Austerity wasn’t the right path before the pandemic, and it can’t be the road chosen after it

Posted on July 26, 2020 in Governance Policy Context

Source: — Authors: – Opinion/Editorial
July 24, 2020.   The Editorial Board

It could take months and it could take years, but Canada will eventually get to a postpandemic future. The need for emergency spending to bail out millions of unemployed people will end. The economy will be back on its feet. And politics will enter a new era, which could go one of two ways.

One possible course will make the national debt its polestar.

Governments have racked up hundreds of billions of dollars in deficits, in just a few months, to support Canadians whose incomes have evaporated. It’s been an expensive business, with government borrowing and spending needed to take the place of wages people aren’t earning.

Ottawa expects to run a deficit of more than $300-billion this year – enough to push the accumulated national debt over $1-trillion. Those numbers, which may grow depending on how well Canada does against the pandemic in the months to come, are likely to form the foundation of the argument, and the basis of the platform, of at least one side of Canada’s political spectrum.

Once the virus is defeated and the economy is out of rehab, there will be growing calls for a future of smaller government and less spending – not just less than in 2020, but less than in 2019. Because, the argument will go, what other choice is there? The need to shrink government, and by implication social programs, will be pitched as inevitable math and unarguable morality. The pitch will make sense to many voters; some will accept it enthusiastically, others with regret.

If that’s the way post-2020 Canada goes, because Canadians think they have no other options, it will be a missed opportunity, and a great mistake.

There are many areas where Canada needs government to tread lightly, and be nimbler, leaner and smarter. Among the great accomplishments of the 1980s and 90s was getting government out of parts of the economy it should never have been in. Remember when you couldn’t go shopping on a Sunday? Remember when Ottawa owned a chain of gas stations, the national airline, a railroad and a hotel chain?

There are still parts of the economy where government has to step back, notably the way this country shoots itself in the foot by building barriers to interprovincial trade. Government shouldn’t be protecting Canadian companies from Canadian competitors. But in a world where inequality is high and has been rising for decades, governments must protect Canadians from the necessary creative destruction of the market, and from life’s misfortunes, such as illness, joblessness and poverty.

Canada needs more of some things that only government can do. And it needs these not to end the free market, but to bolster its best qualities by ameliorating its worst.

After running up massive debts in the Second World War, Canada’s response was not to retreat to the 1930s, a time of government-lite and no social safety net. Instead, having made the world better by winning a war against fascism, Canadians decided they could also make their lives better by winning wars against poverty, joblessness and illness, by creating programs from unemployment insurance to the Canada Pension Plan to universal health insurance.

The country did all this and also steadily grew its way out of wartime debts.

Canada is in a similar position today. The country cannot borrow unlimited amounts, but current debts are more than manageable. Ottawa’s borrowing costs are so low that, even though the size of the debt is jumping, interest payments will actually be $5-billion less than last year. Ottawa can borrow for 30 years at less than 1 per cent, so $100-billion in debt costs just $1-billion a year to service. Borrowed money is on sale.

While low interest rates can help pay for emergency spending, they can’t finance new social programs. After the Second World War, Canada aimed to pay for them the old fashion way: through taxes.

The future that most Canadians are hoping for right about now does not involve decades of cutbacks, but rather more and better health care, better schools at the start of life and better facilities for people at the end of life. They want poor Canadians to be less poor. They want a cleaner environment. They want better public transit.

These things are all possible. But they aren’t free. They can be had – if they are paid for. That, not austerity, is the better path for postpandemic Canada. More on this, next week.

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