Does Canada Really Need Economic Stimulus?

Great Debates
1

At the moment, Canada is in much better shape than the US. But our economy will worsen as the demand for our products and services in the US declines.

Most of our companies will suffer, especially the exporters but they can layoff workers to weather the storm.

That is why I believe the only thing Canada should do is to enhance Unemployment benefits both by increasing the benefits as well as temporarily lifting the termination dates for those benefits.

This is the best way to ensure that our economy keeps rolling. The unemployed will continue to support the intra Canadian commerce , by paying their bills, motgages and rent to support the banks,medical premiums to support our health industry, hydro and fuel companies to support our energy industries, telecommunication bills, municipal ,provincial and federal taxes. Very little of this money will leave the country.

I do not think it would be wise to waste the financial resources of our country on tax breaks, especially for companies. The looming economic problem for us is the decline in market for our exports not because our customers can’t afford them, but because they don’t need them. When the US recovers, only then will our exports revive and we can start working off the national debt. Let the US spend the big bucks to rebuild their economy. All we need to do is keep everybody contributing until our big customer recovers.
Some may argue for make work projects.The problem I see here is that although we may get some value out of this, it only would support a few lucky domestic oriented industries and a few lucky unemployed.

In the case of our auto industry in southern Ontario, whom the NDP would like to help out, I can only wonder how pumping cash into an industry with a declining market is going to help out. Cheaper cars?
This may be too simple. Please discuss.

2

I have a plan to send Mr. Harper and all the rest of them into an alternate universe. Then you can be PM, FlyingDutchman. Sounds like you have your head screwed on right.

I dunno. In the midst of all this awful mess, our parliamentarians seem to have lost their tiny little minds, or what passes for their minds.

3

Extending EI benefits would be a reasonable thing to do.

Corporate tax cuts, if they can be afforded, may mean the difference between small companies (which are the backbone of the economy) surviving or going tits up. Or even just the difference between making a new hire and not. Most funds from corporate tax cuts will be immediately plowed back into the economy in the form of wages or capital investments, as very few companies habitually sit on significant sums of cash. Regardless of the state of the economy, a tax climate that’s attractive to business is a good thing for the country as a whole.

The other thing that has been mentioned is increased infrastructure spending. Frankly, we need to increase infrastructure spending regardless, since we have a lot of aging infrastructure that needs to be replaced/repaired. Whether we need it as stimulus is really beside the point. Unless we want more bridges falling on the heads of motorists, this isn’t optional.

Money for automakers would be just stupid.

The real question is balance. We can certainly afford to run a deficit for a few years, but we need to watch the balance of spending and taxation to ensure that the increased tax revenues from a recovered economy will re-balance the budget within a couple years. There’s no pressing need to pay down the debt. It’s at a fairly reasonable level, and so long as we don’t add to it excessively it will soon shrink to insignificance as a % of GDP.

4

Their taxes will decrease anyway if they get decreased revenue. The best way to survive is to lay off workers, and have the government support the layed off workers until such time as they are needed.

As a small business owner, I’m more likely to hang on to the tax cut for maintaining my lifestyle rather than hiring an employee to perform non billable hours. That will change of course if I can start making money by hiring people.

The most important infrastructure right now is our economic infrastructure.

Well I agree with this statement. Only I see a balanced approach coming from supporting Main street rather than Bay street. Call it Capillary Action Economics. Make sure the roots of the economy, are all providing sustenance to the tree while the sun isn’t shining.

5

This is a really interesting question and I’m glad to see it brought up. I hope some economists chime in, 'cause this is out of my field of knowledge.

I’d be happy to see infrastructure spending and extension of EI benefits (preferably with increasing size of benefits) put on the table. Also more money and programs for job retraining.

What stuff I’ve skimmed in the media over the past few months seems to suggest that (based on the Great Depression and subsequent recovery) the economists believe that we should spend our way out of this. http://eh.net/encyclopedia/article/Steindl.GD.Recovery .

What is not at all clear to me is how much the New Deal and NIRA contributed to the recovery vs. the increased industrial productivity and spending resulting from WW II.

