A political tranquilizer

In the previous century John Maynard Keynes was widely followed as an expert in guiding an economy beset by a recession to recovery.

Despite a very disreputable personal life that reflects a chaotic state of mind, many continue to follow some of his advice. He argued that if an economy is flagging, governments should run deficits to stimulate activity. 

However, ignored in his admonition is that once the economy recovers, governments should run surpluses to replace the deficits. No attention is paid to his corollary that budget surpluses should be ensued to replace the deficit spending.

 We are being politically tranquilized. In the past generation, only the administration of Prime Minister of Jean Chretien and Finance Minister Paul Martin ran budget surpluses.

Hence, it is not surprising that the total national budget debt has reached $1.2 trillion. Clearly, governments find it so appealing to spend money that it continues insidiously. Yet any rational observer would have to question the idea that using money literally printed by the Bank of Canada would have a lasting, beneficial effect on the economy. 

Many governments agree with the idea that using money printing would have positive results. Many governments go along with this and eventually the currency is so debased that a collapse ensues. Recently this occurred in Venezuela and in Zimbabwe.

In our not-long-past federal election Prime Minister Justin Trudeau pledged to run deficits that will continue for four years. No one seriously believes the budget will balance in four years, and of course, no one mentions repaying the deficits, let alone paying down the debt.

It will only increase.

So many lessons abound that are revealing. In the United States budget deficits continued for over a generation without interruption. Yet President Truman balanced the budgets even during the Korean War by raising taxes.

Nowadays Canadian observers predict an astoundingly higher deficit in four years. It is estimated that the current deficit will boost our GDP by 0.5 per cent this year. Can anyone predict the GDP by that amount? The economy may increase temporarily but it will entail distortions that eventually end in a collapse. Witness the housing sector, where prices have reached a point that few can afford to buy a house in Toronto or Vancouver.

All this has happened time and time again. As philosopher George Santayana wrote, “Those who forget the past are condemned to repeat it”.



Bruce Whitestone