Government Stimulus—Deja Vu All Over Again

 

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   Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

     Wherein we see the usual liberal response to economic downturn, increase the deficit and talk about “stimulus” which is politico speak for pumping money into districts that voted for us. It is always distressing when politicians talk about “infastructure” when they mean infrastructure. If they can’t pronounce or spell it, how can they deal with more complicated matters, one may ask?

    Canada’s current Prime Minister is the son of a former Prime Minister and has two of the same attributes, physical reluctance, he pulled out of the fight against Daesh and fiscal incompetence. Pierre Trudeau once said that the job of the government was to, “manage the economy of the country,” the very thing politicians are least competent to do.

National Post-February 23, 2016

OTTAWA • The Liberal government will deliver a federal budget March 22 with a possible $ 25 billion deficit or more and contain additional stimulus measures, as a deteriorating economy and billions in new spending erode federal finances and produce a gusher of red ink.

The significant spike in the federal deficit has some economists believing the government’s promise to continue lowering the debt-to- GDP ratio is suddenly at risk, while the opposition Conservatives called it “a troubling day for taxpayers” and maintained they left the Liberals a surplus.

Finance Minister Bill Morneau released a fiscal update Monday that forecasts a deficit of $18.4 billion for the 2016-17 fiscal year — but that’s before billions of dollars in new stimulus measures are announced in the budget.

Add $ 5 billion in new infrastructure spending promised by the government for 2016-17, as well as other pricey commitments ( the Liberal platform promised $ 10.5 billion in net new spending), and the federal deficit could easily approach or surpass $25 billion.

A BMO Capital Markets research note Monday says the deficit could reach upward of $30 billion in 2016-17.

The government is expecting an additional $15.5 billion of red ink in 2017-18, again before factoring in any new spending announced in the budget. Yet, the government has also built a $ 6- billion contingency into its deficit projections for each of the next two fiscal years to guard against economic risks, so there is a possibility the actual shortfalls could be smaller than projected if some of t hose economic worries don’t materialize.

The Liberals promised in their election platform to cap deficits at $ 10 billion — a figure they’ll now blow past — and to balance the books by 2019-20, something Morneau says “may take a little longer than we expected” due to economic volatility.

“There is no question that times are tough right now for many Canadians,” Morneau said Monday.

“But our government believes strongly that the economic downturn makes our plan to grow the economy even more relevant than it was a few short months ago,” he added.

Morneau compared the government’s current fiscal situation to having your car snowed in, and “digging out of the snow will take some time.”

The Liberal government’s updated fiscal projections released Monday also forecast a $ 2.3- billion deficit for the 2015- 16 fiscal year ending March 31. Morneau promised the Liberals will release a longer- term growth strategy by the end of the 2016 calendar year.

The government is not currently considering any tax increases, such as hiking the GST, to help offset the loss of revenue and growing deficit, he said.

The finance minister has appointed Dominic Barton, global managing director with McKinsey and Co., as chairman of a new Advisory Council on Economic Growth. The council’s other members will be selected shortly.

The panel will report regularly to Morneau with advice on creating policy that can help spur longterm economic growth, with their “first job” being to find ways to improve productivity.

Conservative interim leader Rona Ambrose called Monday’s update a“troubling day for taxpayers ,” arguing the Liberals have no plan to claw out of the fiscal hole.

“I find this reckless, irresponsible and it’s entirely the result of the finance minister and t he prime minister not being able to make the decisions that they need to make today to respect taxpayers’ money,” Ambrose told reporters.

Morneau promised there will be “some positive surprises in store on March 22” when he delivers the Liberal government’s first budget.

Asked whether the budget will contain new stimulus spending not already promised, the minister didn’t rule it out. “In times of economic volatility, the right approach is to invest in the economy,” he said.

Craig Alexander, vicepresident of economic analysis at the C. D. Howe Institute, an economic thinktank, said the government’s deficit projections are “very conservative” considering $ 6 billion of the projected shortfall is contingency.

However, one of t he government’s main “fiscal anchors” was to continue lowering the federal debtto- GDP ratio, and even that commitment may be difficult to hold to in the short term with growing deficits, he said.

The government’s own f i scal update shows t he ratio may actually increase in 2016- 17 ( compared to 2015-16) but then drop the following year.

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      These arguments are the very ones used by politicians in Greece to justify every completely wrong economic move. It will work out just as well here, I predict.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.
Cui Bono–Cherchez les Contingencies

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