Blogs & Comment

How to stop worrying and learn to love the deficit

Calling for Jim Flaherty’s headseems to be becoming something of a regional pastime up Ottawa way, and I guess you can’t fault the Opposition for seizing what they see as an opportunity.
But should we really get overheated about the $50-billion deficit, which represents about 3% of GDP?
Now, 50 billion is a lot of money to you and me, and more alarming for some is that Canada is going into deficit at all. Others charge that the finance minister has got his projections wrong so many timesfirst saying no deficit, then a small one, and now a larger one, all in the space of a few monthsthat Canadians can no longer trust him.
On the latter point: that’s not really fair, is it? Sure, Flaherty’s forecasts were wrong. But so were those of any number of policymakers, financial institutions, economists, soothsayers and tarot card readers. Perhaps we should call for the firing of all of them, toobut Nouriel Roubini(the only guy who was right about all this?) can’t do every job in the financial universe, can he?
As for the deficit question: seriously, it’s not thatmuch money, at least not in in the great scheme of things.
I attended the Laurier School of Economics Outlook eventthis morning in Toronto, and one of the speakers was William Gale, vice-president and director of economic studies at the Washington-based Brookings Institution.
Here’s what he said about the controversy over Canada’s fiscal deficit of 3% of GDP: “If we ever got to that situation in the States, we’d have a party, declare victory and go home.”
He pointed out that the projected US deficit this year is 13% of GDP….
The other speaker, Sherry Cooperof BMO Financial Group, was in general quite bullish on the relative strength of the Canadian economy going forward. She also dismissed the deficit fearmongering, pointing out that Canadians somehow have got it into their heads that all government deficits are bad all the time.
“Our deficit is cyclical, not structural,” she said, and predicted that Canadian-dollar-denominated assets will outperform US-denominated assets for a long time.
“We’ve got nothing to worry about except our politicians,” Cooper said, “and the misperceptions of the public.”
Granted, there are lots of questions about the government’s stimulus plan and its effectiveness.
But when it comes to the mere fact ofthe deficit or the amountwhat is there really to worry about?