Budget deficits no longer cause fear in Ottawa

OTTAWA - Suddenly, budget deficits don't seem to matter.
After years of being regarded as the third rail of Canadian politics - touch it and you die - all parties in Ottawa have adopted a new orthodoxy:
Spend big to cushion the shock of the recession, and don't worry about deficits.
The new religion has been wholeheartedly adopted by politicians of all stripes, from the far left to the extreme right, and by the Bank of Canada and private-sector economists.
So much so that when the Harper government deliberately revealed last week that it will table deficits of $34 billion and $30 billion over the next two years - should it survive that long - the cry from the opposition was not about the size of the hole but the fact the Prime Minister's Office told reporters in advance of Tuesday's budget.
It seems the only people who haven't got the memo are the members of the Canadian public.
A Canadian Press-Harris Decima survey conducted last week found more Canadians - 48 per cent to 44 per cent - still wanted Ottawa to take measures to avoid a deficit than to increase spending to stimulate the economy.
Infometrica economist Mike McCracken, a long-time deficit agnostic, says the survey results represent the triumph of years of simplistic propaganda by politicians over common sense.
"It's possible to create disinformation, but I think people will quickly learn that tolerating deficits is a lot easier for them than to live in a world where the government is saying, 'We're going to tax you more or we're going to cut off some of the spending,' " he said.
Not many economists are as quick as McCracken to dismiss the negative implications of deficit budgeting.
But there is near unanimity that deficit spending is a necessary evil under today's circumstances, when the economy is shrinking and the ranks of the unemployed are swelling - 115,000 in the last two months.
"If you are facing a recession where a lot of people are going to be unemployed and there's going to be a lot bankruptcies, then there are benefits to going into deficit to try and keep things from not getting quite that bad," says Dale Orr, managing director of IHS-Global Insight.
Iconic economist John Keynes was the most famous proponent of pumping public money into a bad economy, even if that produces temporary deficits, with the proviso that governments should save in good times.
The latter part of the prescription was forgotten in Canada during the 1970s, 80s and early 90s, say economists, with disastrous results for the economy and Canadians.
Bank of Nova Scotia economist Derek Holt says the debt burden became so heavy on government in the late 1980s that Ottawa was left with few resources to try to stem the onset of the 1990-92 recession.
At that time, paying interest on the national debt ate up more than 30 per cent of Ottawa's revenues.
That didn't just leave the government of the day with no bullets in the gun to battle the slump - federal authorities actually made things worse in a vain attempt to keep their finances from worsening. The Bank of Canada didn't help by raising interest rates, also a function of the fiscal mess.
"What we got is program spending cutbacks and tax hikes in a recession, which would have made Keynes roll over in his grave," said Holt.
At the peak, the national debt reached $562 billion and represented almost 70 per cent of the size of the Canadian economy, leading some foreign observers to equate Canada with Mexico.
Liberal Finance Minister Paul Martin had seen enough and famously declared he would wrestle the deficit to the ground "come hell or high water."