Canada Fiscal Record Not Supportive of Keynesian Theory

Chris EdwardsCongress is debating another aid package for the states and private sector. Further aid for the states is a  bad idea. Aid for small businesses makes more sense, but a  better approach would be for state governments to end mandated shutdowns which are starving businesses of revenues.Many economists are saying that more federal aid is needed to boost GDP. But, as notedhere, GDP shot up in the third quarter even as government spending fell.Canada ’s experience in the 1990s also does not support the Keynesian idea that higher government spending boosts growth. Canada cut spending in the mid‐​1990s and its economy boomed.Canada had a  sharp recession in 1991, worse than the U.S. downturn at the time. Keynesians would say that Canada should have boosted spending in subsequent years to stimulate recovery. But Canadian policymakers worried that deficits were high and government debt was rising. The federal and provincial governmen ts changed course and started cutting spending.What was the result? The chart shows annual real GDP growth and the annual real change in total federal ‐​provincial‐​local program spending. By program spending, I mean total non‐​interest government spending.Here is my interpretation of the chart:1992 to 1997: Decelerating, then falling, government spending coincided with a  strong rebound in economic growth. Government program spending fell four years in a row (1994 to 1997) while GDP growth averaged a robust 3.3 percen...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs