Not just spending - tax cuts! -

Not just spending — tax cuts!



Not just spending -- tax cuts!

If it’s good enough for Obama….

UPDATE: And Merkel

DOWN-IS-THE-NEW-UPDATE: Krugman hates it.

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Not just spending — tax cuts!

  1. Tax cuts are the only logical and viable economic stimulus there is, particularly in Canada. Thanks to our tax burden (families spend the most on taxes, more than on the bare necessities of life, like food, clothing and shelter, to the tune of at least 45% of their annual income). As a result, we live in a constant “recessionary state” and our productivity keeps falling.

    • So… when the current crisis is over, will you support raising of taxes to prevent inflation and ongoing deficits?

      Or are you hoping that by lowering taxes now they can’t raise them in the future and they’ll be forced to cut spending… hopefully on something you don’t like, use or care for?

  2. Sounds like the Ronald Reagan response to a recession. While there could be stimulus as a result of tax cuts, we’ve already seen that the current tax cuts were eaten up by larger payroll deductions.
    Of course, if you’re making no taxable income in 2009, your stimulus benefit may be limited to the cheaper value of cardboard boxes. And if there’s truly a publicly-funded stimulus factor to the budget besides some tax cuts, we can expect to emerge from our financial deficit about the same time as Harper’s so-called green plan kicks in…
    For those who choose to wear smug smiles under bowler hats, I’m sure the trade-offs are always silver and gold.

    • Sounds like the Ronald Reagan response to a recession

      You might like this article then.

      Starting from the 5th-last paragraph:

      “In his Nobel Prize acceptance speech in Stockholm in 1999, Prof. Mundell assessed the impact that the lowering of marginal tax rates has exerted since then-president Ronald Reagan first introduced radical tax rate cuts in 1982.

      “The subsequent economic expansion, he said, made the combined period from 1982 to 2000 ‘the greatest [period of] expansion in the history of any country. No less than 37 million jobs were created. The Dow Jones soared from below 750 in 1982 to more than 11,000 by the turn of the century.’ “

  3. Key difference being that Canada is in surplus and America has an enormous deficit. Paul Wells is waaaaaaaaay out of his league on economic matters and should stick to Jazz, France, and other things that suck.

    Twenty nine percent of female (and 19% of male) tax filers paid zero federal income tax last year Paul: how is a “cut” on their zero dollars in taxes payable helpful to them in any way? That’s why Harper cut the GST instead; he was concerned, rightly, that a screamingly feminist lib-left media would call him a neanderthal for cutting “man” taxes instead of the GST which we all pay.

    You know, or should know, that all federal budget proposals are vetted by SOW bureaucrats for gender neutrality (I’m serious people); if Harper cuts a thin dime from the top income tax rate it will be perceived by feminist bureaucrats as an attack on women, and you’ll be first to join the chorus.

    We do of course need a cut in the top marginal tax rate, but given the savagely hostile hardline feminist lib-left media (ie Paul Wells and co. at Macleans) and their careerist clamoring for cryptobolshevism it can’t happen.

    Oh, and the Obama obsession? Knock it off, sweetie, this is Canada; you *will* devote your undivided attention to Canada and it’s many problems, and you *will* like it, understood? Bill Clinton promised a middle class tax cut too, it didn’t happen, McGuinty promised no tax hikes, he did it anyway. As a senior reporter you have a responsibility to mention that.

    • I’m fascinated that there’s an entirely new way to scream bias at PW. Can I make a joke about CAMT calling PW part of the feminist lib-left media and then giving orders like a real man? Ha!

      Seriously though: Canada is no longer in surplus, though I agree we’re in better shape than the US. But being in better shape but far less depended-upon by the world makes us quite vulnerable. Tax cuts may be helpful but they need to be for those who will spend so they actually stimulate. I’m a big fan of more productive stimuli, like accelerating rapid transit investments in the cities, and providing huge tax breaks for R&D (especially in smaller startups) on green tech.

      And finally CAMT: I don’t think Mr Wells is advocating for tax cuts, he’s merely linking them in a narrative.

    • I agree – as a top tax payer (and a single, self-employed woman) I need a tax cut and I would spend it – I need people to do the work that I can’t including repairing things around my house, shovelling my driveway, etc. and I like to spend on myself (so sue me!) I get very few benefits from government (I’m not eligible for a lot of the government programs to support individuals, my medical costs are largely covered by myself and I only see my family doctor about twice a year). I don’t have a big problem with government going into a deficit situation (hopefully temporaryily) except for the waste of money on the auto sector, but there had better be some real benefits for me. Yes I’m selfish, but for the first 50 years of my life I bought into the ‘sharing’ line, and all that did was support people who never were interested in making change and taking responsibility fo their lives, and fed governments to create unholy surpluses.

