Vancouver Sun

Harper speaks out on COVID-19 spending

Says it should lead to smaller government

- BRIAN PLATT

In a rare newspaper column, former prime minister Stephen Harper argues that the massive public spending — and the subsequent massive public debt — in response to COVID-19 right now must lead to smaller government action so the economy can recover and debt levels can recede.

If spending doesn’t go down as soon as possible, government­s could face a debt crisis down the road that requires “brutal” austerity measures, he said.

“What has happened in this crisis so far is not an indicator of the future,” Harper writes in the Wall Street Journal. “A new era of big government in the economy is unlikely, undesirabl­e and far from inevitable.”

Harper was prime minister from 2006 to 2015, including during the 2008/09 global financial crisis when he brought in a major economic stimulus package in response to the recession. He now runs a consulting firm called Harper & Associates.

In the column he takes aim at “leftists” who see the pandemic measures as a sign that bigger government spending should be the new normal, and that taking on high levels of public debt will be easily manageable down the road.

The social distancing measures brought in by government­s around the world may be necessary now, he writes, but they are “economical­ly ruinous,” and the “underlying assumption — that the economy can be restarted later as quickly as an idle automobile — is dubious.”

Another problem, he says, is that public-sector balance sheets will be an “unholy mess,” exacerbate­d by the fact public debt levels were already “dangerousl­y high” before the pandemic hit.

Canada’s parliament­ary budget officer recently estimated that the deficit this year could top $252 billion; by comparison, Canada’s biggest deficit during the financial crisis was $55.6 billion in 2009/10.

“‘Modern monetary theorists’ will prattle on about how with low interest rates and monetary expansion this does not matter,” Harper writes. “Their core belief — that government­s can never really run out of money — is nonsensica­l.” He notes that Mexico faced default and Canada came close in the 1990s due to public debt, and many countries faced major debt problems in the 2008-09 financial crisis.

“This time will probably be much worse,” he writes. “Government­s began this episode with poorer balance sheets, and central-bank actions effectivel­y nationaliz­ed much corporate debt ... If they fail to practice mild austerity proactivel­y, a brutal kind will be thrust on them.”

Harper concludes by warning that government­s will face pressure to keep spending levels high without raising taxes.

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