Debt

Leading progressive academic economist Steve Keen gained international recognition after he successfully predicted the 2007 global crisis using an alternative macro-economic model built on the pioneering work of Hyman Minsky and Wynne Godley. His new book, “Can we avoid another financial crisis?” argues that the lessons of the crash have still not been learned by the economic policy mainstream, and that a new crisis looms for some highly indebted countries, including Canada.

For all of the self-congratulatory rhetoric of the Harper government, the fact remains that Canada’s economic recovery has been built on very fragile foundations. Growth has been fueled by the growth of household and foreign debt rather than by business investment, and we have become dangerously reliant on the resource sector.

Central bank governors are not normally known for being outspoken or critical of prevailing economic policies. Not the case, it seems, for Mark Carney and David Dodge, former governors of the Bank of Canada.

Mr. Dodge, in a report for the legal firm Bennett Jones, has recently warned against premature fiscal tightening in the current economic climate. Indeed, he and his coauthors advocate an expansion in infrastructure spending — in ports, roads and transit systems — among other things. Even though this will mean continuing fiscal deficits, they say that “in the current environment of low long-term interest rates, fiscal prudence does not require bringing the annual budget balance to almost zero immediately”. Such counsel flouts the current policy stance of the federal Conservative government, which is to eliminate the budget deficit next year.