{"id":10997,"date":"2015-08-14T06:52:34","date_gmt":"2015-08-14T11:52:34","guid":{"rendered":"http:\/\/olduvai.ca\/?p=10997"},"modified":"2015-08-14T06:52:34","modified_gmt":"2015-08-14T11:52:34","slug":"austrians-vs-the-world-on-canadian-fiscal-austerity","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=10997","title":{"rendered":"Austrians vs. The World On Canadian Fiscal Austerity"},"content":{"rendered":"<h3><span class=\"blue\"><a href=\"http:\/\/mises.ca\/posts\/blog\/austrians-vs-the-world-on-canadian-fiscal-austerity\/\" target=\"_blank\">Austrians vs. The World On Canadian Fiscal Austerity<\/a><\/span><\/h3>\n<p>I don\u2019t know whether this is something the average Canadian discusses over coffee, but the sharp fiscal turnaround in the mid-1990s is still providing fodder for today\u2019s economists to argue.\u00a0<a href=\"https:\/\/mises.ca\/posts\/blog\/did-canadian-governments-famous-budget-cuts-rely-on-loose-money\/\">In September 2014<\/a>, I summarized the Canadian budget triumph, in which the federal government turned its deficit into a surplus largely through spending cuts, with the economy suffering no ill effects.<\/p>\n<p>But I also explained that it\u2019s crucial for Keynesians like Paul Krugman to explain away the success of this so-called austerity by pointing to falling interest rates. Thus, Krugman argued, it\u2019s not that cutting government spending actually helps an economy, but rather it\u2019s that looser monetary policy can pick up the gaping hole in Aggregate Demand.<\/p>\n<p>In my first Mises CA\u00a0post and\u00a0<a href=\"https:\/\/mises.ca\/posts\/blog\/more-evidence-that-canadian-success-story-didnt-rely-on-loose-money\/\">then a follow-up<\/a>, I gave various arguments and evidence to say that the Bank of Canada did\u00a0<em>not<\/em>\u00a0appear to have loosened policy. For example, the growth in the Bank of Canada\u2019s assets almost came to a halt in 1996, and it was no higher in subsequent years than it had been earlier in the decade. Furthermore, CPI inflation showed no signs of heating up during the period when Krugman must claim that monetary policy loosened.<\/p>\n<p>The one metric that lines up with Krugman\u2019s story is that Canadian interest rates fell. But, I pointed out that this is exactly what we would expect to happen naturally, as the federal government greatly reduced its borrowing and fears of a bond crisis evaporated. After all, this was just the mirror image of what happens in a situation of high government deficits, when\u00a0\u201ccrowding out\u201d and fears of a default go hand in hand with high interest rates.<\/p>\n<p>The debate flared up once again last month, prompted by\u00a0<a href=\"http:\/\/krugman.blogs.nytimes.com\/2015\/07\/08\/policy-lessons-from-the-eurodebacle\/\">another Krugman post<\/a>\u00a0in which he (again) said that the Canadian experience in the 1990s showed the importance of loose money to offset budget cuts. This time, Market Monetarist\u00a0<a href=\"http:\/\/macromarketmusings.blogspot.com\/2015\/07\/did-monetary-policy-really-offset.html\">David Beckworth jumped into the fray<\/a>, taking the Keynesian position.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Austrians vs. The World On Canadian Fiscal Austerity I don\u2019t know whether this is something the average Canadian discusses over coffee, but the sharp fiscal turnaround in the mid-1990s is still providing fodder for today\u2019s economists to argue.\u00a0In September 2014, I summarized the Canadian budget triumph, in which the federal government turned its deficit into [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[8066,103,8067,201,8064,8065,7200,534,614,2247],"class_list":["post-10997","post","type-post","status-publish","format-standard","hentry","category-economics","tag-austrians","tag-canada","tag-canadian-federal-budget","tag-deficit","tag-fiscal-austerity","tag-keynesians","tag-mises-canada","tag-monetary-policy","tag-paul-krugman","tag-surplus"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10997","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10997"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10997\/revisions"}],"predecessor-version":[{"id":10998,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10997\/revisions\/10998"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10997"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10997"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10997"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}