6

I’m an engineer not an economist but Canada ran deficits from around 1970 to 1997 with little apparent benefit to the economy. At times very large ones - in the area of 20-30 Billion a year. However through that period we had high interest rates and stubbornly high unemployment.

Of course they were externally influenced but even so where’s the evidence that deficit spending helped? Or is the argument that it would have been worse without that spending?

7

Others have brought this up in other threads, but in terms of economic stimulus, “infrastructure spending” is just about the worst way to inject money into the economy. You’d honestly be better off throwing money out the windows of helicopters.

Infrastructure, by its nature, takes a very long time to plan and build. If you offer Province A $x.Y billion to construct roads or mass transit systems or what have you on January 2, 2009, the province needs to figure out what it wants to buy, then needs to hire or assign engineers and project managers just to write the RFQs. Those takes months, and the bidding process can take months, and then the engineering and project management process proper will take months. You’ll be lucky to break ground inside 18 to 24 months. In all likelihood, by the time the work really gets underway, the recession will be over.

Infrastructure spending may be a good investment because you need infrastructure, but it’s not a very good way to stimulate an economy. If you want the government to pump money into the economy - which I don’t buy that we need, but let’s assume you do - you need to find way to do it is less than a couple of years.

8

If you spend money to maintain your lifestyle, then others are benefiting from that. The store you buy things from may keep that extra worker employed to handle your business.

If the government feels it must to something then I agree with your idea on extending EI benefits. If we can fit a training component into it, all the better.

Spending on infrastructure should be done as needed and for no other reason. The only exception is that there is no reason that a little planning ahead can’t be done. For example: The road near my sub-division was doubled in size. Rather than placing stop lights at the intersection when this was done, 6 months later a crew came back and dug up the road to install them. There is no rational reason that stuff like this can’t be done at the same time. Or if you are building a sub-division then put in the interchange BEFORE people move there.

9

The New Deal didn’t do anything, except rack up debt. And then FDR had to raise taxes because the deficit was running out of control, and that cratered the economy again.

UCLA Economists - The New Deal prolonged the depression by 7 years.

10

Thank you - that is an awesome link. It supports my gut level concern that this fiscal stimulus spending idea is not proven and may in fact be completely faulty.

11

I don’t see anything in that link that deals with fiscal stimulus.

12

Er… what do you think the New Deal was, exactly? Or do you have a very narrow definition of “fiscal stimulus”?

13

The use of fiscal policy to stimulate the economy?

14

This I agree with.

But what about the provinces and citys.

Your gonna have a lot of people on layoff that finally have the time to be able to look at their lives and see if they can finally open that B&B or whatever.

One of the things that was going on before the meltdown was the ongoing feud between Ottawa and Queenspark over Ontario’s business taxes and whatnot.

If the province/city of Toronto asks for money from the feds for what ever reason , do we dictate their policys for them ?

Declan

15

Not so fast, there.

The New Deal wasn’t perfect, but to claim that on net it served to prolong the Depression is simply a bad joke, the last vestiges of a zombie Hooverism that refuses to stop stumbling blindly forward no matter how much evidence is fired into its slowly decaying corpse. Unemployment had reached over 24%. Yet the two UCLA professors cited claim “The economy was poised for a beautiful recovery”. It is to laugh.

Their argument mostly depends on the market controls that were instituted in 1933-34 (with a side note of some structural unemployment from the programs). And yes, those controls were likely counterproductive. But that wasn’t the whole of the New Deal. Monetary policy under FDR was a refreshing reversal from his contractionary predecessors, and he stabilized the banks with FDIC. And on top of that, his fiscal expansion was likewise the exact right course to take given the condition of the economy. No, FDR didn’t do everything right. He made some mistakes with market controls. And he didn’t end the Depression, either, but only because he didn’t go far enough with the beneficial policies. He stopped short with the job half done. It took a true Keynesian stimulus, sparked by the war, to get the economy moving again. But all things considered, Roosevelt did more good than he did bad. You can find dissenters to that view, even among professional economists, but they are clearly outgunned, largely because the idea is so completely ridiculous and stupid.

