Monday, August 31, 2015

Deficit of Thinking

The Canadian election might seem to be turning on the question of deficits.  Stephen Harper has done a nice job both of changing the discourse (maybe, I was not paying attention before I moved here) and of setting a trap for the competing parties.

There is nothing wrong with running a deficit.

Really.  Advanced democracies do it all the time, and I still think Keynes was right that trying to eliminate deficits during/near a recession is a dumb thing to do.  Canada is facing a recession so cutting government spending is probably a dumb thing to do.  But Harper has been committed to balancing the budget and finally go there, sort of, this year.

Woot?  Well, it depends on what one thinks about the tax rates here and where the money is spent.  But advanced democracies can run modest deficits (Canada is not Greece, far from it) and not have big problems.  I whine about the taxes I pay in Canada, but the taxes are not as high as in Europe and people seemed to be fine when the GST (sales tax) was a bit higher.  Harper cut taxes because he believes in tax cuts and because it allows him to justify cutting the government.  This has been bad for my business because my school produces qualified folks to work in government agencies.  Many of those agencies have been frozen for quite some time, and that means our government agencies are doing less stuff well (see the various stories about the treatment of Veterans, a real weakness for the Conservatives this time around).  Anyhow, the series of tax cuts and such has created a trap for the opposition since any new programs should mean new tax increases, and Harper has done a nice job of redefining the discourse to make tax increases anathema (Reagan-esque).

The NDP, which perceives that it is weak on this issue, has promised to balance the budget immediately, more or less, despite having a program chock full of spending promises.  How can they accomplish this without raising taxes?  My guess: cutting the military budget despite their promises not to do so.  They surely would kill the F-35, extending the endless procurement process with a new competition leading to ... maybe the Super-Hornet.  Which would not save that much money ultimately.  Surely, the National Shipbuilding program, as messed up as it is, will go on since votes in Halifax and Vancouver depend on it (another Harper trap, which trapped himself).

The Liberals?  After bashing Harper for deficits, the party is now embracing its destiny by promising deficits via more infrastructure spending.  Woot!  No, really, woot!  Why?  Because I still believe in Keynes.  And Canada could use some serious infrastructure improvement--the railroads are only not a mess if you use the US as a basis of comparison, the bridges (and not just in Montreal) need a heap of work and so on. Of course, the infrastructure spending is more of an excuse to spend money at this point than targeting specific projects.  And that is ok.  I found the previous Liberal discussion of deficits to be annoying, so I have to salute them when they choose to acknowledge the obvious.

Again, I am not a political economist or a budget expert.  All I do know is that foolish devotion to hitting a balanced budget is just that... foolish.

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