Thursday, November 15, 2012

Conservative Fiscal Deficits & Ignorant Surpluses

Though many would say that fiscal deficits from this Conservative government are the most worrying, their lack of economic knowledge is far more dangerous.

Before showing the economic ignorance of Conservative MP Pierre Poilievre a quick introduction to terminology is needed.

When speaking of our debt there is a basic yet important distinction; gross debt is a total of all liabilities and net debt is that same total of liabilities but minus all assets. Because assets cannot be liquidated instantly, net debt fails to reflect long term debt burden, but both are vital measures of government indebtedness, especially when used as a ratio with Gross Domestic Product. As of 2012 Canada's net debt is $637 billion and its gross debt is $1.55 trillion.

The Bank of Canada, the International Monetary Fund, the Organization of Economic Co-operation and Development among other economic entities use both gross and net Debt-to-GDP ratios to analyze a country's economic situation.

Now onto Conservative economic ineptitude.

Conservative MP Pierre Poilievre (referring to a journalist):

"Gardner uses the gross Debt-to-GDP ratio to superficially support his case. The measurement is meaningless, because it ignores the other half of the balance sheet: assets.... That is why economists use the net Debt-to-GDP ratio to determine the size of a country’s debt relative to its economy."
Follow this up with one example from a report from the Bank of Canada (which likely has more than one economist working there):


And follow that Bank of Canada report with a report from the International Monetary Fund (which just might have even more economists working there):
"However, large central bank holdings of government debt and other assets will need to be liquidated or rolled over to the private sector as the demand for base money returns to more normal levels, meaning that gross general government debt, alongside net debt, remains a key indicator of public indebtedness over the longer term."
So Pierre Poilievre is wrong, both gross and net Debt-to-GDP ratios are important measures and are both used quite frequently. 

But regardless of the terms used, it must be admitted Canada's debt is getting dangerously high. The IMF just last month said that a gross Debt-to-GDP ratio of 100% was high, Canada's will be 88% in 2013. And just as the sky is the limit with unending Conservative deficits, it appears the same can be said for Conservative economic ignorance.


CuJoYYC said...

Not sure if Poilievre is ignorant of "economic knowledge", though that is, indeed, probable. It's far more likely that he's simply following his and the CPC's modus operandi and simply lying and besmirching an opponent, real or imagined. said...

CuJo, I could cite Socrates and argue that anyone who purposely lies is ultimately ignorant, but I'll concede your point that it is difficult to differentiate between deceit and ignorance.

Either one however is bad for economic governance.

Dave MacKay said...

Excellent of you to prepare and author a blog on this subject. Canadians have been dealt flim-flam regarding finance and apparently opposition members have not a lot to say.