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Specifically, the claim is that ongoing deficit spending of roughly $10-billion per year would increase real GDP by $15-billion and lower the unemployment rate by 0.4 percentage points. This assumes that deficit spending of $10-billion, representing 0.5% of the approximately $1.8-trillion Canadian economy, can stimulate economic activity in a meaningful way and that there would be no negative consequences from delaying the deficit’s elimination or the additional debt accumulated.

The analysis does not prescribe a particular type of deficit spending but simply assumes higher overall program spending will produce these economic benefits. The assumption is that every dollar the government borrows and spends in the economy (regardless of form or purpose) generates an extra $1.50 in economic activity.

If it were only that easy.

The presumption that deficit-financed spending will lead to a greater value of economic activity relies on a number of highly debatable assumptions: that borrowed money could not better be used by the private sector, that the government will spend the money effectively and wisely, that it will not be captured by special interests, and that government can anticipate an economic downturn and enact fiscal stimulus on a timely basis. On that last point, it is a bit odd to be calling for fiscal stimulus nearly five years after the recession.

It is a bit odd to be calling for fiscal stimulus nearly five years after the recession

We have seen the results of such Keynesian thinking before. Similar rationales were made for delaying balanced budgets in the 1970s, 1980s, and early 1990s. The argument was that the economy was too weak and unemployment too high to reduce government spending. When is there a good time to consolidate spending? Waiting for the right time could mean waiting forever, leading to a never-ending cycle of persistent deficits, growing debt, and rising interest costs. The end result could mean much deeper cuts and reforms than would have necessary had the changes been made early.