“That’s precisely the thing not to do”


Probably not tippy-top on the Langevin Block worry list this weekend, but the PM appears to have flunked economics:

“That’s precisely the thing not to do,” said Carlos Leitao, chief economist at Laurentian Bank Securities. Rather than a balanced budget, he believes, what we need right now is new spending of $15 billion or more to do things like bail out provincial budgets and boost benefits to the unemployed. This would translate into a deficit of about the same size, but it would prevent economic damage worth far more.

“I think a lot of us were a bit flabbergasted by the government’s priorities,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “Who exactly are they trying to impress” with the deficit-fighting rhetoric? he asked, since Canadians know very well that temporary deficits are far preferable to a deepening recession.

“This policy will not do anything to moderate the recession and it may worsen it,” said McGill University economist Jagdish Handa. The principle that government should sustain economic activity and employment by running deficits during a slump, far from being controversial, is “at the core of current economic thinking,” he noted.

Gazette columnist Jay Bryan concludes: “This economic statement has done little but inject venom into Canada’s politics and uncertainty into the minds of already worried consumers and businesses. And of course, it has badly undermined the credibility of a government whose nasty partisanship used to be balanced by an image of competence. Now it looks both partisan and inept.”

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“That’s precisely the thing not to do”

  1. Considering the number of competing “schools” or ideas on how governments should respond to recession, how does one “pass economics”? By going along with peer pressure (aka concensus)?

  2. Harper just rolled over on the party funding.

    This is what’s called a “trap”.

  3. A realize these are Canadian economists, but still: Did the economists of the big banks do anything to prevent the big banks from getting us into this mess in the first place?

  4. If I’m not mistaken, the PM has already signalled that there will be a stimulus package in the upcoming budget early in the new year as part of Canada’s commitment to the G-20.

    While I do not disagree that the Economic Statement may have injected unnecessary venom into the Canadian political dialogue, it may not be accurate to say that the government has no plans to introduce a stimulus package. And, there may be good arguments to wait until the end of January, especially if we are talking about help to the auto industry and the need to coordinate with the Obama Admin.

  5. And if runs up a deficit, he is assailed for breaking his word. Only columnists don’t have to worry about the no-wing scenario.

  6. The amazing thing is that Harper was saying all the right things about the economic crisis at the APEC summit in Peru. i.e. facing deflation where individual and corporate spending dries up in fear, governments have to spend to maintain money velocity in the system.

    There was no need to do anything but be honest about the numbers (likely no deficit this year, and moderate deficits the next few years) apart from the big stimulus package coming in January, one where many parts have to be coordinated with Obama’s plans.

    Instead he and Flaherty deliver one of theese phony budgets like the Harris government did in their second term that just destroys their credibility with moderate voters.

  7. And if runs up a deficit, he is assailed for breaking his word. Only columnists don’t have to worry about the no-win scenario.

  8. God help me for straying awfully close to actually agreeing with Harper’s approach, but it occurs to me that maybe, just maybe, if Canada’s economy is so closely tied to a) the revival of the US economy and b) global commodities prices, this approach of battening down the hatches and waiting it out isn’t so crazy?

  9. There are some dissenting opinions – click on my name for one such article.

    My two cents (and you’re likely overpaying):

    Fiscal policy used for short-term stimulus purposes in a small-open economy such as Canada is almost certain to be highly ineffective. That being said, I believe there are options here.

    The Bank of Canada is going to have to do most of the heavy-lifting on this one. Any increase in government spending should be made in areas that increase Canada’s long-run productivity. This spending could also be targeted to regions hit particularly hard recently – such as increased infrastructure spending in southwestern Ontario. Expanding the London-to-Windsor corridor to 3 lanes and building a new bridge between Windsor-and-Detroit (to bypass Windsor’s downtown and the privately-owned Ambassador bridge) might be worth it. I say might, because I haven’t seen any studies examining the issue.

  10. Actually, Emmett, a whole load of them were worried about what was looming. That’s part of why the conservatives got told that opening mortgages up to 40 year, no down was a bad idea, and why they subsequently reversed themselves (slightly) and went to 35 year, low down mortgages.

    Those who are really at fault for this mess were the rating agencies and those who stood against regulating them to make sure they were clear of conflicts of interest and transparent in how they did things. Hm. Now which party is it that normally stands against regulation?

  11. The man is constitutionally (sorry – couldn’t resist!) incapable of being statesmanlike – and now Joe Sixpack is going to realize he has horns and a tail too – and at Christmas time!
    Why would anyone want to play in his yard?
    They are all righteously going to take their balls and go play with the Governor General!
    He’s cooked!
    Even if he backs down!
    Especially if he backs down!
    I love it!

  12. From Google News: “In the weeks ahead, we will determine the extent to which we will inject additional stimulus to our economy, joining the efforts of our international partners,” said Flaherty.

    But he warned, “Any additional actions to support the economy will have an impact on the bottom-line numbers in our next budget. These actions, or a further deterioration in global economic conditions, could result in a deficit.”

    I understand that Carlos Leitau and Jay Bryan were responding to the fiscal update, but the Conservatives haven’t ruled out deficits in future budgets (the next one, if I’m not mistaken, to be introduced in approx. 6 weeks). While the Tories might be trumpeting a slight surplus right now, it’s very likely that new infrastructure spending (as they have already announced) will lead to deficits, which Flaherty has already admitted.

  13. Big banks love the idea of financially bankrupt political party taking over government in times of economic crisis like this.
    Do you need to borrow some money for your party Prime Minister Dion??
    How much would you like PM Dion??
    No problem PM Dion, there will be no need to prove your ability to pay us back, we will take your word for it.
    PM Dion, just please remember who lend you the money when you prepare your financial stimulus package.

    Sounds like winner to me.

  14. Every indication is that the PMO has decided to dig an even deeper hole by making the situation more partisan as the week goes on. I don’t think all in well at that office.

  15. When the Liberals play hardball its ok, its just politics but when the Conservatives do the same then its venomous partisanship. And who in his right mind thinks that running deficits will fix anything. This thinking comes from blind panic. Bob Rae tried massive deficits in the 1990s as Ontario Premier and the Feds tried it for a generation. Jean Chretien said that zero deficits mean zero jobs and zero hope. Its not true. Deficits did not work. All they did is accumulate debt and interest payments and make a big mess bigger. We are going to go through a recession and there’s not one thing on god’s green earth that governments can do other than make sure our banking system doesn’t fall apart. We are just going to have to tough this out.

  16. “PM Dion, just please remember who lend you the money when you prepare your financial stimulus package.”

