Capping Stimulus Spending

It's a bit funny to hear the IMF saying that Canada can afford more fiscal stimulus. This is true, but it is a bit like my saying that I can afford more crystal meth: I just know enough not to do more or, more correctly, any at all! This is especially important when far too much is being spent on companies like GM that are failures. However I think that is more of a political decision to keep on side with the US, just as is being done on vehicle emissions and other programs that affect trade.

I think Flaherty is being appropriately cautious to limit stimulus. Too much is likely to be wasted on projects that would otherwise never be undertaken. Then there are the clamours for money to go to companies and industries that will eventually become extinct regardless of any present action.

Considering that our government is not at all comfortable with this type of spending, and is only doing it out of deference to people's fears, and perhaps some political desperation, I expect them to delay every spending program as the time comes up to write the cheques. What they would hope, in my opinion, is that signs of an economic recovery will begin to appear and they will pounce on those to declare that further spending can be deferred or cancelled. I would agree with this approach, regardless of whether that is truly their intent.

Most of the benefit of stimulus spending is in rebuilding confidence. Showing that they are prepared to spend as necessary may be sufficient, making it possible to forgo actually doing it. Thus we get over the hump to the next growth cycle without taking on excessive public debt. The politics will of course get nasty should this scenario unfold, since it is in the Liberals' interest to hold the government to their spending promises.