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Saturday, March 27, 2010

Stephen Harper vs the Fraser Institute

Thursday Stephen Harper attacked a report released on Tuesday by the Fraser Institute that demonstrated that the ‘stimulus package’ has achieved nothing. All that the massive increase in government spending has achieved is that the country is now burdened with more debt. Mr. Harper’s and Mr. Flaherty’s attempt to defend their non-stimulus was pathetic.

"First of all, that’s completely wrong and quite frankly contradicted by very serious work that’s been done [elsewhere]" Harper told reporters. "Economic theory and history is clear, governments must … make sure [funds] are put to productive use in the economy to create jobs."

Actually economic history says nothing of the sort. Economic history shows that such government spending only leads to inflation and ultimately harms the economy. When Mr. Harper studied economics at the University of Calgary did they just skip over the 1970s?

And yes economic theory is clearly on the side of the government, unless we are talking about Monetary Theory or the Austrian School of Economics. I hate it when governments say “economists agree.” Economists, the good and the bad, agree on basically nothing. It is a very factious discipline. Anyone who simply says, “Economists say this so it is what we must do,” is committing the logical fallacy of appeal to authority.

As for contradicting “every serious work,” there isn’t any other serious work that is based on data and not models. The data is too new for there to be an established academic opinion on the success of the stimulus. With assumptions we can make models of how the stimulus might have worked, but hey what if those assumptions are wrong? This is why academics check their conclusions with empirical data as soon as it becomes available. Sort of like what the Fraser Institute did.

Flaherty said the report fails to take into account the effects of the home renovation tax credit, the automotive stimulus program and the work-sharing program, which he said have saved more than 200,000 jobs.

"We added two points of GDP last year through the economic action plan," Flaherty said. "Consumer confidence is back at historically normal levels —so is business confidence in the first quarter of this year.

It may be true that 200 000 jobs have been “saved” but I am curious where that number comes from. Is that number the result of a study of the empirical data or a projection based on assumptions? Anyway, even if it was true it doesn’t really matter. The government “saved” those jobs by taking money from other people and paying companies to not fire anyone, this is zero economic gain. It is purely redistribution of wealth.

Furthermore I would like to know how exactly the government added “two points of GDP” or where the government got that data. The Fraser Institute is citing their sources and the government is just throwing numbers out in the air. And hey, call me crazy, but when there is a political motivation involved I tend to be suspicious of government assertions.

Business and consumer confidence may be back up, but why is this an accomplishment of the government? The economy tends to go in cycles, which suggests that confidence would have gone up by itself anyway. In fact there isn’t any evidence that the confidence didn’t go up by itself. The government argument seems to be: we did something, something good happened, therefore we did something good. I think that we don’t need Plato to rip apart that logic.

In conclusion watch this video explaining the theories of Hayek and Keynes. It clears up some issues that Mr. Harper seems to have forgotten since his University days.

Posted by Hugh MacIntyre on March 27, 2010 | Permalink

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