Almost a year after being elected, Premier Rachel Notley’s government unveiled its first full budget, as expected with a huge deficit: more than $10 billion for a province of 4.1 million people, as opposed to the federal government’s $30 billion deficit for our country of 35.1 million.
It does look staggeringly high, doesn’t it?
By the time these lines appear in print, you will have already heard speech after speech, statement after statement, bashing the provincial government for condemning the future generations of the province to the shackle of debt.
And needless to say, much of the criticism will be more politically weighted than on economic realities, because when you factor in the key economic data, budget deficits actually make a lot of sense these days as opposed to the traditional thinking leaning on the principle of balanced budgets.
The verdict on this comes from none other than the world’s leading source of financial information, the Reuters news agency.
In an article published on Thursday, April 14, the agency reported the results of a survey conducted among the world’s most prominent economists regarding the current state of stalled growth in many parts of the world.
“Nearly 86 percent of economists polled around the globe by Reuters in the past week said yes when asked if major developed economies should now use fiscal policy to add stimulus, like Canada, rather than even more aggressive monetary easing,” said the article. (http://www.reuters.com/article/us-economy-poll-wrap-idUSKCN0XB1SL )
But for those who may not be convinced by the survey, there were more authoritative voices in support of budget deficits: After the annual joint spring meeting of the IMF and World Bank in Washington DC over the weekend, the IMF leadership issued a statement calling on all member governments to adopt “growth friendly spending policies”, effectively giving them the instruction to spend, even at the cost of big budget deficits just to get economic growth going.
This statement should not come as a surprise to those who are interested in and/or have been following the developments in the global economy and the financial markets.
It has been accepted by now, and by a substantially broad coalition of observers, that central banks have failed to steer the economy in the direction of growth despite their persistent push since the financial crisis of 2008-2009, which is now dubbed the Great Recession.
The money created by the central banks all over the world, from Japan to EU to the US, just helped inflate the prices of equities and everything else, from expensive wine to fine art, but never found its way to capital investments nor did it lead to job creation.
That outcome was the result of “over-financialization” of the global markets and the increased neglect of the “supply side economy.”
Now, despite all the politically inspired heavy criticism of the budget deficits, could the federal and provincial governments be, by any chance, doing the right thing and steering the ship in the right direction?
The answer to this question will probably take some time to emerge. Because we have yet to see how the budget deficits will be used, what kind of spending programs will be implemented, to what extent they will be effective in job creation, how much they will add to real growth and how much they will serve to the goal of setting a new strategic direction for the province and the country away from extensive dependency on energy resources.
Regardless of the criticism both federal and provincial governments will continue to face from their political opponents, it is important to see that both of the two new governments are standing at a historically important juncture: If they are successful in turning these deficits into instruments of sound growth, they will have set an example for proper use of stimulus not only in Canada, but internationally.
And that example might also help a wider circle of people, proponent and critique alike, to look at the notion of balanced budgets and/or deficits in a different light.
Because whether one likes or not, with the new direction the global economy has been taking, one primarily taking indebtedness as the main pillar of operational expediency, a revised understanding of budget processes has to be acknowledged and eventually accepted.