Deficits: Whatever is Needed

Deficits: Whatever is Needed
Posted on February 25, 2016 | Larry Kazdan | Written on February 23, 2016
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Letter type:
Published

Publisher

Publisher:
Toronto Star

Author's Note:

Author's Note:

Letter in Toronto Star (with footnotes to Editor) Re:  The Trudeau deficit test — how big and for how long? Tim Harper, Feb. 17, 2016
http://www.thestar.com/opinion/letters_to_the_editors/2016/02/23/corporations-not-pulling-their-weight.html

In response to the CBC Power & Politics' Ballot Box question, "How big should the deficit be?", 77% responded "whatever is needed".  These voters understand that the deficit should be judged by results and not by arbitrary targets such as budget balances or debt-to-GDP limits.

The practical limit on spending for a sovereign country with a floating currency is the availability of domestic resources unused by the private sector. A reasonable measure of these resources is unemployment. When infrastructure, program spending and direct job creation measures result in jobs for all Canadians who want one, then government must either limit expenditures or increase taxes so as to prevent inflation. 

But the Canadian economy is far from experiencing inflation, and there are 1.3 million Canadians who could be doing productive work. The federal government must challenge the conventional wisdom and spend whatever is needed. 

There is no question it can do so, because it owns the Bank of Canada which allows the federal government to run deficits of any size for as long as required.

Footnotes:

1. Power & Politics' Ballot Box question: deficit

How big should the deficit be?

Tuesday February 16, 2016 we asked: How big should the deficit be?

Here are the results:

    under $10B: 81 votes (7%)
    under $20B: 134 votes (11%)
    whatever is needed:894 votes (77%)
    no deficit spending: 62 votes (5%)

2. L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College, NYL.  http://neweconomicperspectives.org/2015/11/mmt-and-bernie-sanders.html#comment-1232342

"How can a country’s financial condition remain sound and stable when the state can issue money whenever needed?

The danger of spending too much money is inflation; there might also be an impact on exchange rates. The solution to the first problem is to avoid spending more once full employment is reached; and to carefully target spending even before full employment to avoid bottlenecks. The solution to the second is to float the currency."
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Modern Monetary Theory in Canada
http://mmtincanada.jimdo.com/

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Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
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