Tuesday March 22, 2016
Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Tuesday March 22, 2016
Ottawa’s deficit-spending budget
Who’d have thought that a government’s deficit-spending budget would garner such universal support?
But most business groups, usually the shrillest of critics, are behind the Liberal government’s plans. This backing includes support from the Canadian Chamber of Commerce, Canadian Manufacturers and Exporters, economists at the big banks and several think tanks. And this, even though the budget may see a $30 billion deficit when unveiled in Ottawa Tuesday.
It says a lot about how the world has changed. In the past decade, many economic assumptions have been turned upside down. Many attitudes have also changed.
Who would have once thought that our central bank would be trying to stoke inflation, rather than crush it? Or that instead of worrying about rising interest rates killing the economy, we’d be worried that falling rates killing the economy? Or that it would okay for central banks to create trillions of dollars out of thin air?
This new consensus is really a capitulation. It says that, after eight years of manipulating interest rates, that policy hasn’t worked. No amount of pushing on that string has created growth.
So it’s time to pull lever number two, fiscal policy. You spend money you don’t have (but promise to pay back). You hope to stimulate demand so that businesses will follow along and economic activity will increase.
Central banker Stephen Poloz delayed cutting Canada’s key rate again in January from its lofty one half of one per cent for this reason. He wanted to see what Ottawa planned to do.
The frantic effort to get something going is as much about the future as the present. The concern is that when the next recession arrives — which inevitably it will — there will be nothing central banks can do. There’ll be no ammunition left in the rate-cut gun.
Most economic expansions last between five and seven years. The current one is weak, but is still in its seventh year. For the U.S., it’s the fourth-longest period of growth recorded.
There’s nothing to suggest any downturn is imminent, though early in the new year many wondered. Things are looking a lot better than they did then. A low dollar has perked up manufacturing. Retail sales surprised in the latest reading. American unemployment is low. (Continued: Toronto Star)