    The Tory’s have already agreed to purchase an additional $50 billion in mortgage insurance from the banks and the banks have said they don’t require further assistance.

  17. yup, Dion and the banks are in cahoots…. man.

    What is truly starting to get revolting is that the CPC supporters on these boards, know no bounds, in making allegations about everyone else and their intentions in a situation that was, in its entirety, brought on by their party.

    you guys sound like the Libs that you used to criticize that just wanted to blame everyone else….

  18. One of the best political writers in Canada and the best he can do today is cut and paste an article from someone else.

    Not one original thought today Paul?

  19. “My own view, for what it’s worth, is that Canada does not need a fiscal stimulus right now, but there’s a possibility it might need one soon, so the government should get everything ready to introduce one as quickly as possible, but not pull the trigger quite yet.” – That’s Nick Rowe today on Worthwhile Canadian Initiative blog – there’s no consensus.

  20. The latest email from Giorno (see Globe) seems odd. The subject says “on behalf of” Chief of Staff. So, did he write it or not? Doesn’t the Chief write on behalf of the PM? What’s happening at the Grand Palace of Strategists and ChessMasters?

  21. Sure, Luke. Maybe he’s right. But the conservatives have lost any credibility to deal with this problem, whenever they get to that point. Up until recently they said everything was fine, although counter-intuitively they also said they saw this coming a long time ago and made preparations to deal with it. But they’ve tied the hands of the government to deal with a crisis. Wouldn’t it be nice now to have some surplus for a economic stimulus, without the need to go into deficit? Wouldn’t it be nice to knock 2% off the GST now, instead of over the last two years when it had much less impact?

  22. Luke I am not sure there has to be, or ever could be, consensus.

    Isn;t that what politics is all about? The contestation of ideas?

    One party with with about 45% of the seats think that we don’t need a stimulus, the other parties representing about the otehr 55% of the country disagree. I see three options (1) either side cedes the issue; (2) an attempt is made to forge some kind of tradeoff acceptable to more then 50%; or (3) the majority determine they, on behalf of the citizens they represent, are not willing to accept the government’s actions.

    It appears that it is going to be the latter, given the CPC have not attempted (2).

    This is exactly how democracy is supposed to work no?

  23. “Fiscal stimulus” means infrastructure investment, no? What else can the government spend money on to stimulate, as opposed to prop up, the economy? Such things take a long time to organise, so NOW is the time to borrow and spend, not later when the crisis is upon us.

    It’s absurd to assert that we’re not in for some very tough economic times. We’re tied to the US economy, and right now it’s only a question of whether they’re in for a severe recession or some appalling Japanese-style stagnation or even massive deflation. If it’s just the severe recession, Keynsian spending could seriously help get us over the hump (or rather ditch). It’s counterproductive to fret about the Tories’ having blown the surplus, right now we need action.

    As Flaherty himself said yesterday in Toronto, “fiscal stiimulus” doesn’t mean a structural deficit. The government (whoever that may be ten days from now) needs to start educating Canadians on the difference between a structural deficit and a temporary one, especially since all parties now seem willing to accept the latter.

  24. It’s counterproductive to fret about the Tories’ having blown the surplus

    It’s not. It speaks to their competence. Who do you want running the boat when the storm comes – the ones who made it seaworthy or the guys who went joyriding and punched a bunch of holes in the hull?

  25. Jack M.: One thing the gov’t could spend on is education. Replace the student loan system with need-based grants and boost directed educational transfers to the provinces. Spark a boom in the demand for educators and the various support services and industries that spring up around higher education, and get rewarded with a populace more able to invent and innovate our way out of this, not to mention the lower demands on health-care etc.

    And besides, if the choice is having out of work people sit on the dole or sit in class, I know which one I think is more productive.

  26. Well, of course I agree, Ian, that it was completely incompetent — or more like ignorant, really — but they’ve burned the bridges on the surplus — impossible now to raise the GST back to what it was etc. — so we just have to move on, in terms of discussing policy.

  27. That’s a good idea, Thwim. Especially job retraining, which we’ve managed to avoid for umpteen years while the going was good. It’d be great to come out of the recession with a better workforce than we went into it with.

  28. There’s a case to be made for holding off on direct aid to a manufacturing sector that is mostly branch plant and therefor dependent to a large extent on what happens in the US.

    There’s a case to be made for fast tracking any number of infrastructure projects that are now or will be necessary to the functioning of our society. Or call it “productivity enhancement” if it makes us feel better.

    There’s no public policy case to be made for putting the boots to the public service unions.

    There’s no case to be made for infantile political tactics in the context of economic anxiety.

  29. Shawn hit the nail on the head earlier. Massive infrastructure spending into deficit is only going t omake things worse. Let the Americans spend a few trillion getting their economy going. Our paltry contribution of 10 or 15 billion amounts to spillage at an Anheuser Busch brewery. Our automotive and other manufacturing will rise or fall depending on the actions of Mr. Obama, so why go into debt for no benefit? You failed on this one Wells, if bank economists were all that wise, Citibank et al wouldn’t have their hands out.

  30. Greg, no one’s saying that we’re going to stimulate the global or North American economy on our own. The idea is to spend now, in the short term, what we would have to spend later, over the long term, on government investment like infrastructure etc. By helping to keep unemployment down, we keep money in the economy.

    Enough of this “what do the economists know about the economy” stuff, for heaven’s sake. What do we non-economists know about the economy? Less than the economists, I’ll warrant.

  31. “You failed on this one Wells, if bank economists were all that wise, Citibank et al wouldn’t have their hands out.”

    Good thing he’s quoting Canadian bank economists then, since ours are still some of the most profitable in the world. The BoM just saw profits increase by 24% in the last quarter for example.

  32. Most economists never agree on anything, so I am suspicious of economists who claim otherwise. And saying everyone else is doing it, so why don’t we, is a pretty lame argument.

    Instead of economists making these assertions about how great deficits are, I would like them to provide a few examples of where governments were successful at spending themselves out of a recession because I don’t know of any but I do have lots examples where things got worse. Maybe these economists could give Rae a call and ask how well deficit spending worked out for him/Ontario.

  33. Yes, and Canadian banks are healthy because of of our governments regulation of them, and lack of political pressure to shove good money into bad loans for socialist reasons, it’s not because our bankers are any smarter than theirs. I suspect our banks want a package because they see the trillions being offered south, and they want a piece of the action. You want a stimulus package? How about a complete GST holiday? The GST is literally the tax on everything. Make everything 5% cheaper and it applies to all equally. Those who make best use of this will thrive, those who can’t won’t. If not a complete GST holiday, why not apply the same rules as Ontario’s PST to manufacturing? Anything purchased for direct use in the manufacturing process is exempt. For many companies this would be the difference between profit and failure, competitive and lost business. Margins are that tight.

