The left’s view of debt is having its day

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The B.C. government presented its own pandemic budget this week, a document that bore striking similarities to one tabled in Ottawa a day earlier.

Those resemblances included lots of stimulus spending and supports for struggling businesses, but also something else: debt. Heaps of it.

Premier John Horgan’s NDP government revealed a projected deficit of $9.7-billion for 2021-22 on overall spending of $67.6-billion. The province’s taxpayer-supported debt is expected to grow to more than $127-billion by 2024 from $87.4-billion this year – a 45-per-cent increase. As a percentage of gross domestic product, the debt level will be 26.9 per cent at the end of this budget cycle, closing in on double what it is now (15.5 per cent).

When asked when the province would get back to balance, B.C. Finance Minister Selina Robinson was non-committal, saying it was difficult to predict. Her best guess was seven to nine years.

Once upon a time, that type of casualness might have earned a stern rebuke from business organizations and the banks, but that was hardly the case. Most of the country’s biggest financial institutions gave the budget a passing grade. Being concerned about how deep in the red a government is getting is so 1990s, it seems.

Opinion: The era of balanced budgets is dead

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We are entering a new era of fiscal policy in Canada and around the world. The epoch noted for its free traders such as Brian Mulroney, smaller government champions including Ronald Reagan and privatization promoters such as Margaret Thatcher – neo-liberalists all – has dissipated into the mists of time. Today, policies long promoted by social democrats as inclusive and fair and dismissed by conservative and centrists as fiscal lunacy are having their moment. Call it progressive fiscalism.

And in Canada, their biggest advocate is federal Finance Minister Chrystia Freeland.

That Ms. Freeland would have authored a budget that was as rabidly activist in nature as it was, one that effectively ignored concerns about deficits and debt, should not have come as a huge surprise. Her award-winning 2012 book, Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, was a portent of policies to come – even if no one knew it at the time.

The book highlighted the soaring inequality that exists in the world and the need for measures that would begin shrinking the discrepancy. That viewpoint would be reflected later in Liberal policies such as the enhanced child benefit. But it’s also who Ms. Freeland is reading these days that gives us a glimpse into her economic thinking.

In a recent interview with The Toronto Star, the Finance Minister disclosed that among the key studies that have guided her recently is one by French economist Olivier Blanchard.

A former chief economist of the International Monetary Fund, Mr. Blanchard has become the darling of the left. His 2019 paper, the one that has caught the attention of Ms. Freeland, talks about a “shift in fiscal paradigm.” In it he says, “Put bluntly: Public debt may have no fiscal cost.” The piece prompted American economist and New York Times columnist Paul Krugman to pen a piece headlined: “Learn to stop worrying and love debt.”

Mr. Blanchard believes that as long as long-term government bonds are as low as they are it is silly to worry about debt and deficits. In other words, if a country’s ability to service its debt is growing faster than the debt itself, then that debt is not a problem. Not surprisingly, it’s a theory that is being widely embraced, especially at a time when governments are being required to flood their economies with money.

This is part of a natural evolution of economic thought. And this philosophy, in particular, is likely to emerge as the economic centrepiece of liberal democracies everywhere until circumstances dictate a shift in thinking.

In the immediate term, however, this new way of considering debt poses issues for conservatives across the country. Paying down debt and balancing budgets has been a central pillar of their fiscal ideology – even though many political practitioners on the right have done a terrible job of it.

For examples, think of any conservative premier in Alberta over the past 15 years.

If banks aren’t worried about the debt situation in B.C. or the federal government’s balance sheet, on what ground does federal Conservative Party Leader Erin O’Toole sound alarms warning of pending doom? It’s even more difficult to get those benefiting from all this government largesse – the public – to become angry about it.

Prime Minister Justin Trudeau and Ms. Freeland are taking the government in a fairly radical new direction. And it could be one that ultimately shapes economic policy across the country.

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