      • When people say that there needs to be a tax break in the highest tax bracket, they do so by saying that the money is more likely to be invested in new business opportunities. This has always been rather unlikely, as we see in this post.

      • Very few benefits from government? Really?
        So I take it you’d be just fine without the social welfare systems and police. No, no chance of desparate people seeing how you live and deciding they want a bit of it for themselves, eh? Yeah, no need for public medical care, after all, it’s not like diseases can spread from person to person or anything like that. And all these policies and rules that keep pig farms and hells angels “fortress” houses from setting up next door to you, why, those are just useless frivolities your tax dollars get frittered away on.

        People who think they get very few benefits from government are people who haven’t thought.

    • Jazz and France … I’m in!

    • Hate to tell you folks, but if the idea is to stimulate the economy, giving a tax break to folks like me and you who are in the highest bracket will do very little. While you may spend it, the vast majority of folks in our tax bracket will save it instead.

      It’s been proven time and time again that if you give money back to the poorest folks — those who are on social assistance or the working poor — they will spend 100% of it. Spending is the only way giving tax breaks will help the economy.

      BTW, we don’t *have* to have structural tax cuts, they can issue one-time cheques. Again, despite the fact I too want money, the best people to cut these cheques to are the working poor, those on disability and those on social assistance.

      If our intent is to stimulate the economy that is. If it’s just selfishness, then I want all the stimulus money in my personal bank account. Please contact me for my particulars.

      • If you want to stimulate the entire economy, including such things as auto companies, perhaps giving it to the poorest folks is not such a good thing. Poor folks tend not to have new cars.

        • No, but they’ll spend it on movies and bigger TVs and new mattresses, and the people who provide those will go out and buy cars.

    • How can someone, without cause, be so bilious, withering and obnoxious on a Monday morning?

      Get a life, you misery.

    • OK first, breath. Now look beyond the propaganda and start to think a bit.

      First off, the people who filed taxes where they paid nothing: these are not the people going to stimulate the economy, but rather those that will most likely need protection in a recession. The GST cut didn’t help them before, it’s not helping them now, and it won’t help them in the future. See, when you have very little money, you tend to cover the essentials first. These essentials tend to not have GST anyway. Plus they get a refund. The only people it did help were people making big ticket items. Oh, and the reduction had nothing to do with stimulating the economy but rather a nice big showy photo op that cost a ton of money.

      Second, I can only assume you are mistaken on SOW bureaucrats even existing. If there are pigs roaming the halls of Ottawa, I suggest the government get rid of them- farm animals have no place in a city, let alone the government. Unless you mean the SWC… if so, you can probably be taken a bit more seriously by NOT using insulting BT terminology.

      Finally, Wells works for a company, not the government. Unless you are really the editor-in-chief of MacLeans, you don’t really get to tell him what he will write about, let alone what he will like or dislike. The obvioius response to that little rant is: nobody is forcing you to read this blog. You *will* agree, or you *will* disagree. But you do *NOT* get to dictate the subject material. If you don’t like it, don’t read it.

      But that aside… I’m generally a fan of tax cuts. But to use them as a way to stimulate the economy right now is naive and foolish. When you lose your job, tax cuts are irrelevant. I would much rather see a fast tracking of infrastructure projects (needed regardless of the economic situation.) These projects require people to work on them. When people work, they make money. When people make money, they spend money. And that helps stimulate the economy as well.

      • Agreed, but there are only so many infrastructure projects ready to go. But while Ottawa would *love* to start spending money on their LRT system, they can’t start digging the downtown tunnel until they have engineering reports, design specs, environmental assessments, etc. That’s all YEARS away.

        Other than infrastructure projects on standby for shovels, Ottawa could spend all it’s money on purchasing planes, helicopters, trains, buses, ships and tanks from companies who manufacture in Canada I guess. But even that takes time — defining your requirement, putting out a tender, having a competition, and placing the order can take a year or two.

  4. So we’re taking our fiscal lead from the land of structural deficit now. Thanks for the update.

  5. To hell with it all – let’s listen to some fine jazz and crank open a bottle of very fine French wine.

    Don’t you just love the “orders” given and being called sweetie and all. Charming.