  34. Greg: “You want a stimulus package? How about a complete GST holiday?”

    Ah, now I understand why you despise economics.

    “Canadian banks are healthy because of of our governments regulation of them, and lack of political pressure to shove good money into bad loans for socialist reasons”

    Hahaha, yes, that’s exactly why the mortgage bubble appeared in the States! Socialism, you got it!

    Please keep on truckin’.

  35. Fiscal Stimulus is spending money, whether on infrastructure, however defined, and or cash in peoples pockets.

    The difference between a conservative budget with stimulus in addition to what they have already done…someone has already criticized them for raising spending too much…..and a new coalition governemnt budget is measured on a timescale of days.

    Expect the cons to propose

    1) Extension of UI benefits
    2) Assistance for the Auto industry, mor focussed on retraining and transition, possibly contingent on concessions from the union on helath and bennfits…this can only be done in concert with the US or it will be like peeing in the wind
    3) Dropping of INcome tax rates, maybe accelerated to bring in 2 quarters in one or 4 in 3….in other words cash in pockets

    You have to ask yourself, with all other governments borrowing money, and all saving countries running their surpluses and reserves down (China, the Gulf States) just where is the money going to come from to fund deficits and debt and maybe we would be wise to limit whatever borrowings we do take.

    Russia, who had the 3rd highest forign currency reserves in the world has just about shot through them and is now raising rates to prop up the currency. This is a glimpse of the future….debt makes you vulnerable, engage in it wisely and cautiously. Not doing so is how you tip yourslef into structural deficit.

    There is serious doubt about what Canadians can do to cushion this as much as they can without ruining their future. Longstanding infrastructure is about all you can really do that yilds long term benefits, fixing the bridge today, means you dont have to fix it tomorrow, so you shoudl be able to spend less in the future.

    Beware where the money comes from, everyone else is borrowing at the same time. Rates have to go up some time.

  36. I just love his spokesmidget – Pierre Poilievre – speaking to the Canadian public about “the Liberals, the Socialists and the Separatists”

    I guess Harper and the merry band have decided that they aren’t going to make some backroom deal with these bad people between now and December 8th to split them so they don’t have an actual majority of members.

  37. “credibility of a government ”

    And how many, according to Gazette columnist Jay Bryan, or according to Douglas Porter, deputy chief economist at BMO Capital Markets, were predicting oil would never, never hit below $100 @ b.

    What’s the price of oil today? Why, they do not dare mention it that there isn’t an economist in this world, leading or not, who knows what is going on exactly. Why? Because that would take honesty and courage.

    Had the world taken Mr.Harper’s advice, just as an example, and there are many, that when the markets were in free-fall we all should have bought in, the stock market might have never slipped the way it did.

    This ongoing charade of the blind leading the blind is the most dangerous parade I have ever seen!

  38. Jack M

    I am a conservative and believe that infrastructure spending is one of the few legitimate functions of a government. However, I don’t believe infrastructure spending will get us out of this recession because any programs the Feds cook up over the next couple of months won’t actually start for 3-5 years because of environmental assessments, nimbys and god knows what else.

    And I would argue that economists, non-economists, have about the same level of knowledge about the economy. Recessions are mainly caused by people’s mood swings and anyone claiming to know all the answers is deluded.

  39. I guess you don’t follow the news Jack, because that is precisely why Fannie Mae and Mack had bad mortgages, socialist organizations threatened to sue any bank that did not provide mortgages to those who couldn’t afford them, and Barney Franks et al pushed that from Clinton’s congress. Add to that the toxic mix of corporate greed with annual bonuses based on short term performance and yes there is plenty of blame to go around. But don’t ignore the original socialist everyone should have a home even if they can’t afford one crap. Who was in charge of the Fannie’s for all the years that these bundles of bad debt were created? Democrat socialists. Read the paper Jack, it’s there if you turn off the TV

  40. jwl —

    If 3-5 years is accurate, all the more reason to ride roughshod over those environmental assessments and nimbys this time ’round. Seems to me that only a government which is in earnest about Keynsian spending can do that; the Tories, being opposed to government spending, seem inclined to dither. If Napoleon could completely reorganise France in 2 years, I think we can manage to build a few highways in that time if we really tried.

    As a conservative, you might also accept retraining, no? (For workers, I mean.) Either that or making retraining loans very accessible so as to facilitate private-sector retraining.

    I think there are two aspects to economics: diagnosis and treatment. Economists may disagree on treatment (what’s that old joke about not inviting more than 2 economists to a party?) but their diagnoses are often very similar. You and I, who don’t have the training to look at a graph and say, “Aha! The plus-minus margin layover is dwindling, I see,” are dependent on their diagnosis.

  41. I fail to understand why the words ‘we can’t have a stimulus package until we see Obama’s’ cannot come out of the mouths of anyone in the government.

  42. Interesting and spectacularly under-discussed thing about the Canadian mortgage market. The Paul Martin Liberals significantly relaxed the rules with respect to qualifying for a mortgage (to make us much in line with the American approach). Predictably, the Canadian residential market began to overheat. The Harper Conservatives, once in power, reversed this policy. Thoughtful observers knew, from the outset, Martin was out of his mind and, likely, his depth.

    The end result hasn’t been too bad for Canada – we have some bad loans in the marketplace, but the crisis was largely abated and we’re not even close to where the US is.

    There are three ultimate points. One, we’re not the US and any comparisons of their response to ours are idiotic. Two, the answers to these problems are hard to find and reasonable people will disagree. I am more inclined to trust Harper than I would be Dion/Layton, etc… Three, and this is tangenal, if there is a consensus among Canadian bank economists and the media, run the other way. Fast.

  43. Oh, and Jack regarding your dismissal of further tax cuts: one proposal being expolored in the US is a complete US income tax holiday for one year. Because it would actually be less expensive than the ultimate cost of all of the piece meal bailouts. 2 trillion versus potentially 7 trillion. Keep in mind that any prgram that the government gets involved in costs 30% in overhead to institute, and gets worse from there. I am just against directed bailouts. I am against hard working people being taxed extra to bail out failures. I am against the $18 per hour worker bailing out the $30 per hour CAW puppy makers. I am definitley against upping my taxes so that shovel stands, (Infrastructure workers) can further slow down my daily commute, the only purpose of which is to increase the wealth of Ontario employers.

