Mike Milke of the Fraser Institute:
Frum’s praise for Ottawa’s go-slow approach on balanced books is premised on the perception that if Ottawa actually cut spending (as opposed to slowing the rate of growth) such actions would endanger our prosperity: “If you reduce spending too fast, you crimp your economy,” wrote Frum.
But that’s a mistaken notion.
To use just one example from a large body of research, in 2009, leading fiscal policy expert and Harvard University professor Alberto Alesina and his colleague Silvia Ardagna reviewed stimulus initiatives in Canada and 20 other industrialized countries from 1970 to 2007. In the 91 instances where governments tried to stimulate the economy, it turned out the unsuccessful attempts generally were the ones based on increased government spending. Alesina noted that “a one percentage point higher increase in the current [government] spending-to-GDP ratio is associated with a 0.75 percentage point lower growth.”
In other words, stimulus spending doesn’t increase economic growth; it harms it.
To see how Ottawa’s own stimulus spending was unnecessary, consider how Canada emerged from the last recession and how government stimulus spending had nothing to do with it. Our recession ended in mid-2009; it was only about then that federal and provincial governments started spending extra (borrowed) stimulus cash.
To credit stimulus spending for the end to Canada’s recession, one must argue that extra (borrowed) dollars mostly spent after June 2009 somehow magically rescued the Canadian economy before June 2009.
All the borrowing did have one effect: It added to the existing large federal debt mountain, forecast to hit $614-billion in 2015, up from $457-billion in 2008.
The government’s stimulus spending was demanded by the opposition, but evidence since then indicates that the minority Tories would probably have passed a stimulus budget even if the opposition didn’t give them political cover.