  6. Of course Krugman hates tax cuts, no surprise there. On one of the talk shows yesterday, a talking head said committee chairman don’t have enough projects ready to spend all the money they are proposing so they are just making things up now so cash can be spent. This so-called stimulus is not going to stimulate anything except lots of pork.

    Why is saving so bad? I think there is an argument to be made that recessions are caused by peoples moods and if they are saving, paying off their debts, than that’s a positive step and mood will improve.

    We got into this mess because of unfettered spending and it seems counterintuitive to think even more spending is going to get us out of this mess.

    • jwl, did you read Krugman’s piece? He didn’t come out against tax cuts, he just expressed concern that the rumoured 40% of the package going to tax cuts was too high to be effective.

      Sheesh, it sure is Cranky Day around here. We have Patels turning “How much did Parliament work in 2008?” into an anti-union screed, the Misandrous Taxation guy turning this into a rant about feminism and jwl claiming that Krugman “hates” taxes.

      Quick, somebody ask Jonah Goldberg for his sage advice! Wake him up if you have to!

      • “Krugman “hates” taxes.”

        I think Krugman loves taxes, just not on him probably, but I assume that was a typo on your part because that’s definitely not what I am arguing.

        Yes, I did read the article. Did you? Did it leave you with the impression that Krugman’s happy about tax cuts. Liberals have developed this superior attitude, that they know best, and don’t want people to keep their money because they won’t spend on it things liberals approve of.

        Why not let people keep their money instead of government taking it, having it laundered through bureaucracy and various quangos, and than give significantly less back then they took on projects that no one is particularly keen about. Which is what ‘stimulus’ spending is.

        • Yup, that was a typo – meant to say “…Krugman hates tax cuts”.

          The Krugman piece I read was a technical, almost nerdy discussion on how to execute a stimulus package. And Krugman said tax cuts have their place. Quoth Krugman:

          “What this says is that there’s a reasonable economic case for including a significant amount of tax cuts in the package, mainly in year one.”

          Doesn’t get much more clear than that. And the reluctance he expressed about tax cuts was about their poor effectiveness as an economic stimulus, NOT an ideological aversion to tax cuts.

          I say again: Cranky Day. That wasn’t an ideological piece at all and yet you’re going on about how Liberals have this sense of superiority…”. Jeez.

          • Yes, but it’s YOUR superiority he’s objecting to!

          • Krugman says spending is better than tax cuts (as usual, Krugman favours government programs).

            Which means he thinks the money in question is best spent by government rather than returned to the taxpayer. Which is in part because he believes government knows better what to do with it, which is Liberal thinking nowadays. Which is a superior attitude.

            Perfectly coherent to me. And accurate.

          • sf, did you even read Krugman’s piece? In this economic environment, the government does indeed know better what to do with the money, which is to spend it so as to restore circulation; taxpayers would be much more likely to save it, which is not what the economy needs.

          • JM: Yes and I read the piece, and wow, I could not have asked for more, thank you for validating my statement so quickly, you have indeed confirmed that Liberals believe they know better than taxpayers what to do with their own money.

            Now, to satisfy your wishes, please send me your money so that I can spend it and stimulate the economy.

          • *sigh* I’m not a Liberal, sf.

            I don’t think you would spend the money I, or Revenue Canada, might send you. I think you would put it in your deepest, darkest drawer, right next to the picture of Alan Greenspan, where it would inflate away. You cannot be trusted, sf. You are a saver. You just want my money to go and save. Well, hands off, saver!

          • It was worth a try.

        • Because they might pay down their debt which will do absolutely zero to stimulate the economy in the short term. Might be better in the long term though.

  7. Income tax cuts would be probably the worst method to provide stimulus due to the negative savings rate we currently see in Canadian households. The money doesn’t go in the pocket or towards new purchases, but rather to pay off that debt. The economy has already absorbed the benefits of those previous purchases. If we’re looking at tax cuts, the only ones that will work are payroll tax cuts, the very ones that are increasing in Canada.

  8. Mind you, as jwl points out, paying off debt is a very good thing. But it doesn’t provide any immediate stimulus to an economy, which is what governments are looking for. But it does remind us that anyone or any entity thinking a general tax policy will fit all circumstances are simply denying themselves the flexibility to use taxes as a tool in economic policy.

  9. It does appear that Flaherty’s musings of possible tax cuts in the upcoming budget do appear to be part of an international consensus.

    The Conservatives were ahead of the curve with their GST reduction which came at an opportune time as it were. I know the NDP and the Bloc are allergic to them and so were the Dion Liberals. What about the Iggy Liberals. It would be nice if Iggy got off of his book writing and took a position on something.

