Alternative Economic and Fiscal Update
The CCPA released an Alternative EFU today by yours truly (with lots of helpful comments from other PEF bloggers!). It is available here.
The EFU is a prelude to the feds’ own EFU to be released Thursday. I modeled four scenarios of economic downturn to see what the status quo deficits look like, as other analyses to date have not been pessimistic enough, in my opinion, given the macro forces at play. The bottom line is that deficits could get fairly large, particularly in my most pessimistic scenario they could hit $47 billion in 2010/11, although relative to GDP that would still be much smaller than in the early 1990s (3% of GDP compared to 5.6%) and based on a recession (real GDP fall of 1.5% in 2009) less severe than 1991 (real GDP drop of 2.1%). In other words, depending on how things go, my most pessimistic scenario may not in fact be pessimistic enough.
I argue that the feds should accommodate and such deficits that emerge from the downturn, but that an additional stimulus package is warranted. The final section outlines a six-point plan for a stimulus including maintaining support for the current fiscal plan; reinforcing EI as an automatic stabilizer; strengthening other income support measures; a green infrastructure plan; manufacturing supports contingent on green technology development; and preventing foreclosures.
The media coverage has been good (CP story, CanWest story, CBC story), and the response much more positive than it would had we released it two months ago. The mainstream view is no longer that deficits cause cancer.