  44. Greg, that is not how the housing bubble came to be. It resulted from private sector banks farming out mortgage sales to private sector companies and the banks getting hooked on “mark to market” accounting, whereby their liabilities appeared as the mortgage prices and their assets as the market value of the properties. Consequently, the more the market rose the more false profit the banks reported, and nobody cared to look into the accounting because it was essentially free money. They then used those profits to buy more “structured investment vehicles” and so on and so on. Meanwhile interest rates had been kept artificially low by Greenspan in order for America to spend its way out of the 2001 recession.

    I don’t have a TV, incidentally.

  45. I wasn’t dismissing tax cuts, Greg, just GST cuts.

    I take it you didn’t mean that the only purpose of your daily commute is to increase the wealth of Ontario employers.

  46. So far I know for certain that the Coalition is determined to keep spending money on their parties, but I’ve not seen any reporting on what economic stimulous they’d all agree on.

  47. “If 3-5 years is accurate all the more reason to ride roughshod over those environmental assessments and nimbys this time ’round”

    Depends on what we are talking about. When I think of infrastructure I think of new bridges, roads, hospitals .. etc and it takes a long time for shovels to be put into dirt. If retraining workers counts as infrastructure than 3-5 years does not apply.

    I would love it if one of parties had the gumption to ‘ride roughshod’ over environmental concerns but I don’t think any of them do. I would be amazed if Libs/NDP have the brass ones to ignore environmentalists concerns in order to quickly start building things, but we’ll see.

  48. >Wouldn’t it be nice now to have some surplus … Wouldn’t it be nice to knock 2% off the GST now,

    From where issues the certainty that the changes made in the past are not responsible for the relatively enviable (per the other G7 and G20 countries) condition we currently enjoy? A pre-emptive measure is generally more effective than a reactive one.

    And, as pointed out above, to spend in deficit it is necessary to sell debt. Exactly who is lining up to lock up their free cash for low rates of return? Once the pool of prospective creditors is exhausted, what then – print money and erode the value of savings and fixed incomes?

  49. Canada’s leftist adacemic elite media, being in full Harper Derangement Syndrome ™ mode, is an entertaining thing to watch.

    Equally entertaining will be the election of el saviour and new Liberal leader, and the corresponding fawning hopefulness the media will be bestowing upon “the one who can lead us from this conservative nightmare”.

    It’ll be close to the coverage of Obama, though nothing will compare to that embarrassing episode in which the media literally mortgaged their credilibity and their stock prices for partisan personal reasons (could there be a greater example of such wide spread expropriation of corporate assets for the personal political motives of a segment of the respective corp’s employees?)

  50. Of course the above comment by no means applies to this blog and the infrastruture that supports it. It is just purely coincidence I’m sure, regarding the nearly unanimous and continuous left leaning/anti-Harper posts, following by the hard-left commenter following, as well as the labelling of conservatives as “trolls” (which collectively is identical to the coverage, tone, and commenting one finds on the Libblogs list of sites).

    Purely a freakish coincidence that defies all statistical and mathematical laws of probability, I’m sure.

  51. “Instead of economists making these assertions about how great deficits are, I would like them to provide a few examples of where governments were successful at spending themselves out of a recession because I don’t know of any”

    Hitler in ’34-’35 is probably a classic example, though one I doubt most politicians would want to cite… :)

  52. Paul,

    Frankly I do challenge the statement by the Laurentian guy – it is obvious that there will be a fiscal stimulus, just not right now.

    1. We need to coordinate with the Americans – if they go the route of industry-targeted bailouts (which is a bad one), we may need to follow suit to protect our own auto industry.

    2. Spending cuts give the government more room to engage in a fiscal stimulus. Stimulating the economy isn’t just a matter of picking whether to throw money into the Sydney tar ponds or Great Bear Lake, it is a matter of picking options that will get people spending money and potentially have long-term as well as short term benefits for the economy.

    If you look at what the spending cuts being discussed are, they are primarily in public sector wages. So by extension, this Laurentian guy is pushing for a fair-sized chunk of the stimulus to be made up with public sector wages. This is a bad idea because:

    -public sector employees have strong unions that make firing nigh-on-impossible.
    -public sector employees are better paid than their private counterparts, and as a result, have a higher saving rate.
    -there is no appreciable long-term economic benefit to higher public sector wages.

    By contrast, infrastructure spending is a much better conduit because it creates low-end jobs (hiring the same folks increasingly finding themselves unemployed, who will spend most of their income), it has long-term economic benefits, and you can turn off the spigots in a way you can’t by continuing the expansion of the civil service.

  53. “I suspect our banks want a package because they see the trillions being offered south, and they want a piece of the action.”

    The head of the TD is all ready on record as saying any further financial assistance to them is not required at this time when the Tories agreed to purchase $50 billion in additional mortgage insurance for them earlier this month.

    You’ll note that the economists in question aren’t asking for money to the banks either: they’re looking for targeted initiatives to benefit damaged sectors of the economy and blunt potential damage from lost jobs by extensions and other changes to EI.

  54. Mike
    Sorry to burst your bubble but it was the current gov’t that introduced 40 year/no $ down mortgages to this country.
    They have since come to their senses and backtracked.
    Nice try at historical revisionism

  55. “Hitler in ‘34-’35 is probably a classic example, though one I doubt most politicians would want to cite… :)”

    Hitler is a very poor example for a few reasons.

    1. Germany’s policy shift came not under Hitler but under Von Papen’s shortlived government (which preceded Hitler). Hitler merely carried on Von Papen’s policies.

    2. Germany was autarkic, meaning it engaged in almost no foreign trade. As a result higher incomes did not mean people would import more goods. By contrast, about 40% of Canada’s GDP comes from trade, while barriers to trade (both through tariffs and through geography) are far less than they were before. Think about the consumer goods you would buy with another $1000 – how many of them are made in Canada?

    3. The German economic recovery was not intended to be a long-term plan, and as such the economy was overheating by the late 1930’s (which pushed Hitler towards fighting a near-term war). This posed problems for the Germans – despite having the plunder of Europe at their disposal, their economy grew much slower during the war than before. It wasn’t just bombing either – in 1940, for instance, they had a recession.

    4. A key advantage of a dictatorship is that it was possible to maintain wage restraint because unions were curtailed, limiting the effects of inflation, and keeping public disorder to a minimum. Obviously this doesn’t apply to Canada.

    5. Germany’s recovery was as strong as it was, in part because they were affected more strongly by the recession in the first place. If the economy goes into a tailspin the bridges and factories and such are still there – you are going to have a stronger recovery just as a function of the depth of economic decline.

