Crank up the printers

National spending will exceed revenue by more than $30 billion this year, and by about $113 billion within five years. Is it time to start printing money?

Six years ago, about the time I started writing a column for the Journal de Montréal, the hot topic of the day was “Quebec in the red.” A string of news stories reported on the dangers of debt, then considered out of control. Journalists scrutinized any suspicious spending, while university economists, at least some of them, warned against the risks of an economy dependent on chronic deficits. What’s more, governments taking on more debt without regard for the future were faced with derision. Pegged as pariahs, Argentina, Greece and Venezuela were shining examples of what not to do.

Today the choice couldn’t be more straightforward: collapse under hundreds of billions in deficits and convince the central bank to inject money into the economy with yet more “quantitative easing,” or drop bundles of banknotes out of a helicopter.

Austerity is now a thing of the past. The question is no longer whether a deficit is justified, but how high it should go. And we’re not even in a recession.

To me, such financial recklessness is disconcerting. Luckily, I’m not a CPA like you, dear readers, who are used to having expenses match revenue. Otherwise, I’d likely be in shock.

CHANGE IN MIND-SET

Do you remember the recent election campaign when the deficit was projected at $10 billion? Yet, Bay Street economists were urging Justin Trudeau to dig even deeper. Well, our young prime minister has certainly delivered the goods. Spending will exceed revenue by more than $30 billion this year, and by some $113 billion within five years.

But is anyone crying foul? Clément Gignac, former vice-president and chief economist at National Bank Financial, called the Trudeau government’s actions courageous. Sure, it takes courage to pile up deficits for five years, play Santa in order to be loved by everyone and mortgage our children’s future. What a strange era we live in.

Similar views are echoed in the US. From the economic advisers to Democratic presidential nomination hopeful Bernie Sanders, to celebrity fund managers such as Ray Dalio or Bill Gross, the government is being encouraged to loosen its purse strings and spend to stimulate the economy. Rock-bottom interest rates are no longer enough, to the point where in Europe, central banks have introduced negative — that’s right, negative — interest rates. A few months ago, Bank of Canada Governor Stephen Poloz said that he would also consider this option in the event the Canadian economy collapses. He would aim for an interest rate floor of minus 0.5%. The message is clear: saving is bad. And if you insist on saving, it’ll cost you.

START PRINTING MONEY

To heck with budgetary discipline and inflation. Welcome back creditism and neochartalism. Start printing money.

So why not take advantage of low interest rates and borrow? Because, even with rates virtually at zero, all loans will eventually have to be repaid through tax hikes.

If only these policies were efficient. But the results are far from convincing. Eight years after the 2008 financial crisis, and despite numerous “extraordinary measures” by central banks, we’re still discussing ways to stimulate a shaky economy.

Except that balancing the budget or controlling debt is no longer part of the discussion. Nineteenth-century economist John Maynard Keynes, whose theory inspired the concept of the stimulus package, must be turning over in his grave. While he supported government spending to jump-start an economy in recession, he also asserted that in good years, governments should accumulate budget surpluses. Clearly, our governments only remembered the first part of that lesson.

About the Author

David Descôteaux


David Descôteaux is a Montreal-based business columnist.

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