Sunday, February 1, 2015

Counter Cyclical Spending – Stimulus - Where the smart money goes.

In a healthy circumstance the government portion of GDP should be about 6%, in Canada federal spending alone is about 10%. There is a gradation of benefit and negative effect, there is an axis to manage, but at some point, the burden of government is negative.

Counter Cyclical Spending, or stimulus, is the practice of government drawing on government coffers, normally increasing debt, to counter the negative impacts of a downward business cycle.  If government is of the correct proportion to the economy as a whole, or even has the proportion consistent with the present Canadian circumstance, one can see that there is a limit to the effect the government can have just on the basis of monetary mass alone.

It is the case however, that government can to a limited degree stimulate the economy, or to direct upward pressure on aggregate demand. The answer to the question as to whether this is a healthy practice or not, is determined on the legacy of the effort. If the government chooses to hire a bunch of people and expand services, then there may be short term gain, with long term pain – as the overall burden of government is expanded and carried into the future. If, however, the government chooses to INVEST in things that facilitate the future undertakings of the nation complex, then the spending both improves the present circumstance by increasing aggregate demand AND makes future activities more efficient. One approach makes the future better, the other approach taxes future generations.

When money is so cheap - the real cost of money for the Canadian government, if manage optimally, is zero for the next ten years or so, so now is the time to borrow and build out infrastructure – physical & human. Now we make investments in physical infrastructure - communications, fiber optics, high ways, ports, bridges etc.  More importantly perhaps, in human capital, no more damn university buildings and ribbon cuttings please, what we need is real money to real people for real knowledge – inputs and outputs quantified and accounted for.

Give Canada’s young people firstly, knowledge, the structure to work in and capital – real investment, with a real accountability trail, and Canada will win – win bigger and better than any other jurisdiction, because we make life here better than elsewhere. We should be aiming higher than “jobs”, we should be aiming for exceptional lives.  

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