Let Gov't Spending Do the Work

Let Gov't Spending Do the Work
Posted on March 8, 2016 | Larry Kazdan | Written on March 8, 2016
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Publisher:
Financial Post

Re: Justin Trudeau’s message to world: Let government spending do the work, Josh Wingrove, March 3, 2016

Prime Minister Trudeau is correct to set an example by expanding Canada's fiscal deficits. In 1945 when the budget deficit in Canada rose above 42% of GNP, unemployment fell to 1%. In the United States, the deficit rose to 26 percent of GDP by 1943, but U.S. output doubled in less than four years. While Conservatives may be ideologically opposed, the war-time experience demonstrates that governments can mobilize unused resources through massive stimulus injected into the economy.

Nor does spending have to be on war. As the late British statesman Tony Benn expressed it, "If you can have full employment by killing Germans, why can't we have it by building hospitals, schools, recruiting nurses and teachers?". Federal government spending on infrastructure, provision of useful services, and direct job creation is the way to kick-start the Canadian economy.

Footnotes:

1. 1939--1945: World War II Transformed the Canadian Economy
http://web.archive.org/web/20050507140447/http://canadianeconomy.gc.ca/e...
>
> The government budget deficit also increased rapidly: in 1939, the budget deficit was less than 12% of GNP; in 1945, that rate rose above 42%. Nevertheless, by 1944, the Great Depression had faded into memory, and the unemployment rate was less than 1%.
> By the end of the war, the economy had a more highly skilled labour force, as well as institutions that were more conducive to sustained economic growth.

2. Why Conservatives Hate Fiscal Policy
https://lareviewofbooks.org/essay/why-conservatives-hate-fiscal-policy

World War II is proof that fiscal policy works. In 1938, US unemployment was almost 20 percent and the government deficit was not coincidentally a mere 0.1 percent of GDP. In 1943, the deficit rose to 26 percent of GDP, and unemployment fell to barely over one percent. US GDP doubled in less than four years. Remember that it wasn’t the slaughter of civilians or the destruction of cities that reinvigorated the economy, it was government deficit spending, creating demand sufficient to match our growing ability to supply. Building bridges or hiring teachers or providing universal healthcare would have been far better for the economy than killing Nazis.

3. Interview with Tony Benn
http://www.script-o-rama.com/movie_scripts/a1/sicko-script-transcript-mi...

"If you can have full employment by killing Germans, why can't we have it by building hospitals, schools, recruiting nurses and teachers?

If you can find money to kill people, you can find money to help people. "

Larry Kazdan CPA, CGA

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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
Modern Monetary Theory in Canada.... More