How About Monetary Policy?
Today’s Toronto Star features an op-ed by John Cartwright, President of the Toronto and York Region Labour Council. (I onceÂ had the chance to hearÂ John speak at a press conference in Toronto and found him to be an oustanding public speaker.Â But I digress…)
In the piece, he argues that “we” (I think he means both the Harper government and the McGuinty government) should cancel “the outrageous corporate tax cuts andÂ [invest] in vital public services instead.”
I don’t disagree with John.Â Personally, I have a long list of things I’d like to see more public spending on (i.e. child care, non-profit housing, income support, public transit, student financial aid, etc.).Â Moreover, it’s my understanding that, in the eight years of the Harris/Eves government, so many tax cuts had been implemented that the McGuinty government was left with roughly $18 billion in reduced annual fiscal capacity compared to when Harris came to power in 1995.Â Moreover, my understanding is that the corresponding figure for the federal government, after the Chretien/Martin years, was in the ballpark of $50 billion annually.Â I’m no expert in optimal tax rates, but it certainly sounds reasonable to suggest that tax rates (both personal and corporate) could increase.
What troubles me about John’s op-ed, however, is that it ignores monetary policy.Â I often get the impression that important voicesÂ among Canada’s left are reluctant to stress the importance of maintaining (after a recession) very low real interest rates over the long term.Â As long as the overall size of Canada’s economy increases faster over the long term than the size of our debt, why do we have to get our knickers in a knot over the deficit?
And if such an attitude sounds unthinkable politically, let me ask this question:Â how many commentators would have predicted two years ago that a Stephen Harper minority government would be able to have a $56-billion-dollar deficit and still maintain a comfortable lead in the polls?