Wednesday, February 10, 2010

More On Canada

A Canadian reader offers the following analysis of the current "Conservative" Canadian government:


I saw your follow-up post on Canada's housing bubble. That accords with my impression.

Our Conservative Prime Minister Stephen Harper is an economist by profession and training, and a real fiscal conservative by inclination. During the Sept.-Oct. 2008 general election campaign, he said:

"I think if we don't panic here, we stick on course, we keep taking additional actions, make sure everything we do is affordable, we will emerge from this as strong as ever. We are not going to get into a situation like we have in the United States where we're panicking and enunciating a different plan every single day."

The PM was widely criticized by the opposition parties and the media for the "don't panic" comments. They said that the Government wasn't doing anything about the economy, the tacit Keynesian assumption being that you have to do something. The Conservatives were re-elected but didn't get the majority in Parliament that they wanted.

Shortly after the election, the Government's policies changed. Since "don't panic" didn't poll well, they decided to go in big with "stimulus". We are now bombarded with ads telling us about the federal government's stimulus programs. The result is a projected budget deficit of C$55.9 billion. That's about 4.7% of GDP. So that and the easy credit conditions are the source of the increase of the money supply that you highlighted in your blog.

I think that the Conservatives hope that this "being seen to be doing something" strategy will deliver them a majority government in the general election expected this year. Then, the conventional wisdom is, they can govern conservatively. I believe that the PM knows what he is doing is bad economics, but his political advisors are probably telling him that he can't win a majority in an election if he appears to be doing nothing. Canadians are very conditioned into expecting the government to solve their problems. Then, too, we have a barrage of President Obama rhetoric about fiscal stimulus bombarding us from across the border with the U.S."