Progressive Federal Liberal budget welcome news but caution about the Bank of Canada‘s anti inflation obsession is required.

This week Finance Minister Bill Morneau tabled a very progressive stimulative budget in Parliament that clearly from the outset established the fact that austerity was bad policy which undermined growth, equity and low unemployment. He correctly pointed out that investing in people , in social, educational and physical infrastructure and ensuring that everyone has a fair opportunity to participate in our economy contributing their talents , insights and knowledge to the great Canadian enterprise of nations building was a far more effective strategy than one based on pessimism and narrowly defined budget balancing. The Minister‘s opening remarks were a welcome breath of very fresh air after many decades of fiscal conservatism.

There is however still more work to be done. There are many voices within the Conservative opposition who remain dogmatic opponents of low unemployment and investment in infrastructure and who insist upon discredited sound finance as the only appropriate approach. The monetarist logic upon which they base their arguments was thoroughly discredited by the crash of 2007-09 and the recovery that followed that was based on the creative combination of low interest rates achieved by quantitative easing allied with fiscal stimulus. The monetarists claimed that this would lead to accelerating inflation once the unemployment rate dropped below their mythical natural rate . But no such inflation occurred nor does it seem likely and we are now in 2018 ten years on from the crash. Inflation remains very stable and very low.

Some of the critics of the budget demand to know when the budget will be balanced  regardless of the fact that the debt to GDP ratio is falling and will fall further so long as the Bank of Canada does not trigger a recession by prematurely and excessively raising interest rates. The governments planned expenditure increases are in important and very necessary parts of the social and ethical framework of Canadian society. They represent investments in our population and society. They merit support.

When one examines the annexes in the budget which compare the interest rate , inflation and economic growth and unemployment projections of a broad sample of Canadian economists we can see that these analysts expect a slowdown in GDP growth, a slight rise in unemployment and a stubborn Bank of Canada claiming inflationary trends when there are none.

So the budget is a good one but we need to be cautious about the fiscal conservatives reclaiming lost ground when they should not be. The latest GDP data and the emerging protectionist environment in the U.S. are important negative factors that need to be taken into account and countered wherever possible.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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