Much of the commentary regarding the Liberals' deficit-funded infrastructure plan is muddling two ideas.
1) Deficits taken on in order to increase spending in order to stimulate economic growth. The
article by Stephen Gorden I linked earlier explains why this works poorly in Canada, if at all:
"An increase in government spending induces an exchange rate appreciation and the resulting decrease in net exports offsets the original stimulus.
The only effect of higher government spending is to displace private spending.
To be sure, this is only theory, but it’s the same theory that says fiscal policy would be effective in the U.S. and in eurozone countries. Moreover, the available data fit the theory. The Chrétien-era budget cuts produced an increase in the primary budget balance (that is, before debt service charges) by more than four percentage points of GDP in the space of three years — on the order of the austerity currently expected of Greece. But while the consensus of opinion is that this level of budgetary rigour will be disastrously costly for Greece, Canada’s economy emerged from the 1990s austerity years almost unscathed. The proximate explanation is our flexible exchange rate: the Canadian dollar depreciated and the resulting export boom offset the decline in public spending. It works the other way, of course: there’s at least one cross-country statistical study that I’m aware of that finds that the net effect of an increase in Canadian government spending during the period 1980-2001 was to reduce GDP."
He also points out that it's a solution for a different problem (demand shortfall). The current "recession" is driven by a slump in commodity prices.
Several people have noted that none of the funding could possibly roll out in time to deal with the current "recession".
Additional irony: once again, Wynne is backing the player and policy that is wrong for export-driven manufacturing in ON (higher spending -> higher dollar).
2) Deficits taken on to fund something in particular - in this case, "infrastructure", preferably productivity-enhancing infrastructure. Social housing and senior's centres don't fit that description. Public transit fits provided it does not include rail (plenty of literature exists which shows that rail transit is a "gift" that sucks funding out of other transit). "Green" energy infrastructure fits only if it excludes subsidies; again, plenty of examples exist to show that companies simply structure themselves to be profitable with subsidies and fold without them.
Basically, "stimulus" is a dead idea and the people talking about it as if it matters are clueless. The Liberal platform can only be evaluated in terms of whether projects genuinely qualify as investments to increase productivity. If not, then all the spending does is buy more stuff that has to be maintained at the expense of other infrastructure and increase the debt.
