Thursday, December 02, 2010

Harper's Flaccid Stimulus

The Harper-Ignatieff stimulus budget was a flop.   Intended to create jobs in the face of an onrushing recession, it hardly made a dent according to Parliamentary Budget Officer, Kevin Page.

The survey by Phoenix Strategic Perspectives was done in the midst of the 2010 construction season and was commissioned by the Parliamentary Budget Office.

“It doesn’t score well on the employment side,” Mr. Page said in an interview with The Globe and Mail. “You’re spending a lot of money and it’s not creating very much in terms of jobs.”

The survey found the program was largely viewed as well run, but a summary report concludes only 33.3 per cent said the Infrastructure Stimulus Fund had a beneficial impact on unemployment. Its impact on unemployment was assessed as neutral by 43.3 per cent and negative by 20.6 per cent.

The Globe & Mail, naturally, frames the survey as going to the validity of Keynesian theory that government intervention and deficits are required in recessionary times.   In my view, the Globe take is pathetically simplistic.  If you search "pinata" on this blog you'll see what I'm getting at.

Back even before Harper first prorogued Parliament we knew there was going to be some sort of stimulus package forthcoming.   It was then that I pointed out what Harper and his clone never understood - pumping money into the economy works but it has to be put to work very strategically.  It has to be "new" spending and that money has to go on actual new investments that will pay back the taxpayers in the long run.  To achieve that the government itself must not only provide the cash injection but also identify the areas in which it will be "invested."

The Harper-Iganatieff "Pinata Budget" failed at the outset because it simply threw money around without controlling it.   You could put a deck on the cottage that you might have been planning on doing anyway.  The only difference there was that the government gave you a tax deduction for no net benefit to the country.   Provincial and municipal authorities were able to do the same sleight of hand spending only on a greater scale.

I know the scam because I did it.   I was going to have some structural landscaping done and along comes the Pinata Budget so I'm suddenly able to deduct the cost on my taxes.   Nobody got hired who wasn't going to be hired.  Nothing got bought or spent that wasn't going to be bought or spent.  All that happened was that the federal government went into deficit to give me a tax break - for nothing, absolutely nothing.

They could have kept that borrowed money and used it to construct a high-speed rail line, or a new electricity grid, or a host of other projects that would have generated real returns to the taxpayers in the decades to come when those deficits will have to be paid off.   But they wouldn't do that.  Harper was too ideologically bound to take responsibility for the money he was shovelling out and Ignatieff, fresh from writing a wonderful book about his mother's family, had no alternative plan which left the Liberals no choice but to back the farce of a stimulus budget.  Oh yeah, they put Stephen Harper "on probation."  Gag.

It is utterly irrelevant that the plan was administered well.   What matters is not how the plan was administered but whether it was sound - and it wasn't.  It was a loser from the start and it is to the current Liberal management's shame that they were complicit in it.


Anonymous said...

I am surprised to see where some of the money was spend.
As you state, some of these "shovel-ready" were planed and going ahead even without this largesse..

Dr Roy's old college, a private school seems to have received much Harper generosity...

Jon Dursi said...

Me too (in terms of being in on the scam) -- got some roof work done that needed to be done anyway. Did it a few months earlier than I would have otherwise. BFD.

The "shovel ready" stuff was always a terrible idea, because as was pointed out by Stephen Gordon at the time ( ), Canadian construction employment was doing fine -- there was no huge housing bubble here that collapsed. In the US, there was this huge pool of unemployed construction workers that could instead have been (a) doing something productive and (b) earning money which they would then spend in the rest of the economy. In Canada that was just not there, so the focus on construction as stimulative was just stupid.

But on top of that, as you point out, the projects themselves were stupid. They either accrued to private homeowners, or were on hockey rinks. Something that focussed on the municipal infrastructure deficit -- putting money in to replacing aging water distribution systems, power grids, etc -- would have a serious and long term payoff (and needs to be done eventually anyway).

The Mound of Sound said...

FDR understood the essentials of stimulus spending and offered us a wonderful example that we ignored.

Government pledges the taxpayers' good credit (i.e. borrows)and invests that money in roads, railways, ports, electricity grids, bridges, airports - the long term assets that will generate tangible, long term revenues to offset the burden when those deficits must be paid by future taxpayers.

"Shovel ready" projects are work that has already been evaluated and planned. It's stuff that was already in process. Giving handouts for that is merely shifting a tax burden from a province or a municipality to the federal government. BFD.

It takes big, bold thinking to make stimulus spending effective and, in the long run, affordable. Unfortunately that thinking was simply unavailable on Parliament Hill.

The Mound of Sound said...

@JD - your point about infrastructure work that "needs to be done eventually." If only.

What we're seeing is that infrastructure that needs to be done simply isn't getting done. We have a near psychosis when it comes to taxation and have been infected with the American delusion that cutting taxes solves everything. Harper has that very disease and that was evident in his stimulus budget. He had neither the vision nor the courage to spend that borrowed money usefully. He simply could not accept that responsibility or the potential political consequences of it. He was rendered paralytic by his fiscal cowardice - and we'll all pay for that.

It was a blunder of enormous proportions but Harper has the benefit of an empty-handed (and empty-headed)opposition that had no alternative but to sign onto his plan. That was an incredibly low moment for the Liberal Party even if many Libs today don't recognize it.

I've often thought of how Ignatieff could have used that crisis to establish his own credibility and restore Liberal fortunes. Had he gathered his best and brightest and brainstormed while Parliament was prorogued, the Liberal Party could have returned bearing a viable, alternative stimulus proposal to place before the Canadian public. A proposal that said,"this is how that money should be spent... this is how we will get a better Canada for it."

If only they had done that they would have had an issue they could well have fought and won and election on. Harper's fiscal record leading up to the recession he didn't even see coming and his feckless, haphazard and cowardly stimulus solution should have been enough to sink him straight to the bottom.

Sadly we don't have that calibre of leadership in the LPC and the grand opportunity was squandered. For that I can never forgive or again trust Ignatieff.

rashid1891 said...

good site;;;;;

today jobs in pakistan said...

Thanks for sharing this information.