There. I said it.
Are you afraid?
You shouldn’t be.
If, as I suggested in my previous post, monetary policy is proving ineffective and if fiscal policy needs to be a big part of the solution, then we must consider what for many has become the unthinkable.
We must revisit our fear of deficits, that word — that state of fiscal affairs — that excites such fear in our political class and in a good too many economists.
Deficits. The word is powerful enough to compel our entire political class from left to right to publicly confess their faith and allegiance on TV no less (witness the French and English leadership debates) while trying to one-up competitors in their piety (who knew the Bloc proposed a balanced-budget rule? Surely this was another dastardly attempt of theirs to destroy our country by hook or by crook).
Deficits.Â That word — that state of fiscal affairs — that is arbitrary measured over a calendar year (why not every month? or every week? or every 5 years?).Â Remember the excited headlines a few short months back when the federal budget moved into deficit and oh how we rejoiced when it moved back to surplus a while later. Oh exalted surplus. Do not leave us, deity of accounting rules. What nonsense.
Deficits. That word that is the product of an accrual accounting system which the vast majority of economists, and even its practitioners, only dimly understand.Â To cite but one example:Â surpluses do not “automatically pay down the debt” and deficits do not “automatically add more debt.”Â The only thing they do, with the uncanny reliability inherent in an accounting identity, is alter the accumulated deficit.
Deficits. That word that has acquired a veneer of taboo in our poor frightened little country despite overwhelming real-world evidence that sovereign nations like ours, with their own currency unit, have nothing to fear but their own increasingly perverse fear.
It is time, as the PEF open-letter suggests, to embrace this maligned word, to challenge the taboo, to stop reciting the silly narrative that heaps praise on Canada’s turn to “fiscal conservatism”Â — one that as Lars Osberg has rightly noted, was made on the backs of low-income Canadians — and ignoresÂ basic economic wisdom not to mention justice.
We need spending, now, not tomorrow, on things we need, now, not tomorrow: roads, bridges, water treatment plants, sewers, parks, schools, hospitals, teachers, doctors, nurses, and public infrastructure more generally.
We need to seriously consider, as Warren Mosler suggests for the United States, an immediate reduction in taxes that put money directly in the pockets of people who are going to spend it — the lower and middle income Canadians that are going to find it increasingly difficult to make their mortgage payments and pay for rising food costs.
And to get there, we need a new dialogue. One that does not run away in fear from economic responsibility but proudly, and rightly, states that a deficit is necessary now, not tomorrow.