No Time to Die... from COVID-19

[robkelk]

Disclaimer: this article is on a union website. That said, it still makes sense to me. All numbers reflect the situation in Canada.

How should we react to a $185 billion deficit?

Pandemics are real. People are real. Jobs are real. Federal deficits are just a construct. Sometimes we forget.

There’s only one reality we live in and, in the last few weeks, policy makers have broadcast loud and clear which one it is. We live in a world where the responsible policy to meet the challenge is to spend whatever’s necessary. “Conventional wisdom” about debt and deficits is completely out of whack and seems petty in hindsight. It may be tempting to compartmentalize debates into two categories, before and after COVID-19, but it would be wrong to do so.

It is crucial that we not return to pre-existing deficit politics once the crisis is contained. There will need to be years of enhanced stimulus spending to ensure people get back to work.

During the 2008 financial crisis, a minority parliament agreed on a substantial fiscal stimulus package. However, shortly thereafter, the Conservative government began dismantling it. They aggressively attacked the deficit, restricting growth at a time when the economy needed investment. Estimates show that austerity measures in 2014-15 alone stunted GDP growth by 0.84% and resulted in approximately 90,000 job losses across the public and private sectors. All for the political goal of balancing the budget before the 2015 election.

Recall that to combat the early 1980s recession federal deficits reached this same peak in the mid-80s (8.1% of GDP). Mobilization during World War II required deficits almost three times as large (22.5% of GDP). The Canadian economy persevered.