What economists are saying about Trudeau’s stimulus plan
Does stimulus work? It depends on which economist you ask.
Finance Minister Bill Morneau has plenty of contradictory advice to choose from as Canada’s economics community engages in a heated debate over the merits of fiscal stimulus.
Avery Shenfeld, the chief economist of CIBC World Markets, ramped up the debate with a suggestion that a federal deficit as high as $30-billion would be “well-warranted” in order to give the sluggish economy a boost. Other Bay Street economists agreed, including Sherry Cooper of Dominion Lending Centres, who said “extreme measures” should be taken.
That type of advice inspired some strong pushback. University of British Columbia economist Kevin Milligan – who previously advised the Liberals on their election platform – questioned why a national solution is needed to what is essentially a regional problem. Stephen Gordon of the University of Laval lamented the lack of “sophistication” in the pro-stimulus arguments coming from Bay Street economists, while Trevor Tombe of the University of Calgary argued that infrastructure stimulus cannot be defended purely as a way to create jobs, given that it could potentially work out to about $250,000 in public spending for each job created.
“We shouldn’t overestimate infrastructure’s short-run effects on economic activity,” he wrote in Maclean’s. “There just isn’t the evidence.”
If Mr. Morneau doesn’t like those opinions, he can lean on a recent essay from former Parliamentary Budget Officer Kevin Page and former assistant PBO Sahir Khan.
They argued that with low interest rates, government can borrow to build infrastructure and still keep its debt-to-GDP ratio on a downward trend.
“The policy case for this is strong,” they argued, pointing to comments from Harvard University professor Larry Summers that borrowing to spend in this environment amounts to a “free lunch.”
What economists are saying about Trudeau’s stimulus plan - The Globe and Mail
Does stimulus work? It depends on which economist you ask.
Finance Minister Bill Morneau has plenty of contradictory advice to choose from as Canada’s economics community engages in a heated debate over the merits of fiscal stimulus.
Avery Shenfeld, the chief economist of CIBC World Markets, ramped up the debate with a suggestion that a federal deficit as high as $30-billion would be “well-warranted” in order to give the sluggish economy a boost. Other Bay Street economists agreed, including Sherry Cooper of Dominion Lending Centres, who said “extreme measures” should be taken.
That type of advice inspired some strong pushback. University of British Columbia economist Kevin Milligan – who previously advised the Liberals on their election platform – questioned why a national solution is needed to what is essentially a regional problem. Stephen Gordon of the University of Laval lamented the lack of “sophistication” in the pro-stimulus arguments coming from Bay Street economists, while Trevor Tombe of the University of Calgary argued that infrastructure stimulus cannot be defended purely as a way to create jobs, given that it could potentially work out to about $250,000 in public spending for each job created.
“We shouldn’t overestimate infrastructure’s short-run effects on economic activity,” he wrote in Maclean’s. “There just isn’t the evidence.”
If Mr. Morneau doesn’t like those opinions, he can lean on a recent essay from former Parliamentary Budget Officer Kevin Page and former assistant PBO Sahir Khan.
They argued that with low interest rates, government can borrow to build infrastructure and still keep its debt-to-GDP ratio on a downward trend.
“The policy case for this is strong,” they argued, pointing to comments from Harvard University professor Larry Summers that borrowing to spend in this environment amounts to a “free lunch.”
What economists are saying about Trudeau’s stimulus plan - The Globe and Mail
