I Hear the Pain a'Comin

As the dust settles on the recent G8/20 gatherings, the overall grading of its outcome has been deemed “mediocre.”  If there was any hope that the recent effort could provide new life back into the G8 and perhaps extend it longer life, there is less optimism for it today.I had an interesting call this morning from a member of the German delegation who specializes in international development.  I had met him at a previous G8 run-up gathering and appreciated his candour.  He expressed frustration at what he termed the “zero-sum game” regarding child and maternal health.  “All of the delegations knew going into these sessions that your PM was pressing us to donate more to the maternal health initiative, but at the same time he pushed even harder for us to make the drastic cuts necessary to half our deficits by 2013.  How did he think we could afford the maternal health commitment after that?”And so, there it is.  Once again, economics trumped humanity.  After much consultation in the last few days with international development organizations, it now seems likely that the Millennium Development Goals, and Canada’s portion of it, will never be reached - a bitter pill following all the hype.Ultimately, the big story behind the summits was the loose agreement reached to slash deficits. Harper pressed for it and got it, though the targets are hardly binding. But what it does mean is that painful days are ahead, including for Canada.  We have the largest deficit in our history, part of it honestly acquired through stimulus spending.  But for the Harper government to live up to its own demands on others will require billions of dollars cut out of Canadian programs to cut half of our deficit of over $50 billion within just two years.  The next budget will likely be the most painful in recent memory and might well alter the seeming gridlock in Ottawa.Nobel-winning economist Paul Krugman posed a provocative thought this past weekend.  We are destined for what he calls the “Third Depression.”  He predicts long-term unemployment will remain at “catastrophic” levels.  He concludes:

It’s almost as if financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression … is actually self-defeating.”

Krugman calls the G8/G20 “deeply discouraging,” and moans the PM’s pressure for halving the deficits of advanced economies for the travail it is about to cost.  Only time will tell.  But it appears likely that this country will not escape the pain, and since Harper says he won’t raise taxes (even for environmental purposes), all we can expect are deep program cuts.  It would be foolish to think Canada can either escape it or grow its way out of it.As the Globe and Mail’s Jeffrey Simpson commented: “The single most curious aspect of North American conservatism is that is has very seldom produced what it preached … Put another way, incessant clamouring for smaller government, small-c conservative values, lower taxes, and balanced budgets, has never yet happened in any sustained way … Conservative-minded governments often produced fiscal messes that centrist or centre-left governments then had to clean up.”However it is that the government chooses to slash our significant deficit numbers, it will be painful, and if Krugman is right, long.  Our private debt in Canada is near the highest per-capita in the world.  And with huge public bills to pay, Canadians are in for a long night.  The PM’s pressure to cut the stimulus incentives short before a real recovery is apparent on the horizon actually speaks of conservative values.  The trouble is, both the size of government and deficits have ballooned under his leadership.  Now comes the time to pay the piper.