Spending cuts

Spending cuts are the key to recovery
National Post, Friday January 16, 2009, p. FP11
Martin Masse

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Two of the country's think-tanks have recently offered budget recommendations to Finance Minister Jim Flaherty that deviate from the Keynesian consensus. The C. D. Howe Institute proposes very little new spending and argues instead for important tax cuts, especially for businesses and to stimulate investment rather than consumer demand. There should, however, be deficits totalling $40-billion over the next four years to cover the shortfall. The Fraser Institute called for both tax and spending cuts and for a balanced budget. Why is the Fraser solution the only one that makes good economic sense? The answer is to be found in the distinction between money and real resources, which the C. D. Howe analysts are ignoring.
Finding money is not a big problem for governments. They can borrow or print gigantic amounts of it and throw it on the economy to boost this or that sector. That's what they did during the latest boom that we went through beginning in 2001.
It gave the illusion that we had unparalleled prosperity when in fact we mostly got speculation and unsustainable bubbles in some areas, record levels of indebtedness and a depletion of capital that should have been used in sectors where there was a real and solvent demand.
Now that a crash has predictably happened, these malinvestments have to be purged and the economy has to readjust to a sounder production process before it can start growing again.

FULL ARTICLE HERE http://www.quebecoislibre.org/09/090115-18.htm

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