    PS: if you want an example of a country that beat the recession largely by NOT spending more and more, how about… Canada.

    Bennett was derided as a do-nothing, but actually did expand government spending and run deficits. How did that go?

    Growth in real GDP per capita
    1929: -2% (GDP of $5,065/person)
    1930: -5%
    1931: -17%
    1932: -8%
    1933: -8% (GDP of $3,370/person)
    1934: +9.5%
    1935: +7% (GDP of $3,951/person)

    Government as a % of GDP
    1928: 6.8% (gov spending at 412 million)
    1929: 7.6%
    1930: 8.8%
    1931: 11% (gov spending at 515 million)
    1932: 12.4%
    1933: 11.2%
    1934: 10.5%
    1935: 10.3% (gov spending 442 million)

    So in Canada the recovery began as government spending fell, not rose. Of course probably just as important were interest rates, and Canada’s decision to use the monetary flexibility offered by its leaving the gold standard. Before 1934, Canada maintained high interest rates to keep the Canadian dollar relatively stable in value. Afterwards they paid more attention to the domestic economy.

    Interest rates in Canada
    1928: 4.45
    1929: 4.85
    1930: 4.62
    1931: 4.7
    1932: 5
    1933: 4.55
    1934: 3.9
    1935: 3.7

  56. The core of current economic thinking.

    “Current economic thinking is rotten to its core” is more like it. Ask George Bush how them stimulus packages are working. (What is is – four of them now in the past six months?) Ask Japan how well 15 years of deficit-financed stimulus worked? Ask Mulroney how much stimulus he got from his deficits. How much did Trudeau get from his?

    One does not truly pass economics until one thoroughly rejects the Keynesian econobabble about “stimulus” and other such nonsense. Yes, government has a stabilizing role to play, but it has little influence over the depth or duration of an economic downturn. Whatever stabilizing role the government can play, it is already built into the system. Even Bob Rae admits to have learned his lesson. (Exactly what lesson he isn’t sure, but admitting to a problem is the first step towards recovery – he should be commended.)

  57. The stimulous package already in effect for the past year and a half IS working.

    Canada has best economy of G-8 countries .

    What kind of economy would we have under Dion/Layton/Duceppe do you suppose.

  58. Canada is not in recession, so what’s the rush? On that point, the fiscal update makes sense.

    Everything else is stupid.

  59. Just wondering if anyone read Scott Reid’s article from G&M today. He apparently advocates killing the prime minister quote “kill him, Kim dead”. Sounds like a two-bit gangster to me.

  60. Raging Ranter: “Ask George Bush how them stimulus packages are working.”

    Shocking – Bush hands out hundreds of billions in stimulus packages with *no strings attached*. The banks use the money to prop themselves up and NOT to restore the flow of credit So the economy fails to improve.

    The conclusion you draw? That stimulus packages are doomed to fail under any conditions!

    You don’t think for a moment that *competently executed* stimuli might have a positive effect?

  61. Christopher,

    “I fail to understand why the words ‘we can’t have a stimulus package until we see Obama’s’ cannot come out of the mouths of anyone in the government.”

    Perhaps, just perhaps, the government voices haven’t been spoonfed as much when growing up.

  62. But here is another thing, and I think it’s worth considering (warning: I am not a leading economist):

    Let’s suppose, (and supposing is allowed, or even required these days) that the price of oil did reach such high levels of over $ 140 @ barrel this past summer because a lot of that price had reflected the superficial predictions (hidden within the belief that mortage availability and carrying capacity, and level of economic growth, etc, etc, ) for the future.

    All the hedging, lock in of futures, etc, is fundamentally based on gambling upon future developments, not?

    And so, if the price of oil and other commodities, and wages and GDP numbers were all tied into this sort of gambling upon futures aspect then perhaps the market and our future economic picture had, for a large part, been filled with hot air.

    Now then we need to get rid of this hot air and come to a realistic understanding of what the real future might possibly hold. Undergoing that process does not mean an end to the world, it just means we have to re-adjust.

    Would the provision of excessive stimulus packages not undermine this move toward realistic expectations? In other words, would these sort of packages not keep us within the bubble we had wrongly been projected into?

    Here I am not saying that part of the economic downturn has been caused by living beyond our means, although that is certainly part of it, but what I am saying is that part of the economic downturn has been caused by depending (believing) too much on future projections ‘unknown’ .

    The game theory has been mentioned, whereby the players plug in certain expectations and then see how together with other input partners, the game will unfold. But the game theory results can never be expected to be correct because the very aspects which determine the ultimate outcome, or direction of the game, are precisely the unknowns. Would any game theory only depend on knowables, the game itself would not exist.

  63. Stephen,

    In calling everything else stupid, you are assuming that the only job of governemnt, it to react rationally to the problem at hand.

    This isn’t the case.

  64. T. J. Cooke: You don’t think for a moment that *competently executed* stimuli might have a positive effect?

    No. It does not matter how competently executed a policy is, if the policy itself is a product of incompetence.

    Not only has Bush propped up the banks and brokerages and hedge funds with $700 billion, he’s bailed out Fannie Mae and Freddy Mac for $89 billion, and handed out BILLIONS in tax credits and emergency tax “refunds” DIRECTLY to consumers. He’s also run deficits for as many years as he’s been president. Keynesian economics is all about stimulating consumption. That’s why it’s called Keynesian demand management. That’s why Keynes’ major contribution to macroeconomics is called the Keynesian Consumption Function. It’s all about stimulating aggregate demand – under the belief that consumption is the only thing that really matters. Now, after an orgy of credit-fueled consumption that lasted the better part of 15 years in the US, and ten years in Canada, we need to stimulate aggregate demand?!! As long as it’s competently executed?

    Until recently, the Conservatives have been criticized, with good reason, for unprecedented levels of government spending. Now they’re not spending enough???? How can I possibly think, even for one moment, that a stimulus, or five stimuli, or ten stimuli, would work? How can we afford ourselves even one moment of such irrationality? And by the way, propping up failing companies is exactly what so-called stimulus packages all over the world are doing. Britain and the Netherlands have taken ownership of major banks. The US has re-taken ownership of the mortgage insurers. Dion, Layton and Duceppe want a Big Three bailout right freaking now. The US is considering the same. Throughout the 1990s, Japan spent trillions propping up banks that would otherwise be insolvent. Much of the Reagan deficits of the 1980s were spent on the Savings and Loans fiasco, propping up insolvent banks and compensating investment funds. Brian Mulroney engineered a Canada Post takeover of Purolator Courier in 1993 because Gerry Schwartz’s holding company Onex Corp. was bleeding red ink keeping Purolator afloat. Canada Post payed nearly nothing in cash for Purolator, but agreed to take over ALL of Purolator’s debt. Which was massive. (I remember it well because I worked at Purolator at the time.)

