Flaherty in for a fight over fiscal restraint


Prime Minister Stephen Harper’s government has prided itself on being a player at the highest levels of international economic decision-making since the frightening fall of 2008. But with the world economy again looking vulnerable, Harper might have to choose between retaining that position of influence and sticking resolutely to its fiscal-austerity plan.

Calls for another round of stimulus are coming from the likes of Tim Geithner, the U.S. treasury secretary, and Pier Carlo Padoan, the OECD’s chief economist. Although Padoan didn’t single out any specific country, it’s hard not to think Canada must have been one of the countries the OECD had in mind in this plea for those in better shape to step up the stimulus: “If there are prospects for a long-lasting slowdown in activity, countries that have, or put in place, credible fiscal frameworks are in a better position to react and should do so.”

But Flaherty doesn’t see it that way at all. In the run-up to today’s crucial G7 finance ministers meeting in Marseille, France, he’s been stoutly urging anyone who cares to listen to keep the focus on medium-term deficit-reduction, even as the immediate economic outlook darkens: “Our view is that the G20 commitments made in Toronto to move towards deficit reduction, balanced budgets, are essential. We want to stay the course.”

Back in 2008 and 2009, as the G20 rallied to stave off disaster with a coordinated stimulus package, Canadian government officials often reminded me of how Canada’s relatively strong fiscal and banking fundamentals gave Flaherty and Bank of Canada Governor Mark Carney added credibility during pressure-cooker talks on what had to be done.

I later wrote about how the Harper government built on the events of 2008-2009 as they skilfully managed behind-the-scences talks that set the stage for the G20 summit in Toronto in July 2010. But I wonder if Canada won’t sacrifice the gains made over this tumultuous period—during which coordinated international economic action has looked more vital and viable than ever—if Ottawa now chooses not to lend at least some support to another stimulus push.

It’s very possible, though, that requests from Washington or Paris won’t count for nearly as much with Harper and Flaherty as anxiety at home. The surprising report this morning that Canada shed jobs in August suggests concern over unemployment here will intensify in the coming months—and against that domestic backdrop, it would be tough for any finance minister to maintain a stringent line against calls for, say, another injection of infrastructure spending.


Flaherty in for a fight over fiscal restraint

  1. Flaherty and Harper want to ‘stay the course’ right over the cliff.

    This is not the time for fiscal restraint, or fussing over the deficit. It’s the time for job creation.

    You can’t fix the economy by fixing the debt. But you can fix the debt by fixing the economy.

    • We are currently at 7.3% unemployment.

      During the latter years of your hero PET it reached 13% and climbed steadily throughout both his turns as PM.

      The lady doth protest too much, methinks.

      • We have structural unemployment…something not fixable by fussing over deficits.

        There are thousands of jobs in Canada that we can’t fill because we don’t have the trained people….and thousands of unemployed people who don’t qualify for the jobs available.

        It’s holding back our economy.

        Repeating partisan nonsense isn’t going to change that.

        • I’m not totally convinced that even “structural unemployment” is too much of a concern if it’s at or around historical lows.  For most of my lifetime unemployment in Canada has been above 8% (the average over my lifetime was 8.53%).  For most of the 80s and most of the 90s it fluctuated between 8% and 12%.  In the early nineties, our rate was around 10% at a time when the U.S. rate was around 7.  In context, 7.3% unemployment in Canada in 2011 doesn’t really excite me, except perhaps in a “Wow, look at how low our unemployment rate is compared to the U.S.!” sense. 

          So long as unemployment in Canada is in the 7s, and 2 points lower than it is in the U.S., I’m not sure how worrying it is.  It’s always good for the unemployment rate to be lower, but as it’s already more than a point lower than the average over the last 30 years, I’m not going to call that troubling.

          • Structural unemployment is a huge problem….here, and around the world.  All countries are beating the bushes trying to scare up qualified people to take the millions of jobs that currently can’t be filled.

            Germany alone is short 400,000 skilled people, and they are changing their laws to bring in immigrants.

            The nature of employment has changed…we no longer need ‘workers’ who are ‘plug-in parts’ that can work anywhere…..we need them with specific skills and education. 

          • So you’re recommending targeted spending on education in specific fields? That’s what it sounds like, in a rather roundabout sort of way. It’s not a bad idea, but probably not what the other G20 nations have in mind (nor is it a “quick fix” solution of the kind that pols usually gravitate toward).

          • @KeithBram:disqus 

            If you want a ‘quick fix’ then you’ll have to do an FDR and put people to work on the billions of dollars worth of infrastructure that needs fixing before it all falls apart.

            Then we have to get away from this anti-education kick we’re on.  We should be promoting the hell out of it.

            We can’t compete in the knowledge economy without it.

            Yes, the other G20 countries, as well as others, are doing so.

            “University graduation rates in Canada, for example, have remained largely unchanged for more than a decade while the average graduation rates of our developed economy peers have doubled in the last 12 years.”


        • What part is partisan nonsense? Check the facts.

          Canada has 7.3% unemployment.

          Lower then historical averages.

          Much better then during the years PET was in office, you know, the guy you love so much.

          • LOL again with the partisan nonsense, even while you’re querying it!

            Give it up, Turd.

  2. “But with the world economy again looking vulnerable, Harper might have to choose between retaining that position of influence and sticking resolutely to its fiscal-austerity plan.”

    How does this make sense? Harper/Canada have influence only because we have strong banking system and we have not done nearly as much stimulus spending as others have. Canada is example to others but now Flaherty is going to come under pressure to be more like basket cases US and Euro?

    Stephen Moore ~ Why Americans Hate Economics ~ WSJ:

    Christina Romer, the University of California at Berkeley economics professor and President Obama’s first chief economist, once relayed the old joke that “there are two kinds of students: those who hate economics and those who really hate economics.” She doesn’t believe that, but it’s true. I’m surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven’t boosted the profession’s reputation …..

    That’s a perfect Keynesian answer, and also perfectly nonsensical. What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this ….

    A few months ago Mr. Obama blamed high unemployment on businesses becoming “more efficient with a lot fewer workers,” and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?

    Or consider the biggest whopper: Mr. Obama’s thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical “multiplier”—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. 

    The multiplier theory only works if you believe there’s a fairy passing out free dollars.


    • The multiplier theory works if you understand rudimentary economics, economies of scale, and the power of leverage.

  3. The Reform faction of the Conservative Party must rebel if Harper and Harrisites abandon Austrian school of economics, aka voodoo economics.

    • Indeed and I recommend reading Paul Krugman

  4. Funny how fast the thinking goes from needing to end the burden of future generations to needing to save the Caribbean vacations. No one is willing to forgo the perks.
    Part of the troubles with mobilizing the work force is companies have been hopping from one local to the next in search of tax breaks. Who wants to be constantly uprooting family in worsening housing markets? The Provincial government here has fallen into that trap only to watch phama and research companies leave when the grants dry up.
    One thing that is on short supply is trades. ( Yes, OrignalEmily1 we brought it up since they pay well and are in demand.)

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