Every day the wartime analogies seem more apt. Governments are borrowing massive amounts – as much as 10 per cent of GDP – to bankroll equally massive increases in spending. Central banks are pledging to buy all of that newly issued government debt, if necessary, and every other kind of debt besides, in whatever amounts may be required.
Whole industries are being retooled to provide materiel for the “war,” only today it is ventilators and test kits under requisition, not bombs and fighter jets. We may even see hotels being commandeered as makeshift hospital wards before this is over.
Then there are the range of new income-support programs in the works or being considered: from emergency benefits for workers who have been told to self-isolate, to wage subsidies aimed at persuading firms to keep workers on their payroll, all the way to simply sending cheques to every adult citizen – a full-blown universal basic income.
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All in all it’s a good time to be a fan of the activist state. “There’s nothing like the threat of a deadly pandemic to make us appreciate big government,” a Toronto Star headline chirped, happily. Online, the hot takes are everywhere: Wait, so deficits aren’t the devil’s handiwork? Maybe printing money to pay off debt is not so crazy after all. Looks like industrial policy is back in style. Basic income for the win!
The gist of them all is that the use of such extraordinary measures to address an economic crisis such as we have not seen since the Second World War vindicates their use more generally. If that sounds simplistic, it is not without precedent. The great expansion of the state across the developed world in the 1950s and 1960s would not have been thinkable without the experience of the Great Depression, but even more the War.
The successes of governments in mobilizing resources for the war effort led to increased faith in government’s capacity generally. If governments could plan a wartime economy, it was asked, why could they not plan a peacetime economy just as well? All it took was the brightest minds, and a lot of cash: the combination that led to victory in one theatre would assure it in another.
But of course a wartime economy is entirely different from a peacetime economy – as different as war and peace. First, it’s temporary. It goes on for a while, then stops, at which point so do the spending and other measures enacted to fight it. Federal spending hit 44 per cent of GDP at its 1943 peak, half of it borrowed, but by 1947 it had fallen back to less than 15 per cent of GDP and the budget was in surplus.
Most if not all of the measures that are being brought in to fight the current war seem likewise crafted to be temporary. A tax holiday, such as the federal government has promised, only cuts into federal revenues for as long as the holiday, or the crisis, endures. The emergency support payments can similarly be unwound quickly once the emergency has passed. The assets central banks purchase to keep financial markets liquid can be sold off soon enough.
So the kind of deficit that would be extremely worrying in peacetime – there is now talk of a federal deficit for 2020-21 of $100-billion or even $150-billion, roughly 6 per cent of GDP – is less so in the current situation. This isn’t about “stimulus,” or fanciful claims of “multiplier effects.” This is about keeping the lights on, in the middle of a government-ordered shutdown. In that context, it’s entirely appropriate.
The second thing that makes a wartime economy different has to do with what an economy is for. A wartime economy is designed to do one thing above all: win the war. Everything else is subordinated to that singular aim. Productive resources that might have been devoted to making consumer goods are instead diverted to the military, and by and large the public accepts the sacrifice, in part because, again, it’s temporary.
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Governments are pretty good at that sort of thing. When there is only one economic objective, and everyone agrees what it is, central planning works tolerably well. But a peacetime economy, at least in a market-based democracy, isn’t about making one thing that everybody wants. It’s about harmonizing millions of individual, and competing, wants – wants that change constantly, and in unpredictable ways. Central planning is no good at all at that.
That doesn’t mean we can’t learn from wartime experience. Good policy ideas that are, for one reason or another, politically impractical at most times often become possible in crises, when the risks and rewards of experimentation are seen rather differently. The baby bonus came out of the Second World War. Perhaps some form of basic income will be the legacy of “World War C.”
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OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