    So much for competently executed fiscal stimulus. I’ve had a few people give me the example of Chretien’s infrastructure program of 1993-95 as an example of a successful fiscal stimulus. The $2 billion in federal funds were matched by $2 billion each from the provinces and participating municipalities.) Starting in 1995 however, the provinces lost more than that in transfers. And of course they had accumulated an additional $2 billion in debt to pay for their share of the infrastructure program. Ask them how they like that fiscal stimulus. The first half of the 1990s were dismal. A recession from 1990-93, and slow growth until at least the end of 1995. What put an end to the economic doldrums in Canada? A boom in exports to the US, and a (razor-thin) defeat of the separatists in the October 1995 referendum. It was NOT the Infrastructure program, as Liberals argue, NOR was it the Harris-Klein tax cuts, as Conservatives argue. The US boomed, then we did too. Infrastructure was a drop in the bucket – a drop that was clawed back many times over in the coming years.

    Interestingly, Canada’s economy grew even faster once Martin started cutting spending. So did the US economy after Newt Gingrich’s gang took over Congress in January of 1995. No, I’m not arguing that spending cuts boost economic output. They don’t. I’m arguing that swings in government spending, whether positive or negative, are inconsequential.

    I don’t plan to make my posts this long. Honestly I don’t. They just end up that way, because there are SO MANY examples of hare-brained fiscal stimulus efforts that, in retrospect, were colossal wastes of money.

  65. Ian, seaandthemountains – I was responding to the idea that Harper must have flunked economics. Since we all seem to agree that trying to cut off the party subsidies was mainly political rather than economic, I assume that the flunking statement refers to this missing stimulus package. Also, I find the argument “too bad they didn’t leave the GST higher so they could reduce it now” to be a little bizarre.

  66. I don’t think Canada needs a stimulus package. What we need is to think strategically.

    What are the long term trends in the economy? (The price of oil will not stay this low forever)

    Will the environment still be a concern? (If so then we should invest in alternative energy now)

    Is Asia still going to need more of our resources? (Most likely, then maybe we should have tax deductions to invest in our mining cie to make sure they have access to capital during this liquidity crisis all the while allowing Canadians a tax break which could make us all rich in the next up cycle)

    Once we answered these pressing questions then and only then can we invest (not spend) our monies wisely for the benefit of all Canadians.

  67. Luke,

    “Since we all seem to agree that trying to cut off the party subsidies was mainly political rather than economic,”

    I don’t think that at all ! I think the public funding of a separarist party is severely negatively affecting our Canadian economic outlook.

  68. Gee. I’m glad I read these blogs instead of keeping track of what real economists are saying. I’d be missing so much.

  69. “Gee. I’m glad I read these blogs instead of keeping track of what real economists are saying. I’d be missing so much.”

    What’s really missing is a true debate. When we come to the real crux of the Canadian dilemma ( and propping up a separatist party with Canadian taxpayer’s money certainly belongs in that category), then the debate seems to stop.

  70. Ian,

    The ones who went joyriding? That would be Trrudeau, who was responsible for the structural deficits that took several decades to unwind.The ones who made it seaworthy? That would be Mulroney who laid the groundwork with the GST.
    What I find remarkable is that it is the Liberals who are hyperventilating that Harper is not out there spending recklessly and yet all they talk about is how they are the ones who were there when the deficit turned around (thanks to Mulroney). They can’t have it both ways pretending they are the only ones who understand how to stay away from deficits and yey braying at the top of their lungs that the government is not spending more.

  71. How about some insights into whether or not this coalition proposal is a real threat? The blog is a big dissappointment today.

  72. Francien – well, I agree with Andrew Coyne that political parties shouldn’t get public subsidies. But I gotta say that I also agree with PW that it was a bad idea to introduce this legislation at this time, since it’s obviously, and predictably, set parliament into disarray. Like most people, I suspected that all the talk of a more cooperative parliament this time around was wishful thinking, but I’m disappointed that the Conservatives so quickly went for the financial jugular of the other parties. Even with the best intentions, it would be difficult, I think, for the Conservatives to find much cooperation in parliament, since the parties seem so far apart right now on how to deal with the current situation — but cooperation is impossible with the Conservatives being so antagonistic right out of the gate. And I say that as someone who would much rather see the Conservatives, rather than a lefty coalition, in power.

  73. Luke,

    Your point is well taken, and perhaps Harper should have proposed another date for cut-off from public subsidies, but I think he should not have backed down on the proposal of it.

    My main point being that the public funding of the separatist party is negatively affecting the Canadian economy because since we have the constant thread of 50 BQ members sitting in Parliament, the chances for majority governments will be slim, now and in the forseeable future. And trying to run this country under minority governments for a very long time, will not benefit Canada at all. Our voting system is not set up for that, nor is the scale of the country such as it is.

    The prospect of continual minority governments counts for the Liberal outlook at well. They too will be faced with the same dilemma. And for the Liberal party to not see that at this time is rather selfish, I think. But it gets even worse: The Liberals are not only complaining about the elimination of public funding for a separatist party; they are now willing to form a government in cahoots with the separatists. That is the ultimate insult to Canadians.

    But my other question would be this:

    Who will the GG call upon if the current government is defeated? Will it be the leader of the opposition or just any member within the house? That particular question has thus far not been answered, to my knowledge. “They” can say that the GG had no choice, but what will her choice be when calling in a particular person for forming this new government?

    And if it can only be the leader of the opposition who is qualified for forming an alternative government, then what to do about Mr.Dion? Are the Liberals that desparate that they will ignore party leadership elections???? Will they now go ahead and rush this leadership contest through for short term political gain???

    Interesting questions, methinks, but answers are lacking.

  74. Francien,
    I think that you could take the view that since the Bloc has not made moves on separation for some time that they serve the function in Parliament of asserting provincial power. All the provinces seek greater power and our Parliamentary system is built upon this tension between the division of powers, Federal vs. Provincial. In the mix now are powerful Municipal governments that seek to weaken provincial power or displace it. I think it is simplistic to always argue (as Andrew Coyne does) that the Bloc is an evil purely because of the separation intention. There are aboriginal governments in Canada who also desire separation and strong provincial governments who thwart Federal policies at every turn. Canada is bi-jural with many levels of government. The Federal legislative branch is the one truly suffering from inability to assert power effectively. The Bloc’s agreement to coalition is another sign that they perhaps work more for Unity (in a practical sense) while their policy documents seek other goals.

