Justin Trudeau still doesn’t understand economics
As I noted a year and a half ago already, Justin Trudeau doesn’t understand much about economics. And this is still the case today, as he tries to justify getting us back into deficits and piling up more debt.
The National Post and the Huffington Post Québec ran my article today on the economic proposals of the Liberals following their national convention in Montreal. Here is the English version.
More Liberal debt is not the road to growth
February 25, 2014
Maxime Bernier is the Minister of State for Small Business, Tourism and Agriculture
Now that its Montreal convention is over, we know a little bit more about the Liberal party’s economic platform. One of its central planks is that budget deficits are a good way to grow the economy, and that we should not be afraid to go further into debt.
In a recent video posted on the Internet, Liberal leader Justin Trudeau explains that Canadian households are heavily indebted, just like provincial governments, while the federal government has considerably lowered its debt level compared with other developed countries since the 1990s. His conclusion: Ottawa is the only entity with the ability to spend money and rack up more debt. It, therefore, has to “step up” and do the spending that others are not able to do.
At last weekend’s convention, Liberal delegates heard Larry Summers, an American economist, explain why we need “unconventional support policies” — economic jargon for “spending without restraint.” According to him, accumulating more debt is OK when it serves to stimulate the economy.
Are we in a recession? Does the current situation justify sending our public finances back into the red?
One could almost believe we’re back in the 1970s, when the federal debt, which until then was relatively modest, exploded as Justin Trudeau’s father launched one new program after another, most of the time by intervening in provincial jurisdictions. We saw where that led us in terms of public finance, but also with regard to federal-provincial relations.
Delegates at the Liberal convention discussed a whole set of “national strategies” on issues ranging from transportation to energy, mental health, children, water, pharmacare, youth jobs and science. This is the type of big spending, interventionist and centralizing federal government that Justin Trudeau is once again proposing.
They may claim they intend to remain fiscally responsible, but Liberals are actually going down a very slippery slope, as they adopt these kinds of policies.
The burden of debt diminished considerably during the first three years of the Conservative government — from 34% to 28% of GDP. It has gone back to 33% in the past couple of years due to measures taken to deal with the financial crisis. Our projections show that it should be scaled back to 25% of GDP by 2021.
This debt is not something abstract. Servicing the debt costs taxpayers about $30-billion a year. This is as much money as the GST brings into government coffers. The more we cut down the size of the debt, the fewer resources we will need to pay the interest and the more we will be able to afford to cut taxes.
Justin Trudeau and his American adviser still believe in the old Keynesian theory that says government can create wealth by spending more money.
In reality, every time the government takes an additional dollar in taxes out of someone’s pocket, it’s a dollar that person will not be able to spend or invest. When government spending goes up, private spending goes down. There is no net effect. No wealth creation.
Government borrowing has the same effect. The private lenders who lend money to the government will have less money to lend to private businesses. When government borrowing and spending go up, private borrowing and spending go down. There is no net effect. No wealth creation.
It is like taking a bucket of water in the deep end of a swimming pool and emptying it in the shallow end.
It’s these kind of policies that ruined our economy in the 1970s. This is not what Canada needs today.
To stimulate the economy, we need to give entrepreneurs the means to create wealth. We need to put in place the best possible conditions to allow the private sector to become more productive: by curtailing public spending, cutting taxes and signing free-trade agreements. Growth and progress depend on more economic freedom.