A tale of two graphs

So, Adam Vaughan, a Liberal MP from Toronto, posted this on social media:

Screen Shot 2019-05-30 at 17.54.30.png

It’s petty standard Liberal fare and I’ll bet that more than half, more likely ⅔ or even ¾ of Canadians believe it.

In response, Richard Groves, who is an accountant from Kelowna BC, posted this:

Screen Shot 2019-05-30 at 17.54.53.png

The GFC to which Mr Groves refers (in the Harper years) was, of course, the Global Financial Crisis.

Yes, deficits grew under Prime Minister Mulroney ~ because he inherited a suite of solange-denis300pxentitlement programmes that Canadians love and when he even thought about cutting some of them back a little old lady, named Solange Denis (that’s he in the photo, circled in red, confronted him on Parliament Hill and frightened the poor man, and Micheal Wilson his finance minister, out of their political wits. The Pierre Trudeau entitlements continued to be unaffordable but now they were categorized as “sacred trusts” and despite doing pretty much everything else right and growing the economy, until the recession of 1990, which was followed by a sluggish recovery until 1992, and cutting the debt to GDP ratio, which really matters, Mulroney ran ever-increasing deficits. As Mr Groves says, Jean Chrétien and Paul Martin deserve credit for completing the clean-up of the fiscal mess that Mulroney, Wilson and Mazenkowski had begun but it is important to remember that they did, in some large measure, by off-loading costs on to Alberta, British Columbia and Ontario, the so-called “have” provinces back at the turn of the century. Stephen Harper brought Canada through the Great Recession and the Global Financial Crisis despite strident calls from the Liberals and the NDP to spend! Spend!! SPEND!!!

The first graph shown by Adam Vaughan is, nominally, true but also intellectually dishonest because it ignores the fiscal context of inflation and the business cycle. The real problem is that deficits began to rise sharply, at a higher rate, in the late 1970s and early 1980s … they had to rise because the Government of Canada had to massively increase its borrowing (and add to the interest on the debt) in order to pay for Pierre Trudeau’s entitlement programmes. As I mentioned above, Canadian really like those entitlements and so it was politically impossible for any successor to Pierre Trudeau to a4ced73d-1bb9-42ec-9e46-4febb821c5b6cut them to any serious extent. As the Globe and Mail reported, in 2003, referring to the February 1995 budget: Finance Minister Paul Martin announced “the biggest federal spending cuts in Canadian history … [he promised] … to shrink the deficit to $24-billion within two years. The federal civil service [faced] 45,000 job losses, with more cuts to the military. Transfer payments to the provinces for health, welfare and education [were] cut by $7-billion by 1998. Business subsidies [were] slashed, the Crow rate grain subsidy [was] eliminated, and many services and investments [were] privatized, including CN Rail, part of Petro-Canada, and the air navigation system (now called Nav Canada). The budget [increased] the excise tax on gasoline.” That was all done, with perfect Keynesian logic, while the economy was growing … and it worked. But programmes were not cut … they were privatized and billions and billions of dollars in social spending was offloaded to the provinces and then equalization was used to protect the “have not” provinces, including Québec and Atlantic Canada.

The economy contracted, during the first half of the Stephen Harper years more than it had since October 1929 … even Harper was a (reluctant) Keynesian and agreed that deficits were necessary to stabilize the economy during the Great Recession. Justin Trudeau and Bill Morneau are technically correct that now, in very good economic times, borrowing costs are low and it is acceptable to borrow to fund long-life infrastructure projects … but that’s not what’s happening, and John Maynard Keynes taught that in good times governments should restrain their spending and pay down debt, not add to it, as they gird their loins for the next (inevitable) downturn.

The simple fact is that social spending is wildly popular but not as productive as, say, maintaining bridges and airports and grain handling terminals at seaports. The latter help to grow the economy, the former are drains on the budget. But we have to borrow to pay for our popular social programmes and soon, as it did in the 1980s, the interest on http_o.aolcdn.comhssstoragemidasb70e485348f1fb1de7e42889dcccddb1205897339trudeauthe debt becomes the biggest single debt we have. The fault lies in the 1970s, and the blame for Canada’s fiscal mess rests, squarely, on one and only one set of shoulders: those of Pierre Elliot Trudeau. None of Joe Clark, John Turner, Brian Mulroney, Kim Campbell, Jean Chrétien, Paul Martin or Stephen Harper got us into the mess and, to some extent, all of them tried to get us out of it. The difference between, say, Stephen Harper and Justin Trudeau is that Prime Minister Harper wanted to do what was right for Canada while Prime Minister Trudeau serves only the vested political interests of the Laurentian elites.

Both the graphs tell part of the story of Canada’s economy, but Mr Vaughan’s is less than useful or truthful, while Mr Groves’ is less familiar to most Canadians but more helpful in understanding our fiscal situation … and why we’re in it and what we need to do to get out of it.

The first, essential step in getting Canada out of the downward spiral of ever-increasing deficits is to send Justin Trudeau back to his former, comfortable, life as a trust-fund kid in October 2019.

One thought on “A tale of two graphs

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