    • The Conservatives were ahead of the curve with their GST reduction which came at an opportune time as it were.


    • Actually, a GST cut has been proven not to stimulate spending at all. Those who aren’t spending when something costs $107 won’t spend when the same thing costs $103.

      Don’t get me wrong, I’d love to have lots of money. Please. Someone give me lots of money.

      But if you want people to spend, you have to give the people who are most likely to spend a cheque. And that would be the poor, non-taxpaying folks. The folks who don’t have credit because they don’t qualify.

      • But Scott that GST cut comes in sooo handy when you need another mer or jag. Me i spent my mine on beer and popcorn. Not a the same time of course. I believe Galbraith once describes trickle down theory thus: ‘ if you shove enough oats in the horse, eventially enough comes out the other end to feed the mice.’

    • The Great Hope of the Left – Barack Obama – is cutting taxes. So is the biggest economy in Europe – Germany. Gordon Brown, the British Labour Prime MInister, announced a cut to the VAT tax, the Engish version of our GST by a few perentage points a few months ago. Tax cuts take some time to work themselves into economic stimulus.

      The Canadian Conservative government has led the way – let’s hope we see even more substantial cuts in the upcoming budget.

      • Oh, and “leading the way”… our Government has said, alternatively, that they couldn’t have predicted the economic situation we’re in (and hence the need for deficits) and that they planned for it all along (with the GST cut).

        Which is it Jarrid?

        • They also apparently couldn’t predict that more companies wouldn’t restructure themselves into income trusts.

          These are the people we want running our economic program? It’s a good thing the received wisdom of conservatives as better on economic issues is so strong, or they’d be in real trouble.

        • Well, the timing of their GST cuts was probably fortuitous, as I said Scott, it came at an opportune time.

          The point is: everybody else, including the Great Obama, is doing it. The left seems to hang on this guy’s every word which is why I mention his name. (I’m reserving judgment on the man myself.)

          • Fair enough, if you think that the GST cut would actually encourage people to spend. I don’t think so, and I think that’s borne out with studies. It certainly doesn’t have nearly as much of an immediate impact as sending a cheque to low-income people.

            I’m not opposed to temporary tax relief / tax cheques / etc., I just hope they do it in the ways that will result in the best bang for the buck.

            Or, alternatively, they give all the money to me. I’m just saying.

      • It should be clear to you now that those who are in charge of global economics don’t really know what they’re doing and are just following the leader and hoping for the best.

        Will it work? Who knows. Their track record has been lousy for the last 30 years. Personally, I just see it all as a rush to re-institute the status quo of largely unproductive economies fuelled by pointless consumerism and irrational financial speculation….you know, what got us here in the first place.

        To craft elaborate rationalisations in hindsight just to praise your Dear Leader sounds purposefully naive, not to mention bizarre.

    • Jarrid sometimes it helps to read with your eyes open all the time, not just when it says what you want Look at scott m’s last pt . I’ve heard Ignatieff make his very pt. Or is this simply a position you don’t like?

  10. I’ve just finished reading Lawrence Martin’s article today about Iggy. When Martin talks abouts about the Conservatives he doesn’t “know what he speaks about” to use a dionism. However he knows a thing or two about he Libs and his pointed criticisms this morning have more than something to them. After criticising him for writing a book about a family saga, that’s right folks, just elected, whoops, installed as leader of the Liberals, he’s writing about his family tree, Lawrence gets to his main point:

    “…all the negative publicity over the coalition. Mr. Ignatieff is in a bind on this. It isn’t exactly a sponsorship scandal he has been handed, as was the case for Paul Martin. But it’s an albatross just the same. Public opposition to the coalition idea has been allowed to cement.(…) But the coalition question is one on which Mr. Ignatieff has to fish or cut bait, lest he be Dionized”

    Now that is bang on political analysis. Dion’s gone but his messy legacy continues.

    • Oops! I think you misposted. You may be looking for this post.

    • Off-topic, partisan distraction.

      Maybe you’re labouring under the delusion that Liberals blame Harper for the economic crisis? I certainly don’t; I just think he’s inept and his government is flailing. I accuse the Harperoids of what I’ve consistently accused them of: ineptitude. But the economy is largely out of the government’s hands and has been so since Mulroney declared that “Canada was open for bidnez!”

      • Ti-Guy, I think he may have just misposted. I know I’ve done it before.

        But you bring up a good point: I don’t think any right- or left-thinking individuals think the current Government is responsible for the economic crisis.

