“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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