Economists explain why Conservative outrage over deficits is massively overblown
“Interest-rates will eat our babies screed.” That’s how one economist describes the rhetoric around deficits coming from Conservatives and right-wing publications. What this narrative often fails to point out is that Canada is doing exceptionally well in terms of debt and deficits.
Yes, the absolute size of debt and deficits are increasing. But so is the size of our economy and the size of our government’s expenditures. The figures that really matter are debt relative to GDP and debt service costs. As economist Kevin Milligan points out, both are decreasing in Canada. In the following twitter thread, Milligan shows exactly why the outrage over deficit spending is overblown.
…in case anyone needs a reminder, current interest payments are at the lowest level since the 1960s.https://t.co/TK6r2ceBBs— Kevin Milligan (@kevinmilligan) October 30, 2019
Annex 2 of the 2019 budget shows sensitivity to a 100bps change in the interest rate. It is 1.4B in year 2. So, a 200bps change might be 2.8B.— Kevin Milligan (@kevinmilligan) October 30, 2019
Morgan is off by about a factor of 10 in his estimate of the impact of a 200 bps change on interest costs.https://t.co/J96K43sqCN pic.twitter.com/YAUVrRWncx
But what about the 1990s?— Kevin Milligan (@kevinmilligan) October 30, 2019
Yeah, I remember the economic analysis of the1990s. And like Hootie and the Blowfish, it should stay in the 1990s. pic.twitter.com/f91HGtCA8V
Other economists seem to agree. Trevor Tombe points to the fact that interest relative to government revenues is at its lowest point in Canadian history.
Potentially even more dramatic: interest as a share of federal revenue is at its lowest … ever pic.twitter.com/gKZiO8MQ8M— Trevor Tombe (@trevortombe) October 30, 2019
The story of massive debts burdening future generations is just that, a story. One that politicians use to scare citizens into embracing their plans for austerity.
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