Canada’s federal and provincial governments have rightfully focused on doing all they can to support people and businesses idled by the COVID-19 pandemic, and to keep people working where possible.
But most advocates of aggressive spending always knew there would come a day of fiscal reckoning, in which we’d have to figure out how to deal with massive new levels of public debt.
Except Jim Stanford.
Stanford is a Canadian economist now living in Australia. For 22 years, he was an economist for the Canadian Auto Workers and later the general trade union Unifor. He left that organization in 2016 to found the Progressive Economics Forum. It’s a group dedicated to providing an alternative view to the conventional wisdom on the role and size of government, the wisdom of taking on debt and a broad range of public economic policy.
Interviewed on CBC’s Sunday Edition this week, Stanford offered a panoply of economic assertions that would make conservative economic theorist Milton Friedman spin in his grave.
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Stanford told host Michael Enright that the devastating economic impact of shutting down the economy “has actually been a real-time experiment that a national government – particularly one that has its own currency, as we do in Canada – has got basically no limits on how much money it can raise and mobilize in order to meet pressing emergencies, whether it’s in our economy, or in our society or health system.”
Wait. No limits on how much money it can print?
Says Stanford: “This is absolutely unprecedented and it’s quite appropriate.”
Taking former prime minister Stephen Harper to task, Stanford also said that even when government debt levels were high, “we were never near a debt wall.”
The Bank of Canada is buying $5 billion of government bonds every week, says Stanford, and we shouldn’t worry about it as long as interest rates stay low.
“The great benefit of this situation is there’s virtually no cost to servicing the debt. Interest rates were very, very low even before the coronavirus came along and now they’ve been cut further.”
I enjoy reading Stanford’s theories – because I like to see a lively debate on any public policy – but I fear that too many people might take him seriously.
I have always been fiscally conservative, thanks to parents who had bitter memories of living during the Great Depression of the 1930s. The notion that we can pile on debt ad infinitum is at the very least counterintuitive. In fact, it just seems reckless.
The International Monetary Fund estimated in April that Canada’s governments will ring up deficits this year equal to nearly 12 per cent of gross domestic product. That’s more than $250 billion or at least 10 times last year’s combined federal-provincial deficits. And that’s hardly the end of the debt our public bodies will accumulate related to this disaster.
Economists tell us that we do not have to become obsessed with paying down these large public debts. Instead, we should follow the course that Canada and most other world economies followed after the Second World War – service the debt (i.e., pay the interest) and wait for the economy to grow. As the size of the economy expands, the relative size the debt will diminish, even if we don’t whittle away at the principal.
Anyone with even a basic grasp of history will note that there are some very big risks associated with such a course of action. The post-war period saw the world experience the greatest economic and population growth in human history. Our desire and ability to consume grew every year.
Will our economy grow the way it did after the Second World War?
No doubt, there will be a rebound – especially if we can quickly roll out a vaccine. But after that initial recovery, I question whether the world will enter a new golden economic age. The world’s population is now nearly 7.6 billion people, and most of them don’t live in comfortable middle-class circumstances like the majority of Canadians. It seems to me that within our lifetimes, we may hit a wall to both population and economic growth.
There’s also the question of debt servicing costs. I remember carrying a mortgage at 18 per cent interest in the early 1980s and it wasn’t fun. In fact, those are the times when you start making hard choices on what to live without. What would happen to our ability to service the national debt if rates don’t stay near zero?
The stimulus and support spending of our governments has been necessary. Although there have been inevitable flaws in execution, the federal government’s proactive approach has not only saved lives, but also kept many businesses afloat that would have failed otherwise.
But this party is nearly over. It’s time to start thinking about how we’ll clean up the mess.
Veteran political commentator Doug Firby is president of Troy Media Digital Solutions and publisher of Troy Media.
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