        I also think the Government hasn’t done anything to ease the crisis, though I don’t know if that’s really that big a deal considering how tied our economy is to the US’. I disagree with their past decisions (Income Trusts, #@%^# GST cut) which have left the government with less surplus wiggle room, but I certainly don’t blame them for not forseeing this.

        • Oh, I blame them for not foreseeing this. That is, if I believed for a minute they didn’t. They did, but our economy, one so integrated with a large non-productive economy that relies on the abstract psychology of the market while ignoring the transactions that actually occur in market, constrains them in how candid they can be about it.

          • Fair enough, but that’s a willful ignorance that has been perpetrated for many years and many governments of all stripes within Canada and around the world.

            Unfortunately being upset at everyone, everywhere does little but raise one’s blood pressure.

  11. Thanks to most readers for engaging in a spirited and civil discussion in what was obviously intended to be an open thread on the general theme of stimulus. Anyone still tempted to criticize my argument should ask themselves how much of an argument it is, considering that the original post doesn’t even contain a verb. Head. Shake.

    • I’m fairly certain “is” is a verb even when used in the contraction “it’s”… Bill Clinton may disagree though. {runs away}

    • Are you really Wells or just PW in disguise? If you are the real Wells, which I don’t think you are, than I don’t like the new persona. I want the snarky, pithy and bitch slapping Wells back and less of the ‘thanks to most readers’ stuff.

  12. There are two good arguments for tax cuts over infrastructure spending:

    1) Timing: Tax cuts can be implemented lmost immediately.
    2) Canada’s construction sector is much better off than in the US. There simply isn’t a large number of laid-off construction workers waiting to be called to work on a new project.

    The argument against is that income tax cuts will not be spent if they are explicitly temporary. Even if they are permanent, it’s not hard to imagine that the first reaction of households will be to save the tax cut. And then there’s the general issue of avoiding a longer-term deficit.

    Cuts to the GST would work differently: an explicitly temporary reduction would promote short-term spending, since there would be an incentive to make purchase before the tax holiday ended. In fact, I’d like to make the effect even stronger: cut the GST to (say) 3% now, with the promise to increase it back to 7% as of January 1, 2010 (or March 31). This would also have the effect of undoing the dumb GST cut.

    The arguments for cutting corporate taxes are for the long term; they’ll do pretty much nothing to attenuate a recession. There’s a longer-term strategy to reduce them, and there’s no reason to change it.

    Then there are the targeted transfer programs: GST credi, the Child Tax Credit and the new Working Income Tax Benefit. Increases here will almost certainly be spent. They are also pretty small tems in the federal budget ($5-6b), so a lot of good can be done here quite cheaply.

    • “There simply isn’t a large number of laid-off construction workers waiting to be called to work on a new project.”

      That’s my concern. There’s plenty of blueprints in the queue (aka “shovel ready”), ask any municipality, but its not going to do us any good if we drain the labour market.

    • Notwithstanding my non- economic background i’ve been thinking on similar lines. A large temporary gst cut would stimulate middle and upper income spending particularly when combined with tax credit money to the working poor. But will it? If folks are as indebted as we are told wont they sensibly pay their debt down? Not a bad thing in-itself but not quite what you want. Indeed i think the debt burdenen will cause tax cuts not to be saved or invested [ except perhaps for upper income ] but used to pay off household debt.
      What truly depresses me is the concept of holding out solutions that basically amount to a stmpede on walmart . The very thing that only five minutes ago we were all bemoaning as senseless, mindless and wasteful. Having chugged from this cup for so long now, then naturely the only solution is to drink more. Heading out to the bush is looking better and better all the time. Feel free to demolish my amateurism.

      • I suspect it would make anyone planning to buy a home or car at some point within the next 2-3 years purchase one immediately, if a large temporary reduction were put in place. Beyond that I can make no guesses.

        • Yr guess is as good as mine. But given peoples lack of confidence right now i think most folks will put a few more k’s on the old beater and another coat of paint on the family lean-to and if anything is left over , pay down debt. Then again it probably wont take much to convincee folks it’s safe to go back in over their heads again.

    • I am with you there, Mr. Gordon. Anyone try to get a carpenter or plumber or electrician for a job lately? Are thousands of CAW vets who can bolt a fender to a body in southern Ontario suddenly able to re-pave a highway or strengthen a bridge anywhere in Canada?

      • I think this is a point that seems to be missed in the media a lot. It takes a *lot* of work to get the right stimulus to keep jobs.

        Some infrastructure projects may be able to sop up the slump in the housing market, but does it necessarily make sense for the Government of Canada to build new office towers in the suburbs of Ottawa when there will likely be an excess of cheap commercial properties going on the market in a year or so? And are homebuilders the best road builders?

