The risky business of running a deficit

No rules: It won’t ruin us, but it’s not a good idea

All I ask is a little coherence. The news that the economy, far from the recession the Liberals were claiming as recently as last fall, grew at an annualized rate of seven per cent in January, the fourth consecutive month of growth, was greeted by the finance minister with equanimity. To be sure, he had just unveiled a budget stuffed with deficits, in the name of stimulating growth. But “our plan is not built off a shortterm sense that we were facing an immediate issue,” he told a business audience in London, “but off a long-term sense.”

Never mind that this stance — it was never about stimulus — is directly contradicted by the repeated statements of his own leader (“We’re in a recession and growth has stalled so now is the time to invest”). It’s directly contradicted by the minister himself, in the same appearance. “The ability to have an impact on growth through monetary policy is more of a challenge today,” Bill Morneau averred, while “fiscal measures can make a real difference.” Whatever the merits of monetary versus fiscal stimulus, they are all about growth in the short-term sense.

So the Liberal double act continues. Was the decision to plunge the country another $ 113 billion into debt about boosting growth in the short term or the long? The correct answer is neither. It clearly isn’t about fighting a recession, because we aren’t in a recession, and because if we were deficit spending, especially in an economy open to trade, it is of little help. And it isn’t about investing in capital projects that boost productivity in the long run, because only a fraction of the tens of billions of new spending in the budget is even notionally for such purposes, and because the part that is offers no estimate of the expected long-run returns, nor any evidence they exceed the returns from alternate uses of the same funds.

Still: if the budget offers no persuasive justification for running $30-billion deficits, neither does it portend our economic doom — bankruptcy, or at least a return to the crisis of the early 1990s. I make this point, less because there have been many claims that it would, than in response to a volley of opinion pieces reassuring readers that it will not — and therefore, implicitly, that all is well.