  75. truemuse,

    Yes, of course the provincial aspect and seeking power selectively, plays a role. Your points are well taken, even the ones about municipal demands for more power.

    But that does not do away with the fact that when the BQ runs in a federal election, they will never have to present an economic plan for the whole country; they will never have to present an overal plan for anything other than for their own little corner of the country. Besides, they will never have to run 308 candidates, and they will never have to organize right across this country, dealing with different aspects within this country. That difference in and of itself gives them more power than a real threat of separation might ever have provided.

    A lot of Canadian seemd pacified now that the seemingly real threat of separation is gone, but this largely ‘unseen’ threat is much more dangerous precisely because it is mostly unseen, or unspoken about. The BQ is now safely flying under the radar. And I believe that is what they want, and we should never aid them within such pursuit.

  76. Francien,
    To your point that the Bloc will never have to make the policy decisions of a nation-wide party, I might counter that even there they could be a positive influence toward Unity, this in light of the fact that so much of Canadian government has reform origins and reform intentions. The Ontario Liberals, like the former Harris Conservatives, were reform governments. Whatever moderation toward national good is in the Liberal Party it is overshadowed by the strong reform actions of McGuinity. the Greens promise reform. Harper is a reformer. Obama is a reformer! Any time reform agendas play out in the education and health systems we see degradation of social policies while our fundamental social institutions struggle to make the political parties look good by performing their reforms. So the Bloc is an old party. They are not reform. They balance this overall tendency toward dissolution through ‘change’ messages.

  77. I look at the top of the thread, it’s about fiscal stimulus.

    I look at the bottom of the thread, it’s about the Bloc Quebecois.

    Well done job of changing the subject, guys! Go Team ConBot!

    In any case, government spending is enormously preferable to tax cuts because tax cuts are often just hoarded in this environment. Spending is, well, spending; it’s consumption that helps get the wheels going again. Raging Ranter’s long (if illusory) list of supposed bad spending aside, that’s basic macroeconomics.And, yes, it does work; the New Deal proved that.

    (The war was the major factor, but things were already changing long before Pearl Harbor; the problem was that FDR relented and chased budgetary surpluses in 1937 precisely as his reforms were taking effect. Krugman’s been hitting that one hard of late.)

    And, RR, why on earth are you blaming Canada’s early 1990s recession on “fiscal stimulus”? That recession was caused by two things: John Crow’s quixotic attempt to create deflation (of all things) through ridiculous interest rates, and the international recession happening at the same time. It wasn’t caused by Rae, or Chretien, or stimulus packages, any more than the boom in the U.S. in the late 1990s was created by Newt.

    (It was actually a side effect of DARPA’s networking research–DARPA’s government funded networking research.)

    Yes, fiscal stimulus does matter, and a brace of post hoc ergo prompter hoc arguments doesn’t change that.

  78. anyone like the sound of Prime Minister Prentice?

  79. Oh, and Francien, the problem with saying “let’s wait until Obama executes his stimulus package” is that, like America, Canada might not have that long.

    That’s why the big 3 went to Washington; and as much as a pack of idiot internet trolls might like to pretend otherwise, the demise of the North American automobile industry is something that any sensible policymaker and economist would seek to prevent.

  80. truemuse,

    “So the Bloc is an old party. They are not reform. They balance this overall tendency toward dissolution through ‘change’ messages.”

    Yes, exactly. The BQ is not reform at all. I believe the Quebec people are afraid of reform. They in fact hold back reform. And yes, to fool the Canadian public continuously with their cameleon characteristics is a sad state of affair. But that, I believe, is precisely the danger they present for the country as a whole. They pretend! And the rest of us pay!

    Personally I don’t care much for pretend unity. I much rather have things in the open. Only there can real progress be found.

  81. Hah! I missed this:

    One does not truly pass economics until one thoroughly rejects the Keynesian econobabble about “stimulus” and other such nonsense. Yes, government has a stabilizing role to play, but it has little influence over the depth or duration of an economic downturn. Whatever stabilizing role the government can play, it is already built into the system. Even Bob Rae admits to have learned his lesson. (Exactly what lesson he isn’t sure, but admitting to a problem is the first step towards recovery – he should be commended.)

    Yeah, there’s a recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2008 that would like to have a word with you about that whole “Keynesian econobabble” thing.

    Stop pretending to expertise you don’t have.

  82. Dear Demosthenes, you write:

    “the demise of the North American automobile industry is something that any sensible policymaker and economist would seek to prevent”

    and how would the “three stooges” (imagine) manage to do that??

  83. Demothsenes, I was quite clear that government spending DOES NOT cause recession or growth. My whole point is that government spending is inconsequential and ineffective in reducing the depth and duration of recession. So are tax cuts. It is the whole concept of fiscal stimulus that is illusory. If the most recent example of successful fiscal stimulus that you can come up with is FDR’s New Deal, implemented at a time when government spending accounted for only a tiny percentage of GDP, then “basic macroeconomics” needs rethinking.

    As for John Crow, he ushered in 15 years of price stability, which we are more or less still enjoying today. Until recently, we enjoyed the longest period of uninterrupted economic growth ever recorded. That wouldn’t have happened had John Crow not slain inflation in the early 90s. Yes, his high interest rate policy certainly made the recession worse, as monetary tightening will do. That was the price we paid for excessive inflation in the late 1980s. After 20 years of stubborn, persistent inflation, only a long, deep recession can snuff it out. There is no other way. (We’d have had a recession, John Crow or not mind you, but his severe tightening certainly made it longer and deeper.) Once you kill inflation, it can, with appropriate central bank discipline, remain dead without the need for such extreme tightening. And we are quite fortunate that the BoC has never returned to its reckless ways of the 1980s. Unlike the Federal Reserve in the US, which has flooded the world with cheap money and excessive debt. Not that the BoC has been perfect – they’ve been far too loose for far too long for my liking. But they never went to the excessive easy money policy that Greenspan did, even as our dollar hit $1.10 US earlier this year and squeezed off exports. That showed some discipline at least.

    As for your assertion that fiscal stimulus is “basic macroeconomics”, of course it is. And basic macroeconomics is fundamentally flawed. It has only one answer – stimulating aggregate demand (i.e. consumption) – regardless of what the problem is. What if consumption isn’t the problem? What if consumption – and therefore debt – is already excessive? The Economics 101 answer: “We must stimulate even more consumption!”

