Canadian budget not time for deficit cutting

March 4, 1:03 a.m.

The speech from the throne suggests that the Budget to be released tomorrow will propose government expenditure cutbacks in 2011 in an effort to reduce the deficit. This action is premature because it is very unlikely that the unemployment rate will have fallen to less than 6 % by the beginning of 2011 only 9 months from now.   The policy that the Government ought to pursue is to focus on disbursing the remainder of the stimulus package announced last year, ensure that the Bank of Canada does not raise interest rates over the coming two quarters and target a large reduction in the jobless rate. As the rate of unemployment is reduced the flow of revenues into government coffers will increase and the outflow of expenditures on the unemployed will decline. Overtime the ratio of debt to GDP will begin to stabilize and fall. Remember that currently the ratio of debt to GDP is at a very tolerable level, some 32.1 %   and the deficit is quite small in comparison to the 1.4 trillion dollar GDP, less than 3 % of the GDP. Remember during the Second world war the ratio exceeded 20 % .

We shall see what the budget says tomorrow and I will comment in detail about it once I have had a chance to study it carefully.

Since deficit hysteria like the measles spreads quickly I now have a number of countries to worry about from Europe to America. The good news is that more and more people question the conventional fiscal conservative wisdom and are looking for a more rational response to the crisis of our times. That crisis is not the deficit but the problems of unemployment, poverty, financial instability and the age old threats to humanity from disease and the sometimes harsh unpredictability of nature.

Here reason can light a path to a better solution.