Brian Lee Crowley

Avoiding China’s infrastructure mistakes

Prime Minister Justin Trudeau makes no bones about his admiration for China. He is also a great advocate of infrastructure spending to stimulate the economy. In my latest column for the Globe I explore the intersection of these two ideas, for the real Great Wall of China is the massive wall of debt they have accumulated to build infrastructure that, in the vast majority of cases, has destroyed value, not created it. This makes China (along with Japan, another nation addicted to high-cost but low-value infrastructure) an object lesson in the limits of infrastructure spending. Sure you might get a little bump of activity around the construction, but if the infrastructure itself doesn’t improve the productivity of workers and businesses you get stuck with the debt but not the increased economic activity to pay for it.

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Justin Trudeau was selling deficits; the G7 wasn’t buying

The recent G7 meeting in Japan should give Prime Minister Trudeau ‎reason to reflect on his plan for deficit spending as Sean Speer and I argued in an op-ed on June 3rd in the Financial Post. He arrived in Japan determined to sell other leaders on the merits of budgetary deficits to grow the economy. But his peers weren’t buying. ‎The summit’s 14,000-word communiquĂ© was silent on calls for more government spending.Perhaps the other G7 leaders know something Justin doesn’t, or at least something he is trying his darnedest to ignore….

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In defence of budget balance Part II

In the second of my two part series of columns in defence of balanced budgets I respond to my critics on the Globe comments page. They were incensed by my argument in Part I of the series that the stimulative effects of Paul Martin’s drive to balanced budgets in the 90s were in any way relevant to today. “That was then, this is now” was there rallying cry. The economy is underperforming and only deficit-financed stimulus can get it back on track.

My reply took several forms. First, I argued that if the Martin example was not relevant because conditions had changed then we should look at the results of the Ontario government’s fiscal policies today. After all they have been running deficits much larger in relative terms than what the new federal government proposes for several years. If they hold out the promise of stimulus for the nation in today’s circumstances we should see strong evidence of that effect in Ontario. Instead we find, well, one of the national economy’s underperformers.

Then there is the whole argument that the national economy is in fact underperforming, and that therefore stimulus might “shock” it back onto a higher growth path. Here I cite the most recent work of the OECD shoing that Canada’s “output gap” (the gap between its actual performance and its theoretical potential) is quite small (a mere .5% of GDP) and that they forecast that it will have more than disappeared in 2016, long before any stimulus spending could have had any effect. The OECD predicts that the next 2 years will see inflation pressures building in the national economy, likely leading to interest rate rises. Kiss the stimulative effect of the federal borrowing goodbye.

Finally I go through yet again the argument why politically it is exceptionally easy to start down the road of deficit financing, but the reverse gear is extraordinarily difficult to find and requires huge strength to engage.

This Economy Lab column appeared in the November 27th edition of the ROB in the Globe and Mail.

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In defence of budget balance Part I

In the first part of a two part series of my columns for the ROB’s Economy Lab feature in the Globe and Mail I take the Liberals to task for breaking the now decades-long consensus in Canada in favour of balanced budgets outside periods of genuine deep crisis. Yes, the Liberals won a mandate to do so (having defeated two other parties both committed to balanced budgets, including, wonder of wonders, the NDP), but as I say in the column that does not make it good policy.

The Liberals claim that the economy is underperforming and that roughly $10-billion of deficit financed infrastructure spending each year for three years will shock the economy out of its torpor. What they neglected to consider was the stimulative effects of balanced budgets. This is a lesson we learned from Paul Martin when he balanced the budget in the 1990s and I lay out the case in some detail….

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On the varieties of economic “stimulus”

“Stimulus” is one of those words thrown around with gay abandon by politicians, especially dutring election campaigns, thinking they know what it means. In my column for the 18 September edition of the Globe and Mail’s Economy Lab feature (in the ROB), I suggest that stimulus ought to be thought of by the effect it produces, not the means chosen. Moreover, I also point out that there is little evidence that Canada is in “recession” but is in fact in low positive growth territory, meaning that traditional stimulus is not at all the cure indicated. Rather we should be removing a number of obvious and longstanding barriers to growth. In other words it is time to think supply side rather than demand side measures.

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Fear the boom and bust: Hayek and Keynes duke it out in rap music

A hilarious video in which two rappers represent F. A. Hayek and John Maynard Keynes! as they argue about the right role for government in dealing with the boom and bust cycle and economic management more generally. Those of you who know me will be aware that I did my Ph.D. on Hayek’s social and political thought and I also did a two part series about Hayek for CBC Radio’s Ideas programme  that included a lot of material about the great rivalry that pitted Hayek against Keynes in the middle of the last century, when they were the two greatest living economists. If you’d like to hear part of those Ideas programs on the Hayek/Keynes bust-up, an audio extract is available on my media page.  Thanks to Brian Ferguson of Guelph U for bringing this video to my attention!

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Brian Lee Crowley