    The great irony of all this is that it is highly unlikely that even Keynes, were he still alive, would recommend deficit spending today. Keynes favoured an expanded government, but he did so at a time when government was absolutely tiny. There was no safety net, no UI, no public healthcare, nothing. Now we have ALL those things. And government spending, instead of being at 12% of GDP (see hosertohoosier’s post at 18:23 for the figures), is at approximately 40% of GDP. Keynesian economics was hijacked, its theories bastardized, by academia. Nowadays it is also promoted by desperate investment gurus and bank economists who pray that some massive government intervention will work well enough (maybe this time!) to save their jobs.

  84. I hate to admit it, but I think the Cons have validity to holding out. Our economy is generally tied to others around the world. Why waste money on a stimulus package when in a month Obama will throw a boat load of money into the US economy. It only makes sense to wait and see what effect that will have. If it fails then yes we must do more here at home.

    That being said there are measures that this government should be taking. Mainly retraining and a large focus on higher education. It is obvious that the demand in the Canadian job market is changing. It is essential to come out of this recession/slow down with a better educated and trained work force. In the next ten years we will see an unprecedented level of retirement from the baby-boomers as they exit the workforce. You want to see an economic slow down and businesses leaving Canada??? Just wait until there are no skilled individuals to fill employers needs.

  85. Demothsenes, the only people pretending to have expertise are the economists who talk as if the field of macroeconomics is a hard science with predictive value. They gather in mutual admiration societies and hand out little prizes to each other. Carlos Leitao, the first economist quoted in Paul’s post, won an award two weeks ago for having the most accurate forecasts. (Actually I think he came in second, but he got an award).

    Economic forecasting is a sham. Yet these clowns actually believe that they can forecast, with precision, things like the unemployment rate, CPI, interest rates, etc., for each quarter, sometimes for each month. And they hand out awards to each other for it! Out of 140 economists, or however many were considered for the award, certainly a few of them will be accurate. Just like approximately 1 in 14 million tickets will win the 649 each week. And a handful of mutual fund managers will outperform the others, even making money in a bear market. The holder of the winning ticket is not an expert, merely lucky. But at least he’ll understand that he was lucky. The economist with the winning numbers? He gets a prize.

    I don’t have the expertise. The difference is, I know I don’t have it. I also know that the practitioners of modern economics don’t have it either. I was quite fortunate to have had two different economics professors who were willing to tell us outright that much of what we were learning was bunk, and that if we really wanted to understand economics, we’d have to research well outside the accepted curriculum. We were also warned that no matter how well we came to understand it, the predictive value of macroeconomic knowledge was close to zero. (Microeconomics can be somewhat more accurate because you’re dealing with individual units, not aggregates.)

    Obviously you’re not going to take my word for it. But enlighten yourself sometime by reading Nassim Nicolas Taleb’s The Black Swan . He’s got Ph D.’s in both mathematics and statistics. He teaches at Harvard, where he heaps scorn on the idea that advanced mathematics and statistics can be applied to economics to allow it to become a precise, or “hard” science. Interestingly enough, he has praise for both Keynes and F. A. Hayek. It’s Keynes’s alleged devotees and their cumbersome crackpot mathematical models with whom he takes issue. He writes with humour and wit, and absolutely skewers fund managers, bankers, investment gurus, and anyone else who has deluded themselves into thinking they can predict the markets and/or the economy. I’m sure you’ll find it much more enjoyable than wading through my long dreary posts.

  86. OK, Raging Ranter, why don’t you start selling oil short, then? I’m sure there’s only a 50/50 chance it’s going up in the next few years. No? How about some GM stock? Could be at $100 before you know it! Here’s an application of your completely negative theory: aggregate statements about economists are valueless.

  87. Demos, here are two other winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel:

    Myron Scholes
    John C. Merton

    They won the 1997 Nobel Prize in Economics. Less than a year later, the hedge fund they were managing blew up, requiring a $1 billion rescue package. Even that wasn’t enough, and it folded for good in 2000. The fund was called Long Term Capital Management. Ring any bells?

    Myron Scholes was author of another farcical money management tool known as the Black-Scholes Options Pricing Model. The use of this model has been nothing short of a fiasco for numerous money managers and options traders. It’s predictive value disappears in volatile markets. It’s proved to be an intellectual fraud. Yet money managers still use it, for managing your money. Because they have nothing else. Worse than that, Harvard MBAs (and MBAs everywhere) are still learning it, as part of Modern Portfolio Theory (another intellectual fraud, as the recent performance of numerous fund managers, investment gurus, and risk managers clearly demonstrates). They teach it because they too, have nothing else.

    There are some good economists who have one the Nobel Prize. Not sure who won it in 2008, though if he’s a Neo-Keynesian, he isn’t one of the good ones.

    About that Nobel Prize in Economics, the Nobel family still wants it to stop using Alfred Nobel’s name. They claim he was opposed to an economics award, because he didn’t believe it was a hard science. That’s why he never set one up. So economists waited until he was dead, and set up their own trust with which to pay for awards – in memory of Alfred Nobel. Come to think of it, stealing the Nobel name in order to allow economics to masquerade as a science is as close as economists are likely to get to admitting that there’s really isn’t a hard science.

  88. Jack Mitchell, now you’re getting it. Nobody knows where GM will be in a couple years, or if it even survives. A 50/50 chance isn’t enough to make me any money. With my luck, I’d bet on the wrong 50%.

    And no, I don’t attribute much value to my statements. I attribute very little value to the consensus forecasts and policy prescriptions of economists either.

  89. >In any case, government spending is enormously preferable to tax cuts because tax cuts are often just hoarded in this environment.

    I assume you mean the latter part of the sentence (“in this environment'”) to be a caveat to the first.

    In effect, people who are nervous about converting their cash and savings into goods and services have to be forced to covert – and not into something they might want or need, but something someone else deems appropriate. Is that supposed to make people more or less nervous about converting their remaining cash and savings?

    Cutting taxes won’t necessarily achieve the opposite effect – providing people with a margin of cash above whatever level it is they wish to “hoard” – but it has the singular advantage that no-one has to guess what would be a useful spending target.

    It is entirely possible to spend without a useful result; the urgency in some quarters to spend and assumption that governments can do no wrong by spending are unwise and unsupportable.

    The banks do not seem to need any more money; what the Big 3 domestic auto manufacturers are looking for is bridge loans or grants to carry them through until next spring (and then what after that?); topping up the EI fund (why immediately and not wait to see whether the fund is already sufficiently large) and enlarging other safety net programs are not fiscal stimuli. Where, exactly, would the proponents of fiscal stimuli have us spend?

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