Roosevelt did not need to raise taxes because of the deficit. Looking at the yearly deficits, we see a crystal clear trend:



1929: 734
1930: 738
1931:-462
1932: -2735
**1933: -2602 Roosevelt takes charge
1934: -3586
1935: --2803
1936: -4304
1937: -2193**
1938: -89
1939: -2846
1940: -2920
1941: -4941 **War begins for America in December
1942: -20,503
1943: -54,554
1944: -47,557**

Roosevelt’s deficit spending was simply insufficient. He didn’t need to raise taxes and cut back on programs in 36. This was a clear and costly mistake on his part. His hesitation caused another slump in GDP and made the crisis last even longer. What the economy needed was to go balls out like they did in 42. They needed a massive increase in deficit spending, not the piddly crap that he’d been pushing around.

This isn’t wacky leftist nonsense from me. This is mainstream economic theory, reflected in the views of the clear majority of economists precisely because it matches the evidence so well. The New Deal was by no means perfect, but it also wasn’t the boogeyman that its detractors make it out to be. It had ups and downs, but the net effect was up.

Rysto has it right here. “Fiscal stimulus” is normally in reference to fiscal policy. It’s not an abnormally narrow definition to exclude broader govenrmental controls that characterized some other New Deal programs. Deposit insurance was also a part of the New Deal, but that wasn’t fiscal either. It was for monetary stability.

16

Fair enough. I thought it okay to just assume we all knew Roosevelt did more than just spend more, but I shouldn’t have been too general in my response.

17

First off, the smear that Hoover or Hooverism "“that refuses to stop stumbling blindly forward no matter how much evidence is fired into its slowly decaying corpse” is total and complete nonseense. Aside from launching, in fact, the largest welfare measure in history, Roosevelt’s New Deal was a titanic pillar of useless buffonery which did jack-all to help anyone.

Nor did World War II. In fact, the economic situation did not pick up until several years after WW2 ('49, to be exact), when much of the New Deal and wartime economic controls were taken out of comission. The fact that Europe and Asia had to rebuild certainly helped, but of course, that was largely paid for by Americans anyway.

18

Infrastructure repair is not just make work. It has to be done.The infrastructure will fail if not maintained.

19

For people interested in the facts:

Real GDP growth hit nearly 20% during World War II. Demobilization right at the end of the war caused a truly brutal downturn, and there was another short recession in 1949. The economy got moving again in late 49, and by 1950 the American economy was booming yet again, though GDP growth did not again attain levels achieved during the war. The instability of the economy with its crazy ups and downs can be most directly attributed to the aftermath of stringent wartime controls, including the draft and the rationing of critical supplies like oil.

Market controls are market controls, regardless of whether they were instituted during the New Deal or the war. All national militaries are by their very nature socialist institutions. To fight total war, the US economy had to be actively managed by the government to an extent that the New Deal could not have hoped to match. FDR haters tend ignore this market interference because most of them are sympathetic to socialism if it’s in the cause of fighting Nazis. Hard to blame them for that.

But it’s not hard to blame them for their blatant hypocrisy. In searching for a cause of the economic instability of the late 1940s, most people would look to the early 1940s. It takes a true partisan, willfully oblivious to facts, to blame controls of the 1930s and to completely ignore the time in-between.

There is, of course, room for disagreement on some issues, as long as everybody is dealing with fact. But dealing with fact hear means ignoring the zombie ideology. Fiscal stimulus can sometimes help, as any professional economist can tell you, even the conservative ones. Personally, I’d recommend that you all seriously consider this alternative. You’re in better shape than we are, but if you prepare for big projects right now, you’ll have them ready to go if your monetary policy fails you as much as ours has us. Infrastructure takes time, yes, but it also adds value to the economy long after it’s finished, and it comes with a bigger economic multiplier than most other types of fiscal stimulus.

20

Well, wartime controls were mentioned.

That’s embarrassing.