July 8, 2020

Winnipeg
27° C, Fair

Full Forecast

Advertisement

Advertise With Us

Opinion

Broad consensus pans Pallister's plan

MIKE DEAL / WINNIPEG FREE PRESS FILES</p><p>Premier Brian Pallister’s economic response to the COVID-19 pandemic has prompted criticism from across the political spectrum.</p>

MIKE DEAL / WINNIPEG FREE PRESS FILES

Premier Brian Pallister’s economic response to the COVID-19 pandemic has prompted criticism from across the political spectrum.

Put 10 economists in a room, and you’ll get 11 opinions. This old joke among economists is funny because it has a ring of truth to it. Examples of consensus are sufficiently scarce that, like the sighting of a rare bird, they are worthy of note when they occur.

In recent days, a broad, surprising consensus has emerged about Premier Brian Pallister’s approach to the economic fallout from the pandemic. The consensus is this: Pallister’s policy of austerity is economically unsound.

The expert consensus includes prominent leaders of the business community, Sandy Riley, Barb Gamey and Bob Silver; economists Robert Chernomas, Jesse Hajer, Ian Hudson from the University of Manitoba department of economics; CIBC economist Maria Berlettano; professor of finance at the Asper Business School Shiu-Yik Au; Lynne Fernandez, the Errol Black Chair in labour issues at the Canadian Centre for Policy Alternatives; Free Press columnists Dan Lett and Tom Brodbeck; and the editorial boards of the Winnipeg Free Press and Globe and Mail.

What is remarkable about this group is that it spans the political spectrum, from members of the Manitoba Progressive Conservative Party on one side to members of the NDP/CCPA on the other. Consensus among economists and professors of finance is rare; among people at opposite ends of the political spectrum, it’s rarer still.

And the premier is out of step with every other province in Canada, the federal government and, indeed, nearly every government in the western world. He is turning off the fiscal taps to the local economy, especially by laying off workers, during a time of crisis.

The risk/reward ratio of this strategy is badly skewed. The reward is small: the premier admits that cutting the public sector will shave just pennies from each dollar of deficit borrowing. And the risk is large: Pallister gambles he won’t stall the local economy, plunging Manitoba into a deep recession (best case) or depression (worst case). That is economic negligence.

Nevertheless, Pallister remains focused on deficit reduction. That was to be his crowning legacy, and until February of this year he was close to achieving that goal. All that changed in two short months, but while the world around him changed, he did not.

The problem is this: the most commonly used metric to measure debt burden is the debt-to-GDP ratio. Manitoba currently sits in the middle of the pack of debt-to-GDP ratio in Canada. Debt (the numerator) grows with additional deficits; but Pallister has forgotten about the denominator: the GDP, or Gross Domestic Product. GDP is a rough measure of our capacity to meet our debt burden.

Austerity will reduce the numerator (debt), but it will reduce the denominator (GDP) even more. Austerity kills jobs. By killing jobs, spending in the local economy withers. Businesses die. Bankrupt businesses and more unemployed workers cannot pay taxes, necessitating further expenditure cuts. A death spiral results.

To prevent economic collapse, the central government spends in the local economy during down times: the deficits grow the level of debt. Like a colonoscopy, deficits and debt are not pleasant. But like colonoscopies, they sometimes prove to be necessary and life-saving.

In the wake of the 2008 global financial crisis, nearly all governments across the western world engaged in unprecedented levels of deficit spending. And it worked. The economy avoided a near-miss with a depression and enjoyed sustained economic growth as a consequence. Until now.

During the global financial crisis of 2009-11, Pallister’s former boss, Stephen Harper, ran up deficits of more than $100 billion. According to Pallisternomics, this level of debt should have plunged the country into permanent penury. It did not. By 2015, the budget was back in surplus.

When someone on the political right recognizes the necessity of deep but temporary deficits to protect people, business and the local economy during a fiscal crisis, one wonders why the premier so doggedly pursues policies that economists, experts in labour and finance, and business leaders agree will fail.

Every once in a while, a person thought to be a crank calls out the experts and turns out to be right. But that is rare — as rare as the expert consensus that has emerged against Pallister’s policies.

Most of the time, the person thought to be a crank is just that.

Scott Forbes is President of the Manitoba Organization of Faculty Associations (MOFA). A biologist by profession, he has been educated in introductory economics, microeconomics, macroeconomics, natural resource economics; has published on bioeconomics; and has applied game theory and modern portfolio theory to biological systems.

Advertisement

Advertise With Us

Your support has enabled us to provide free access to stories about COVID-19 because we believe everyone deserves trusted and critical information during the pandemic.

Our readership has contributed additional funding to give Free Press online subscriptions to those that can’t afford one in these extraordinary times — giving new readers the opportunity to see beyond the headlines and connect with other stories about their community.

To those who have made donations, thank you.

To those able to give and share our journalism with others, please Pay it Forward.

The Free Press has shared COVID-19 stories free of charge because we believe everyone deserves access to trusted and critical information during the pandemic.

While we stand by this decision, it has undoubtedly affected our bottom line.

After nearly 150 years of reporting on our city, we don’t want to stop any time soon. With your support, we’ll be able to forge ahead with our journalistic mission.

If you believe in an independent, transparent, and democratic press, please consider subscribing today.

We understand that some readers cannot afford a subscription during these difficult times and invite them to apply for a free digital subscription through our Pay it Forward program.

History

Updated on Wednesday, May 13, 2020 at 7:32 PM CDT: fixes typo

The Free Press will close this commenting platform at noon on July 14.

We want to thank those who have shared their views over the years as part of this reader engagement initiative.

In the coming weeks, the Free Press will announce new opportunities for readers to share their thoughts and to engage with our staff and each other.

You can comment on most stories on The Winnipeg Free Press website. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or digital subscriber to join the conversation and give your feedback.

Have Your Say

Have Your Say

Comments are open to The Winnipeg Free Press print or digital subscribers only. why?

Have Your Say

Comments are open to The Winnipeg Free Press Subscribers only. why?

By submitting your comment, you agree to abide by our Community Standards and Moderation Policy. These guidelines were revised effective February 27, 2019. Have a question about our comment forum? Check our frequently asked questions.

Advertisement

Advertise With Us