Deficit Woes

Apparently hoping the media wasn't noticing, current Finance Minister Jim Flaherty waded into the American political scene by warning the Americans that they must rectify their deficit issues pronto; then the Government indicated on the same day that they were likely to break a campaign promise by failing to balance the Canadian federal budget by 2014-2015.  Firstly, why is Flaherty even bothering to lecture the Americans on this issue?  His management of the deficit while Finance Minister in Ontario under Harris was horrendous.  And how good does he think the optics are of meeting with Rep. Paul Ryan, the architect of the infamous budget that would have privatized Medicare in the United States.

Secondly, the Tories have pressed hard that the deficit is a major issue in the country.  For the most part the deficit I figure is cycle-related.  Even back in 2009 when the deficit reached its high, most of the extra spending was related to the auto industry rescue, which turned out to be a massive success, along with increased EI pay outs and decreased revenues from the recession.  The cyclical nature of the problem thus makes cutting stimulus spending absolutely absurd, since it along with cuts to government spending through a sort of United Kingdom-like austerity program will merely act to suck away aggregate demand from the economy; diminishing a recovery and increasing unemployment in the process.

For me though this is the kicker,

Mr. Flaherty said he often gets questions from his American counterparts on Canada’s experience dealing with a fiscal crunch. “It’s an opportunity for me to talk about our view that we are on the right track, that this is doable” Mr. Flaherty said.

He said he thinks there are lessons for U.S. politicians in the way Canada ended a generation of budget shortfalls in the 1990s.

“I think the recent history of Canada shows we can move from a time of dramatic deficits where the (International Monetary Fund) was eyeing our country and our currency was weak to a time of stability and solidity with a good plan going forward,” Mr. Flaherty said. “That’s useful generally because we have been through difficult times.”

In the early 1990s Canada was facing a significant debt problem which threatened to cut off international financing, potentially forcing the country to take a loan from the IMF; presumably with all of the baggage of a restructuring program aimed at dismantling all sorts of public assets and elements of the welfare state.  What is missing from this discussion is the part where the Liberals are the ones responsible for balancing the federal budget during the 90s, partially by raiding education, military and provincial transfer expenditures.

Also missing is the part where the Conservative Party's remarkably weak record on deficit management is discussed, specifically the colossal amounts of debt collected by the Mulroney government during the 1980s and then the move from surplus into structural deficit through GST and corporate tax cuts during the first Minority under Stephen Harper.  Overall, Tory governments at the federal level have tended towards the creation of massive amounts of debt for the country.  Presumably this is why Flaherty's trying to carpet it over by attempting to speak with some authority on the subject of how the deficit was eliminated in the first place during the 90s, even if the Tories were out of power and the Liberals were the ones actually responsible.

In a way this is comparable to if a foreigner asked a Republican for help in attempting to implementing expansions to health care access; there's a clear credibility issue at play.