        Similarly, if an Auto plant in Windsor closes it’s doors, will a contract for new VIA trains which results in more jobs at Bombardier be able to help out those folks?

        • Yes Scott, whatever money we do spend has to be intelligently spent. I’ve heard horror stories of highways to nowhere, constucted in Japan.

      • maybe some of those carpenters and plumbers will be coming back from alberta soon. I’m sure CAW vets are as retrainable as the next guy/gal.

        • Yes, but that takes time. Remember, it’s all about jumpstarting things now.

        • Surely they are. But it’s a known fact that companies will stay away from hiring on laid-off Big 3 workers, because they know if GM/Ford/Chrysler ever come calling in the future, that those guys will be gone in a flash.

          Vicious circle.

      • What would you be prepared to do if you lost your job? Move to Chibougamau to re-pave a highway?

        I’m not saying you don’t have a point. I’m just picky about simple answers to complex problems.

        • I think it’s been proven time and time again that it takes a relatively long time to empty out a community when the major employer leaves. People are really hesitant to leave home.

          • Well that’s their fault for not becoming global citizens, ready to be transported around the world, like a commodity is supposed to behave.

        • Ever heard of Ockham’s Razor?

  13. The poorest of people don’t need tax cuts. They need services. Services which the private sector will not provide because there is no way of making it profitable.

    The richest of people should not have tax cuts. They’ve had tax cuts. And instead of investing in productive enterprise they’ve chosen to create “bubbles” in magic paper.

    The middle class could use tax cuts. But they should be required to sign a waiver that their demands to have their cul-de-sac paved every two years and have an MRI for their ingrown toenail could be ignored with impunity.

    • The poorest of people don’t need tax cuts. They need services.

      Actually, what they need is money. Income tax cuts won’t do it (they don’t pay income txes as it is), but there are other ways of giving it to them.

      • What the poor (which includes many working people) need are decent jobs producing things of real value.

        There’s no hope of that happening anytime soon, but I’m getting ahead of myself.

      • Oh, what does Stephen Gordon know !! He’s number 11 !! (joke)

        • He knows a lot. It’s just that he’s talking about cars (and maybe not the whole car, just the carburetor or the transmission…or maybe the cupholders) whereas some of us think we should be talking about transportation.

      • Yep, we can send people cheques, not unlike they did in Alberta a few years ago. But you can target those getting the cheques.

        Alternately, you can just boost payments under the WITB or GST credit. That’d be cheaper and still hit the same target audience and could be done immediately.

        Of course beating up on the poor is a favourite game for politicians, so despite the fact it would likely be best for the economy, look instead for a broad-based tax cut which has little effect (give one person $1000 and they’re likely to spend more of it on unplanned purchases than giving 100 people $10).

        • Sending out those checks to folks who were swimming in money was insane but very popular. But then it was Ralphs signature on the check and he did get re-elected. Joey knew what he was up to when he sent out those baby bounus checks. i digress.

          • Hey. Ya give poor people money and they spend it on bingo and beer. Everybody knows that.

          • Sisyphus – those cheques got sent out to all Albertans regardless of need. How the genuinely poor spent it was fine by me. Was it wise??? Did it help get Ralph re-elected…

          • Popcorn and beer. As in 3-for-a-dollar boxes of Orville Redenbacher flavoured (I recommend the cheddar) — each box of which contains three (3) bags! Loblaws, I love thee!

          • Regional bias, Jack. In the Maritimes we do Bingo.

          • Beer and bingo stimulates the Canadian economy. Caviar and Champagne doesn’t. Ergo, give money to poor people.

            Who says economics is hard?

          • We play bingo out here on the Canadian Shield too, Sisyphus . . . but in deference to Mr. Feschuk I think we can’t forget the popcorn. Especially at these prices!

  14. How about this idea: We cut taxes while increasing the tax on carbon-based fuels.

    Win-win, right? We could call it the “Green Tax Transfer” (No? Not catchy enough? Well, someone will come up with a better name. )

    And here’s the best part: Conservatives love the idea. Check out Charles Krauthammer in the Weekly Standard today.

    Er, I was out of the country during the last election. Did I miss something?

    • That would be just too sweet. I would gladly pay to hear SH argue why carbon taxes are no-longer crazy and insane. That said this will only happen down south if those tax cuts are in one particular bracket.

