Case for more stimulus is weak, Laval economist says

While I think the government's decision to run a big deficit and pump billions into our recession-ravaged economy was a good thing for our economy and the correct policy response, I have yet to make up my mind on whether more stimulus may be required. I certainly think the government's decision to have an arbitrary turn-off-the-tape date of March 31 is bad — even dumb — policy (though this week, Finance Minister Jim Flaherty, Infrastructure Minister Chuck Strahl and many others are sending strong signals they'll be “fair and reasonable” when it comes to requests for flexibility on that deadline.) But back to the issue of more stimulus: Conservatives are dead against it; Liberals aren't sure yet but think it might be prudent have a plan in the works; and, the NDP say until all those full-time, high-paying jobs come back, Ottawa ought to keep spending.

On Bay Street, BMO Capital Markets number two economist Doug Porter put out a report earlier this summer arguing that, in the U.S. certainly and possibly in Canada, more stimulus would be a very good idea.

But Laval University economist Stephen Gordon suggests that more stimulus may not, at this point, be the correct policy response. Indeed, he says the case for more stimulus is weak.

“Things could change between now and [the tabling of the federal budget in] February. The US outlook is worrisome, so rapid growth seems unlikely: the Bank [of Canada] is right to warn that its interest rate decisions will be based on available data. But it would take a fairly strong negative shock – the kind that would force the Bank of Canada to cut interest rates back down to their lower bound – to make a convincing case for another round of fiscal stimulus.”

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