Ignoring precedents

Medical doctors, lawyers and yes, even economists, base many of their judgements on precedents.

It could be hazardous were they to ignore them. Yet nowadays the Trudeau administration is guilty of doing just that.

The Liberals in Ottawa are planning to try to stimulate the economy by running large budgets incurred by spending on infrastructure projects.  That is not a good idea as history repeatedly has shown.

Defenders of this program claim that Canada has suffered from an austerity budget program that depressed the economy. Our budget deficits relative to our economy are relatively low, so such outlays do not endanger our economic stability.  Furthermore, it is argued that even such spending would still mean that the debt-to-GDP ratio would continue to decline.  In other words, that renewed borrowing would not hurt our economic stability.

Still, the record of the previous Liberal government is revealing.  Take the argument that austerity caused a slowdown in economic growth, but one of the legacies of the Paul Martin-Jean Chretien economic years was disproving that.

It cut billions of dollars in spending, which fell by seven per cent while employment rose by one-sixth.  Program spending fell drastically and interest fell by more than 10% in three years. The economic spending fell from 22 to 19 % of GDP in two years.

The new government’s argument is that this should have led to an economic slowdown, but that did not occur. It has become fashionable to mock all this, saying the government was just fortunate. Some attribute this to oil prices falling from $53 a barrel to $16.

There are other examples in Canadian economic history when deficit reduction was accompanied by better debt-to-GDP ratios and the economy prospered.

Canada’s economic history is one of cutting back government spending and budget deficits while continuing economic expansion. Other nations have experienced a similar pattern, most recently Ireland and Germany.

The strong constituency for government spending is caused by politicians who want that largesse.

Instead of running huge deficits that in the long run hamper our economy, we should curb impediments that limit growth. That is the only sound way to ensure our prosperity.



Bruce Whitestone