  15. Thinking that tax cuts or govt spending or low interest rates will solve this is delusional. Living on credit is what got us into this mess so more of the same won’t help. We have to change our ways. Prosperity is built on saving. By “saving” I mean the old fashioned, un-hip notion of putting aside part of what you earned. It sounds terribly simplistic but the only source of investment is saving. Debasing our currency or digging our govts further into debt is the road to disaster.

    • Prosperity is built on producing.

      • Yeah, but in a recession, the problem is a lack of demand, not supply.

        • Yes, a recession is no time to examine the real meaning of concepts such as prosperity. It’s a time to prove your tenure is warranted.


        • “in a recession, the problem is a lack of demand, not supply”

          Right, so saving, which is what walter was suggesting, would be bad right now.

          I’m not an economist, but this recession seems to me to be inseparable from the China-US trade imbalance. Demand is down because America’s been living on credit and it can’t get any in the short term and in the long term its manufacturing is dead.

          • recession seems to me to be inseparable from the China-US trade imbalance

            Actually, that imbalance was what we were expecting to see blow up, and it hasn’t. Yet.

          • How could it? We depend for almost everything on Chinese manufacturing. The fact that it’s so structural is the problem.

          • Canada doesn’t have a US-style imbalance; our current account has been in surplus for a decade.

          • But, needless to say (?), we depend entirely on a healthy American economy, except for cash resources like oil.

          • Not *entirely* – about one-third of what we produce is sent to the US. So unless there’s a home-grown crisis – and so far, one hasn’t yet manifested itself – a Canadian recession will be about one-third as severe as the US recession that caused it.

          • According to Statscan, 76% of our exports go to the USA. If that tanks, we are screwed — the ripple effect would practically wipe everything else out.

          • We don’t export everything we produce, and the US isn’t going to reduce imports from Canada all the way down to zero. If the US economy contracts by 3%, that’ll work out to a reduction in Canadian GDP by 1%. Not pleasant, but we’ve seen worse. Much worse.

          • Well, I hope you’re right — both about the blowback on our GDP and on the scope of the American recession.

  16. Paying down personal debt, even rebalancing our woefully inadequate personal savings rate, IS good for the economy. Right now. That “saved” money is not idle, hidden from the greater economy. Give it to the bank, they’ll find people to lend it to (dear god please let them remain reasonably choosy about debtors likely to pay ’em back…). Invest it in a business, hire people to bring out more value, make a profit. Try to avoid CSB’s and T-bills, for the personal and greater economic return for being the People’s creditor is underwhelming.

    Whether individuals have more money (to spend, to pay down debt or to save) through tax cuts or greater government spending, the dollar is the dollar. We’re left merely philosophically debating who is more deserving of the dollar: the one whose dollar it was already (tax cut) or the one whose dollar it was not already (program spending, “retail politics” tax credits for bus passes and the kids’ soccer). History shows that laundering that dollar through government (tax and spend) is one of the least efficient uses for a dollar. Morality says that taking wealth from the future to sustain our overconsumption today (massive deficit for “stimulus”) is just plain wrong. I vote for as little of either as possible. Your mileage may vary.

    • I understand where you’re coming from, but I think you’ll find the multiples of a spent dollar are much higher than the multiples of an invested dollar.

      In fact, barring an IPO, if all your money does is inflate the value of a stock is it doing any work at all?

      • Really? Because I would say the opposite, that an invested dollar would go further. But neither of us have any real idea.

        • I’m confused. If I buy a share of Rogers, and it’s not on IPO, how is that creating jobs?

          • Firstly, the basic idea of investing is to give your money to people so that those people can use it to grow their business. That is what investing is. The theory is that you get a cut of the benefits, and your cut is the interest rate. Bonds, stocks, treasury bills, whatever.

            Now, to answer your specific scenario: When you buy shares, do you think the money disappears into a black hole?

            If you choose to give your money to some other investor by purchasing his shares in the company, then he gets the money and you get the investment. He will take the money and spend it, or he will invest it elsewhere. This creates jobs. Either the money is spent on consumer goods and services, or capital is reallocated to places where it is most beneficial (where it will provide the highest return), and is spent on investment goods and services. Did you think he would eat the money?

          • You are assuming, of course, that the other person doesn’t just reinvest it and there’s a spiral of investment without production.

          • Firstly, people won’t invest if the return is 0% (or negative), which is what would happen if there were such a spiral. People attempt to put their money on things that will generate a return. And if they want to be sure about it, then they buy bonds or treasury bills.

            Secondly, apart from day-traders and gamblers (which thankfully remain a small segment of the population), most people sell investments because they need to spend the money.

