Ok, perhaps I need a Days Without Government Spending Rants counter to run along side the MUT counter.
I'm sorry, I just can't help myself.
Terence Corcoran: Keynesian meltdown
Terence Corcoran, National Post Feb 13, 2012
How Ontario’s ‘stimulus’ spending led to disaster
The fiscal mess in Ontario is now common knowledge across the country, thanks in part to a sensational report from the Conference Board of Canada demonstrating that unless the government slashes spending and/or raises taxes, health care and education will have to be decimated. The report was no surprise to people who tracked Premier Dalton McGuinty’s march into Keynesian fiscal stimulus spending. The surprise was the appearance of the Conference Board as the harbinger of doom.
Is this the same Conference Board that only two years ago, in March, 2010, awarded Ontario “a gold star for stimulus” spending, according to ReNew Canada magazine? The province’s massive deficit spending, announced in 2009, would be creating hundreds of thousands of jobs and adding to the provincial growth rate. According to the Conference Board’s 2010 report — commissioned by the Ontario government to document the impact of its multi-billion dollar Keynesian stimulus effort — the deficit spending on infrastructure would also boost productivity, offset the recession, and set the stage for recovery.
Two years later, the Conference Board returned to the scene of the crime to report that Ontario is in rough fiscal shape, growth isn’t happening, spending will have to be cut, taxes raised and the province needs “transformative changes.” Missing from the Conference Board report was any acknowledgement that Ontario might be sinking under the weight of the stimulus gold star the board had awarded the province.
Like most other economists who are now issuing alarming reports and projections that Ontario faces a future of perpetual deficits, slow growth and rising taxes, the Conference Board appears to be wilfully blind to the dead corpus of Keynesian economic policy that is behind Ontario’s plight — policy that they all endorsed as the province’s economic salvation.
The McGuinty Liberals cannot be expected to admit that the massive stimulus balloon — which began with a $19-billion deficit in 2009-10 and has since expanded to an $80-billion-and-climbing monster that appears to be beyond control — has been a misguided disaster carried out under the influence of the finest economic minds in the country, if not the world. If a U.S. President can go crazy with US$1.5-trillion deficits, why shouldn’t the Premier of Canada’s largest province ring up $100-billion in deficits?
At the Toronto Economic Club on Monday, Ontario Finance Minister Dwight Duncan was towing his Keynesian gold star around. “The McGuinty government, like many others, invested heavily in stimulus — building roads, bridges and other important infrastructure.” This spending allegedly protected and created jobs, and will make Ontario “more competitive.”
Nobody really expects politicians to know what impact their actions have on the economy. They do what the economists, the Bay Street and in-house variety, tell them will work. And what the economists told them, via the Conference Board, bank reports and other outlets, is that running up billions in deficits is the ethanol that will keep the engine of growth going.
That the forecasters and theorists turned out to be dead wrong comes back to haunt no one. In Ontario’s 2009 budget, the province predicted that its total debt would rise gently to just over 30% of the province’s gross domestic product before beginning a decline. GDP growth, according to a consensus of Keynesian private-sector economic modellers, would rise to 3.3%, in part under the stimulus helium provided by the deficits. As it turned out, within two years forecasts had turned sour. The new debt-to-GDP ratio looked set to top 40% (see graph above). What happened is (a) the deficits kept growing and (b) the forecast growth rates began to look a little rosy. Rates of 3% and 3.5% were expected, presumably the result of all the infrastructure spending and productivity gains. Now, however, the forecast average growth rate is said to be unlikely to exceed 2%.
If we can’t expect politicians to take the blame for following the Keynesian deficit-spending policies advocated by their economic advisors, shouldn’t we turn to the economic experts to get them to explain themselves? The same people who supported and advised the McGuinty Liberals — and the Obama Democrats, the Greek and Portuguese politicians, the French and Canadian governments — to run up spending to rescue the economy will spend the next decade telling governments how to get out of the mess they helped create.
Ontario’s current circumstances create a perfect opportunity to confront the economic establishment and lay blame for the fiscal disaster that is Ontario. Government spending has been soaring for years. It all looks good if growth rates stay strong. Where were the dire economic warnings through the last decade that the expansion in government activity cannot continue without hitting a wall?
A table on Ontario’s spending habits (above) captures the disconnect between the government and the people. While the personal income of the people dragged at 26% growth, government spending soared more than 60%.
On Wednesday, former TD Bank economist Don Drummond will deliver a set of tax and spending options to the McGuinty government, a road map on how the province can resolve its fiscal problems. It would be nice if Mr. Drummond also charted the Keynesian fallacies that got Ontario into this mess.
I was doing so good with my cold turkey no government rants allowed, then DT came by with a bottle and boom, I'm face down in the gutter.