Price of stimulus here come the cuts

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Sean in Ottawa
Price of stimulus here come the cuts

The moment the stimulus was announced I was afraid this was where we would end up.

The Conservatives may have been right -- we would have been better off without the stimulus. Eventually they saw the opportunity though.

The stimulus was a chance to re-direct government spending to political needs and away from the very kinds of spending Conservatives disapprove of. Unnecessary spending blew billions, much of it on low priority items we did not need, much of it directed to Conservative ridings.

And now that this is done and there is a big deficit we will cut back on essentials. The spending was particularly wasteful. It was not designed to create jobs and it was not designed to address critical infrastructure needs-- it was designed to create Conservative votes.

I wrote some time ago that the deficit spending criticisms for the most part were missing the point by comparing spending directly from one riding to another. As bad as it looked, this made the problem look less serious than it was. Conservative ridings should not even match Liberal and NDP ridings they should have had less, if the money was being doled out based on need. Here's why: Conservatives have many suburban ridings with newer infrastructure not yet needing replacement and opposition ridings contain city centre's that serve far wider than their own constituencies. Effectively, as a whole residents of Conservative ridings use the infrastructure in Liberal/NDP ridings but not the reverse. This is a fact of urban geography that many miss.

In any case the stimulus spending has created a massive rationalization for cutting more essential spending. And with this huge round of spending ending, anything that did not get done, has a much lower chance of ever getting done than before the wad was spent. Now the Conservatives will go after core program spending and for needed investments in the environment, city centres, transportation schools, it is out of the question.

This is why I argued from the start that there needs to be a value for money component to the stimulus spending that was missing.

As far as the stimulus itself-- that benefit of the spending will miss the mark as well. Apart from the inefficiency of throwing the money to the wind rather than value for money, it is about to be counteracted. The deficit is likely to push up interest rates and the tax on services will make buying a new home more difficult. Many businesses also sell services and if people reduce their purchases they will have less to spend. The HST in two large provinces may be a far more efficient blow to the economy than the so-called stimulus was a help. The contraction in government spending will happen at the same time. Most economists acknowledge that you should introduce taxes when the government is spending not when it is pulling back. This is basic Keynsian economics. When the government does not spend you need an environment for individuals and the private sector to spend (a tax won't help that) and when the private sector and individuals don't spend that's when the government must. As well, stable spending on basic programs provide stability.

As it turns out, this government has used the wrong stimulus and is burying it in policies that will destroy any benefit we may have had from it and the cost will be great.