            Thirdly, if the government wastes the money by employing people to build things that nobody actually wants (like Olympic stadium roofs in Montreal, fast ferries in British Columbia, and roads to nowhere), and then the workers leave their earnings in the bank, the rest of us are better off because….? Our government is in debt, our taxes are gone, and everybody but the construction workers are losing their jobs.

          • “people won’t invest if the return is 0% (or negative), which is what would happen if there were such a spiral. People attempt to put their money on things that will generate a return. And if they want to be sure about it, then they buy bonds or treasury bills.”

            Exactly! No one in their right mind would plow their savings, or extra income, into the stock market right now. That’s why we’re in a downward spiral: people are likely to behave rationally if you tax them less. Hence, savings (i.e. bonds and t-bills, if not bank accounts and wool socks). So the government has to spend it for them. It’s not pretty, it’s not ideologically correct, but it’s the only way to get us out of the downward spiral. What you’re doing is applying generally true maxims to a particular situation, and they don’t fit.

  17. No way!

  18. When you pay off debt, the money is reinvested elsewhere. When you put it in the bank will loan it elsewhere, because that’s what banks do (and in fact, they need to improve their bottom lines in order to feel confident to lend again).

    This “immediacy” to stimulus, to me, is bunk. There’s no sense spending money on something unless it is truly something beneficial. And that is less likely to happen when they are trying to shovel so much money out the door.

    Japan is the perfect case study. They spent like drunken sailors in the 90s to alleviate their recession. And it accomplished: nothing. The recession lasted 10 years anyway. And now, Japan is being hit worse than most other economies in this new recession. And one of the lasting legacies of the spending is stuff people don’t use, like large airports in small towns that are mostly empty, and roads with no cars on them (to be fair, some of the spending was well-directed).

    It is quite possible that the large-scale spending was detrimental, crowding out private enterprise and failing to improve the purchasing power of consumers.

  19. What bothers me most about the Cons wiggle-waggle dance of the seven veils is that it means they really have no idea how to spend the billions they’re proposing to spend. Nobody’s, obviously, thought of it. They hadn’t even picked up the bat, needed help finding the playing field. One wonders if they’re even sure which game they’re playing, whether they have any idea what First Base is, say nothing of who’s on it. This is a prescription for waste written in clear, large, legible print. It’s a Mulroney roll of the dice, not an investment, and as someone who has never ever bought a lottery ticket, I much prefer they would return to their election platform of “The Economy is Robust” and point exactly which stocks we should be buying to pump up our portfolios, and bring in that 2 cent a litre reduction of taxes on diesel fuel.

  20. The recent interview with Stephen Jarislowsky (sp?) had many interesting comments. The one that caught my attention was where he said this was a balance sheet recession not a traditional receission. So that means untl the balance sheets get fixed you wont see people returning to “normal”.

    He too called for a big pot of money to be spent…..but I am not sure what that is going to fix, depending on what it is spent on. Everyone complains that households and firms need to reduce debt, improve their balance sheets.

    None of the parties is addressing this issue, the Libs and Dippers want traditional spending but that is a hammer for a different nail. The cons, well I dont think they want to spend a thing, which has (had since they are going to spend now) of not incurring debt.

    So not surprisingly tax cuts, to individuals make some sense, since they can use the extra cash to repair their balance sheets, assuming they will, yet the government is exhorting banks to LEND.

    Here is the more interesting question, why do we want to borrow when everyone else is borowing….rates are going up.

    In the 30’s the Europeans were in the debtor position and had overconsumed, he US was the low cost producer and had lots of savings (like China today) The Europeans wobbled and there was some defaults, the germans clearly printed money and over inflated. The US tried to stimulate domestic demand but sparked a trade war. Canada and the commonwealth came out better because they continued to trade amongst themselves under imperial preference. The commonwealth, by the mid 30’s, was known as the growth bloc.

    Point is, the Chinese need to stimulate demand internally and not produce for export, the US needs to devalue the dollar, and the chinese need to let it happen (they wont). the poitn is the Chinese are in the equivalent of the US position in the 30’s. And if China continues to playhardball on Yuan valuation, ie not letting it rise, then the Grapes of Wrath will be rewritten in Cantonese.

    Dangerous times, and lots of opportunity for people to misplay this. The “package” is going to happen, because “the people” demand it. Don’t expect it to do much, we really are at the mercy of the US, Europe and China.

    This is why the Germans are being cautious. They are wise, we shoudl do the minimum, we will thank ourselves collectively in a few years. Sadly, the politics of this is really bad.