David R. Henderson  

Me in The Economist

A Subtitle to Ponder... The Technofuture...

The latest Economist has an article that highlights, among other things, my recent piece for Mercatus on how the Canadian government turned around its budget mess in about 10 years from the mid-1990s to the mid-2000s.

An excerpt from my piece:

The main policy actions that the Canadian government took to shrink its budget deficit and turn deficits into surpluses were cuts in government spending. Moreover, the Canadian government didn't just cut the growth rate of spending, a favorite trick of U.S. politicians who want to claim the mantle of fiscal conservatism. It also cut absolute spending on many programs in dollar terms. And because the inflation rate in Canada, though low, was greater than zero over the whole time period, these cuts in dollar terms were even larger in inflation-adjusted dollars.

There are two morals of this story. First, the Canadian experience shows us that a large budget deficit can be turned into a budget surplus with ten years of fiscal discipline, mainly with spending cuts. It can happen here in the United States. We do not have to accept the idea that we have only two grim choices: living with huge budget deficits and a federal debt that both increase as a percent of GDP, or accepting our current spending but reducing the budget deficit with major tax increases.

HT to Catherine Behan.

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COMMENTS (3 to date)
Gary Rogers writes:

The only people who will find this newsworthy are economists and politicians. The rest of us out here in flyover country see nothing new here.

Daniel writes:

How does your story about spending cuts dealing with the Canadian budget deficit problem apply to the US given that even with those spending cuts, Canada's overall tax rate is still higher than that of the US.

david writes:

Typical New Keynesian conclusion: austerity hurts in the short run, good in the long run.

@Daniel: why wouldn't it apply? Is there some reason to think that Canadians and Americans react so differently to tax rates?

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