At the centre of the economic storm
Jim Flaherty's projections have changed a lot, but so have most people's
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by L. IAN MacDONALD
The Gazette, Sunday, March 29, 2009
As Finance Minister Jim Flaherty is at the centre of the economic storm, he seemed a pertinent choice to open a weekend conference on public policy in crisis organized by the McGill Institute for the Study of Canada.
Only last November, in his ill-fated economic update, he was forecasting balanced budgets, with no need for fiscal stimulus, over the next three years. Sixty days later, he presented a budget that predicted $64 billion in deficits, and $40 billion in stimulus over the next two years.
What happened in the meantime, other than the worsening storm, and the Three Stooges opposition coalition that nearly toppled the Harper government?
"The ball was on the table, it rolled off the table, and it still hasn't hit the floor," said Flaherty, quoting a colleague from the never-ending round of G7 finance minister meetings he's been attending since the stock market crashed last September and through the ensuing turmoil in the global financial system.
And where are we now? Somewhere in the middle of the moment, Flaherty suggested, somewhere near the bottom of what he calls "a synchronized global recession." Trying to call a bottom, and predict a recovery, is a hazardous game for forecasters. As Kevin Lynch, the clerk of the Privy Council, put it in another conference keynote address on Friday, uncertainty is part of the problem, "the civilian equivalent of the fog of war."
That's very well put. Some of the same economic geniuses who are saying Flaherty's recovery forecast is too optimistic, and his deficit number too low, were also predicting oil at $200 a barrel a year ago.
"No one, but no one, predicted a recession for Canada," Flaherty said. Not even David Dodge, apparently, although the former governor of the Bank of Canada has made some pointed comments about the government being too rosy in its outlook. It's hard to know whether Dodge was speaking of the prime minister or his successor at the bank, Mark Carney. But his comments raised eyebrows all across the public policy and financial community. Dodge knows perfectly well that as a former head of the central bank, and a highly regarded one, his remarks can move markets.
Flaherty had a bit of push back, noting that "in Governor Dodge's last report in 2007," he forecast "three per cent growth in Canada in 2009."
Minus three per cent might be more like it. But, hey, nobody's perfect. When Flaherty was on the ice at Loyola High, all those years ago, it was always a good idea not to get between him and the net. Or as Gordie Howe used to say, elbows famously up in the corners: "Welcome to the NHL."
In any event, there is another saying that to govern is to choose, and Flaherty made his choices in the January budget.
"Public policy-making, budget-making, means choices," he said. He added: "What really drove the policy in my view was the question, what does Canada need now?"
It needed government investments to stimulate the economy at a time when the banks had stopped lending and consumer confidence had gone off a cliff. The deficit forecast for the new fiscal year beginning Wednesday is $34 billion, the first deficit in 12 years and the largest since the last recession in 1990-91. But it's only two per cent of GDP, and it meets Canada's commitments on stimulus at last November's Washington summit of the G20.
For Flaherty, in terms of the political calculation, if he was going to be in for a dime on the deficit, he might as well be in for a dollar.
There were, he said, "certain fundamentals," that dictated the budget framework. "We had to be bold," he said, "we had to be pragmatic, and we had to have an exit strategy," namely a timeline for returning to a surplus, which he has fixed as five years from now in 2014. Of course, the true believers on the right are unhappy, but nothing short of libertarian outcomes ever satisfies them.
It wasn't the true believers Flaherty was consulting in a series of cross-country town-halls and advisory meetings in December, which he called "the largest, broadest consultation that's ever been done" in this country.
Flaherty said he spent most of that time just listening. "Basically I would just sit down and say nothing, and at one of them I got a standing ovation," he said. "And I got a lesson - if I don't talk, I get a standing ovation."
This is counter-intuitive for a politician, and Flaherty drew appreciative laughter. It isn't every day that the government's best communicator is the finance minister, especially in the worst of times. But it's the case here.
"We will come out of this," he said. "We are Canadians."