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Canada ran consecutive budget deficits, often quite large, for a span of three decades between 1966-67 and 1996-97. This distinction earned Canada an honorary membership as a Third World country from The Wall Street Journal.

The rhetoric that followed in Canada until the books were finally balanced made "budget deficits" and "public debt" four-letter words for many Canadians. This mindset has served Stephen Harper's Conservatives well: Their low-tax agenda, combined with the Canadian aversion to deficits, gives them all they need to reduce public spending in many areas, often regardless of the economic and social consequences.

Since the Great Depression, there has been a widespread consensus that fiscal policy should be used to stabilize an economy. Indeed, the Conservatives did so themselves, reluctantly, in the aftermath of the 2008-09 recession. Contrary to the popular myth, that recession was a little deeper here than in the United States, as measured by the decline in GDP.

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Mr. Harper's recent pronouncement that running a budget deficit would turn Canada into Greece does not square well with his own government's track record of adding $175-billion to federal net debt since 2007-08. Responsible leadership would use fiscal policy as a stabilization tool, running deficits during bad times (the current situation being one of them) and running surpluses in good times.

Looking at Group of Seven countries, Canada ran up an increase in its debt-GDP ratio of a little less than 10 percentage points from 2006 to 2013, compared with the increase of 35 to 40 percentage points in France, Britain, the U.S. and Japan. If you look at household debt, however, Canada stands out, with the largest increase in the household-debt-to-income ratio of all the G7 countries, at about 30 percentage points – double the next-largest increase, in Italy, and 50 percentage points higher than the U.S., where household debt ratio fell.

This paints a grim picture for Canada. We aren't using the appropriate policy tool, fiscal policy, as much as many other G7 countries are in order to help the economy – despite the fact that the previous Liberal government left Canada in good shape on this front and interest rates are historically low. Making things worse, we find that households are borrowing at a faster pace than in any other G7 country, with the risk that they may not be able to withstand an increase in interest rates or a decline in house prices.

Could it be that our zeal in balancing our government books come hell or high water may be contributing to the buildup of household debt and risking our future economic prospects, as well as the present? Indeed, that seems quite likely in an economy in which the private sector is reluctant to invest, and things are not going to be pretty with the crash in oil prices and the resulting slashing of investment in this sector.

Consider the following, which does not require any sophisticated economic theorizing: There are many citizens who save. Ideally, businesses would borrow this saved money and invest or we could export these savings. When businesses do not invest (remember "dead money"?) and the world economy is weak, savings do not get fully used up through these outlets. So excess savings can be borrowed by governments, which could invest them in areas that are crying out for investment, such as our crumbling roads, bridges and hospitals (the infrastructure gap could be $400-billion). Or they could be available in the marketplace so that stretched households can borrow at even lower interest rates to buy cars, houses, furniture and many consumer goods.

Government borrowing does not impose a future risk, because governments don't go bankrupt when borrowing to invest intelligently. But increases in household debt do carry that risk. In the short run, however, borrowing households do serve a useful purpose when the government is absent, as their actions provide some economic stabilization, as otherwise these excess savings would be fully wiped out by a weakening economy. The critical issue is: What is the best use of an economy's savings in down economic times?

In view of this analysis, it's perhaps more revealing to examine public and household debts together, which shows Canada is in the group of countries with the largest increases in the debt-GDP ratios since 2006 in the 30-to-40 per cent range and a Canadian increase 50 per cent higher than that of the U.S.

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In conclusion, we Canadians offer the world an alternative to the Dutch disease: a reluctance to sensibly use fiscal policy for economic stabilization and instead let private savings flow to already stretched and highly indebted households that puts the health of the Canadian economy, and thus our economic future, at risk.

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