Finance Minister Joe Oliver skipped the annual spring gathering of the world’s top economic officials in Washington last week. It was just as well. He would not have liked what the International Monetary Fund (IMF) had to say.
The IMF was once a reliable ally of policymakers who see balanced budgets and lower taxes as the answer to every economic problem. The institution in the 1980s and 1990s was the champion of the “Washington Consensus,” the name given to the kit of free-market policies the IMF would force on any country in need of a bailout.
But the IMF has become far less doctrinaire under the leadership of Christine Lagarde, the former French finance minister. Lagarde had a simple message for finance ministers: Unless you are broke, you should be using fiscal policy to generate economic growth. The IMF predicts the global economy will expand 3.5 per cent in 2015—about the same as last year, but dramatically slower than the five per cent rates that preceded the financial crisis. “Overall, we believe that growth is just simply not good enough, not good enough to reduce high unemployment still, not good enough to boost middle-class incomes, not good enough to drive poverty reduction,” Lagarde told reporters at the beginning of the semi-annual meetings of the IMF and World Bank.
Oliver is actively ignoring Lagarde and the best thinking of the world-class economists she employs. He has made clear that the budget he presents in Parliament on Tuesday will be written in black ink. By doing so, he will be condemning Canada to economic mediocrity. He will argue that fiscal prudence will inspire confidence and boost spending by households and investors. That is only true when public spending is out of control. Canada’s problem is a lack of demand. The federal government alone is in a position to generate some of it immediately.
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