediately darkened and, pounding on the arm of the Presidential Throne, he demanded new jesting. After nervously clearing his throat, Motley was heard to ask, “Wherefore is the National Debt like a sprouting leaf of spinach?” When a glowering Obama demanded the answer, Motley stated, “For it shall rapidly grow into something our children cannot bear.”
At this, Obama reportedly dropped the large turkey leg in his hand and signaled to nearby Secret Service agents, who seized Motley and dragged him, pleading, to the Executive Dungeon. The President exited the Hall in a fury, and within minutes had drafted an order of execution by beheading.”
Saturday Morning Breakfast Cereal on the US national debt