Tuesday, January 31, 2012

Canada's Made-by-Harper Structural Deficit

To hear Steve Harper tell it, Canada's finances are a mess.   He ought to know, he created the mess.

Yes, the federal government has a "structural deficit" that won't simply go away once the recession ends (whenever that might be).  Underlying that isn't excessive government spending but, as The Globe's Stephen Gordon points out, the decision by econo-genius SHarper to gut revenues by slashing the GST.

With a hapless Opposition, Steve has Parliament well under control.  As Gordon points out, no party is willing to talk about raising taxes to restore the government Steve defunded which leaves the only way out the very revenue cuts Steve has wanted from the get go.

We know Steve wants to trim government spending and he's more than willing to start with Canada Pension benefits but, overwhelming instincts aside, he may have to trim his own austerity sails instead. 

As Krugman has repeatedly claimed and as his lab rat British PM David Cameron has proved, austerity is all well and good but only when it the timing is also well and good.   Austerity heaped on the back of a weak economy only weakens the economy.  Even the IMF, the World Bank and the World Trade Organization have finally accepted that in an open letter to European leaders.

Unfortunately the West is on the brink of another severe recession that can only be made worse by political stupidity.  We can only hope that Steve has finally figured out that he's far from being the smartest man in the room.  All he has to do is look at his awful track record of the past six years.

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