Fiscal Economics 101, for Jim Flaherty

How about this latest gem from our let-the-market-rule Finance Minister:

Ottawa Bureau, TORONTO STAR (APRIL 10)

OTTAWA–Finance Minister Jim Flaherty says the Conservatives will cut government spending if need be to avoid a budget deficit caused by the economic slowdown.

“No deficit – balanced budget,” he said outside the Commons.

“We’re not raising taxes,” Flaherty added when asked how the federal Tories can avoid a budget shortfall if the weakening economy deprives Ottawa of expected tax revenues.

“There are other ways that governments can balance budgets, of course,” Flaherty continued. “We can always restrain spending if that becomes necessary.”

OK Jim, let’s get this straight.  If the economy goes into a recession, reducing federal revenues and creating a deficit, you will solve the deficit by cutting spending.  That will make the recession worse.  Which means you’ll have to cut spending even more.  It’s like a Bay Street Ponzi scheme, but in reverse.

In a best-case world, of course, government might actually do something positive to EASE the recession (bumping up infrastructure projects, or other stmuli to spending).  But at a bare minimum, could the government at least stay on the sidelines as our economy starts going down the drain — rather than accelerating the process as Jim would do.

Flaherty’s counter-logical approach violates the Hippocratic oath taken by doctors: before jumping in there, at least make damn sure you’re not doing any harm.

Please please please Mr. Flaherty, go back to building your train line from Peterborough to Toronto and don’t start trying to fine-tune this recession.  You’re clearly only going to make it worse.


  • It is not counter logical. It is pro-cyclical…all the way to the bottom baby!

  • I think I will watch the movie “Brazil” again and cheer myself up.

    Its almost as bad as him blaming the Ontario Liberals for the the lack of tax cuts for their economic trailings. How about a run away dollar that has thrown everybody a nice big fat juicy curve ball after years and years of nothing but fastballs. It looks a lot nicer but try hitting it. (especially for the consumer)

    I was reading some on Carney’s recent comments. Looks as though we are not going to get much intervention in the market. At least he admits that the central bank can try and do something.

    I would imagine given who was doing the anointing we will only get less intervention than what Dodge sat at the table with.

  • By the same logic raising taxes would be “counter-logical”.

    You are calling for deficit spending so why not just call it that? If you feel you must avoid the optics of that it is rather unreasonable to expect a politician to avoid them, no?

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