Take That, Keynes and Lerner
By David Henderson
Paul Martin, the Minister of Finance for Canada from 1993 to 2002 and Prime Minister from 2003 to 2006, was the person most responsible for bringing down government spending and government debt as a percent of GDP. Between FY 1993-94 and FY 2005-2006, federal spending on government programs fell from 16.8% of GDP to 12.8% of GDP and federal spending on interest on the federal debt fell from 5.5% of GDP to 2.5% of GDP, for an overall drop in federal spending from 22.3% of GDP to 15.3% of GDP. In his memoirs, Hell or High Water: My Life in and out of Politics, he writes:
It is important to understand that the no-deficit rule was a sharp break with tradition. In the postwar years, many economists argued that you did not need to be in the black every year, as long as budgets were balanced over the course of the economic cycle, so that deficits during slumps would be paid off with surpluses in good years. Whatever the economic rationale for that approach, it didn’t work in the real world of politicians. Once you break the spell–once governments find that they can get away with borrowing instead of taxing to pay the bills–it is almost impossibly tempting for politicians to do it again and again until the debt is out of control.
The reason for the title of Martin’s book is that when he pledged to hit his deficit targets in 1995, he said that he would do it “come hell or high water.” He kept his pledge.