The COVID-19 Deficit: Everything is fine

Last post I blogged about how Toronto "news" station CP24 had a lengthy interview with some hack from the Canadian Taxpayers Federation wherein said hack babbled about how the deficit from the COVID-19 pandemic of over $300 billion meant that spending cuts were going to be unavoidable to get back to fiscal health when all this is over.

You know, despite the glaring holes in our public healthcare system exposed by the pandemic. And despite the criminal mistreatment of our elderly exposed by the pandemic. And despite the destruction caused by leaving small businesses to hang while allowing banks and landlords to continue to demand payment. Despite decades of cuts to all our public spending (except for war) and decades of tax-cuts and deregulation to corporations and the wealthy, this CTF asshole blandly asserts that the only policy option for the post-pandemic period will be more of the same.



Earlier, I'd also posted how the Trudeau government was needlessly adding to our budgetary woes by financing its deficit spending from the private banks rather than the Bank of Canada.

Well, today I have some good news! Other writers have been saying that Canada's debt-to-GDP levels going into the pandemic were much lower than most (all?) OECD countries and that even after these crisis deficits they're still going to be lower than the average of other countries going into the crisis.
Linda McQuaig states here and TorStar's Heather Scoffield states here about how our national finances are quite manageable and sustainable. As McQuaig says at rabble.ca:

The deficit hawks are hoping to revive the hysteria they created in the 90s.
But let's not be duped again. This time, let's pay attention to a true debt story -- the story of how we ran up a gigantic debt fighting the Second World War and we weren't intimidated by it after the war. 

While our debt today is about 35 per cent of GDP, by the end of the Second World War it reached a massive 130 per cent of GDP. "But no one cared!" notes economist Jim Stanford, director of the Centre for Future Work. 

We didn't even pay down that debt! On the contrary, we racked up lots more debt in the early postwar decades, as Ottawa invested heavily in infrastructure and expanded the size and scope of government. 

The debt kept growing, but the economy grew faster, making the debt burden relatively lighter. By the mid-70s, our debt amounted to only about 20 per cent of GDP. We never actually paid it off; we just effectively outgrew it, says Stanford.

Even this investor newsletter warns against mindless hysteria:

At this point, though, ballooning deficits are manageable: “This spending is needed, and if largely contained to this year won’t meaningfully darken the fiscal outlook.”
While the decline in government revenues may weaken Canada’s credit rating, RBC maintains “it’s critical that Ottawa stay the course and avoid austerity while the economy is still recovering.”
Canada’s federal debt remains “on a sustainable track” and is well below levels seen in the 1990s, the report said.
Additionally, rock-bottom interest rates have borrowing costs at historic lows.
“With smart management going forward (and no further coronavirus surprises) the debt remains sustainable,” the report said.

Meanwhile, Seth Klein at Policynotes says that we should seize the moment and plan for building a more sustainable future. (Similar to something I expressed here.) This enormous outlay of public revenues is (as has been mentioned) unprecedented since the Second World War. It shows that we can muster similar resources to deal with the impending catastrophe of global warming:

Similarities abound between our wartime experience and the current pandemic response. In contrast to our lackadaisical climate plans, today we are seeing what an emergency response looks and feels like, particularly when the emergency catches us off-guard. The status quo is suspended. Government leaders and public officials hold daily emergency briefings. Emergency Acts are invoked. Federal and provincial cabinets form emergency response committees of key ministers (like the War Committee that oversaw Canada’s Second World War mobilization). Resources and personnel are redeployed. Manufacturing capacity is requisitioned to produce essential products (then it was munitions, while today it is protective medical gear, hand sanitizer and ventilators). Governments assume the power to direct necessary supply chains. Public facilities are repurposed as needed (such as community and conference centres turned into makeshift clinics and service centres). We honour the front-line people making extraordinary sacrifices, some of whom were/are public service leaders, civil servants, and of course health care professionals. But in this battle, most of whom turn out to be lower-wage workers whose labour we so often devalue—hospital cleaners and other sanitation workers, bus and truck drivers, grocery store clerks, child care workers looking after the children of other essential workers, and numerous others whose work we are reminded we cannot manage without. 
...

As our governments spend billions beyond what they originally budgeted and as the economy heads into a deep recession, 2020 will see a large spike in Canadian government debt-to-GDP. Yet this jump is perfectly manageable. Our government debt levels are historically low, leaving Canada well-placed to weather this storm. And with much of this new debt being owed to the Bank of Canada, which throughout the COVID crisis is mass purchasing government bonds on a weekly basis, our public finances can withstand this crisis just fine. Indeed, with investors spooked and looking for a safe harbour, now is the perfect time to launch an ambitious public “Victory” bond drive like we did during the war. Let’s invite the public to contribute to an economic recovery plan. And with interest rates at an historic low, our governments at all levels should be borrowing like never before to finance the climate and social infrastructure investments now urgently needed. As economist Jim Stanford has written, “The Government of Canada can now issue 30-year bonds for well below 1% annual interest. That is negative in real terms (i.e. lower than inflation). So quite literally, the government will save money by borrowing more (paying back less in real terms, after 30 years, than they borrowed)—to say nothing of the economic and social good that would be done by putting that money to work in emergency public projects and services.” 

The statement that the Bank of Canada is financing much of our deficit contradicts Ed Finn's claim that the Liberals are primarily using the private banks. I'm in no position to say who's right, but if true, my hat's off to the Liberals. Regardless, deficit financing through the BoC is the most affordable way to deal with this present crisis and with the massive restructuring needed to survive global warming. As well, it shows that that hack from the Canadian Taxpayers Federation was talking nonsense and insanity when he insisted that spending cuts are the only way to get us back to fiscal health. Again, we've seen how desperately insufficient elder care, healthcare, etc., are in this country. We need massive investments and a move away from neoliberalism.

Finally, at one point in that CP24 interview, the CTF hack smirked when told about the NDP's proposal for a wealth tax. Shelby Prokop-Millar argues that, in fact, a wealth tax is widely popular and unavoidable to help restore what pseudo-democracy Canadians once enjoyed and to finance the future:

Canada has witnessed the depletion of income growth and the rise of wealth without changing its tax system. This has led to a greater concentration of wealth in the hands of a very few and very privileged group of Canadians. As Canada’s national debt nears $1 trillion, the argument for a wealth tax is no longer controversial.
A wealth tax must be implemented now. To allow for the increased democratization of Canadian society. To allow for the betterment of the economy. The very wealthy must pay their fair share.
In Short: The time for a wealth tax has never been greater in Canada with between 67% and 75% approving the implementation of one. It is necessary to assist in the fight against growing wealth inequality while countering the concentration of power and of wealth firmly held by the “top” 1% of Canadians.

Don't let right-wing partisans, hacks and ignoramuses hijack the conversation for the future of Canada!