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By Bill Curry (@curryb)
Does stimulus work? It depends on which economist you ask.
Finance Minister Bill Morneau has plenty of contradictory advice to choose from as Canada’s economics community engages in a heated debate over the merits of fiscal stimulus.
Avery Shenfeld, the chief economist of CIBC World Markets, ramped up the debate with a suggestion that a federal deficit as high as $30-billion would be “well-warranted” in order to give the sluggish economy a boost. Other Bay Street economists agreed, including Sherry Cooper of Dominion Lending Centres, who said “extreme measures” should be taken.
That type of advice inspired some strong pushback. University of British Columbia economist Kevin Milligan – who previously advised the Liberals on their election platform – questioned why a national solution is needed to what is essentially a regional problem. Stephen Gordon of the University of Laval lamented the lack of “sophistication” in the pro-stimulus arguments coming from Bay Street economists, while Trevor Tombe of the University of Calgary argued that infrastructure stimulus cannot be defended purely as a way to create jobs, given that it could potentially work out to about $250,000 in public spending for each job created.
“We shouldn’t overestimate infrastructure’s short-run effects on economic activity,” he wrote in Maclean’s. “There just isn’t the evidence.”
If Mr. Morneau doesn’t like those opinions, he can lean on a recent essay from former Parliamentary Budget Officer Kevin Page and former assistant PBO Sahir Khan.
They argued that with low interest rates, government can borrow to build infrastructure and still keep its debt-to-GDP ratio on a downward trend.
“The policy case for this is strong,” they argued, pointing to comments from Harvard University professor Larry Summers that borrowing to spend in this environment amounts to a “free lunch.”
Needless to say, Mr. Morneau has a lot to chew on.
WHAT YOU SHOULD KNOW THIS MORNING
By Chris Hannay (@channay)
> The defence ministers of the United States, Britain, Germany, France, Italy, Australia and the Netherlands will meet in Paris this week to discuss the U.S.-led coalition against the Islamic State. One country left out of the meeting? Canada.
> The Liberals aren’t yet saying how or when they will pull back sanctions against Iran, but Innovation Minister Navdeep Bains says the country will be a good market for Canada’s aerospace industry.
> Refugees who came to Canada before Nov. 4 – including those from Syria – have to repay the government up to thousands of dollars for flights and medical checks.
> Some economists are warning the Bank of Canada that a rate cut could make things worse, not better.
> Justice Department lawyers are advising the joint committee studying physician-assisted dying that the issue will be complicated from a legal perspective because of the overlap between the federal responsibility for justice and the provincial responsibility for health.
> Premiers say national pharmacare should be on the table as the federal and provincial health ministers meet this week, but a national association of pharmacists is warning against the idea.
> Tom Mulcair says he is determined to stay on as NDP Leader, and while there are some rumblings of discontent in the base, there are not any challenges emerging to his leadership.
> And who are the chiefs of staff in the Liberal government, the most senior advisers for each minister? We have a full list, with bios. (for subscribers)
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WHAT EVERYONE’S TALKING ABOUT
“The choice to live or die should be made between a patient and his or her doctor, like any other medical decision. What the recent assisted death(s) in Quebec show, more than anything else, is that patients with grievous and irremediable health conditions are ready to exercise their right to die thoughtfully and judiciously. We should expect the same dignified response from the judges and legislators. What we have instead is yet more dithering and disrespect for patient rights.”
– André Picard on assisted dying.
Jordan Stanger-Ross, Eric Adams and Laura Madokoro (Globe and Mail): “The forced sale of Japanese-Canadian property marked a moment in Canada’s past when racism, misunderstanding and fear wrapped themselves in misguided notions of security and in the formal language of the law.”
William Robson (Globe and Mail): “Until Ontarians get some basic information about how the scheme is supposed to work, the [Ontario Retirement Pension Plan] is more notion than actual plan.”
Chantal Hébert (Toronto Star): “For all of Mulcair’s strengths, the NDP – on his watch – has remained a bit player in his home province. ”
Andrew Coyne (Postmedia): “By the more conventional measures the economy is not failing or falling, but merely flagging.”
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