Mr. Speaker, I move that the first report of the Standing Committee on Finance, presented on Tuesday, February 16, 2021, be concurred in.
The Prime Minister is spending Canada's tomorrow on his today. Here we are, with another record-breaking deficit. In fact, in the last two years alone, the government will have added roughly half a trillion dollars to Canada's national debt. With the fiscal program laid out, we will see the Prime Minister having added more debt than all of the previous prime ministers going back to Confederation combined.
The Prime Minister might take delight in the present-day experience of all of his spending. Yesterday is history, tomorrow is a mystery, today is a gift, and that is why they call it a present. He might not worry about what is to come. He might say the mystery of tomorrow will find out its answers when we get there.
How can we predict what all of this debt will mean tomorrow? The only way to see into the future is to look to the past.
Let us look at the example of the most prescient, prophetic political leader of all time: Winston Churchill. In the early 1930s, he predicted World War II while most were blind to German aggression. In 1946, while most still believed that they could maintain the wartime pact with Stalin well into the post-war period, he arrived at Westminster College in Fulton, Missouri and gave his famous “Iron Curtain speech”, predicting the Cold War that would define the following half century.
Not only that, but in Maclean's magazine in 1931, he wrote some very prescient language about technology, with which we can all relate today. He said:
Wireless telephones and television, upon their present path of development, would enable their owner to connect up to any room similarly installed and hear and take part in the conversation as well as if he put his head in through the window. The congregation of men in cities would become superfluous.... There would be no more object in living in the same city with one’s neighbor than there is today in living with him in the same house. The cities and the countryside would become indistinguishable.
Now, as we are all entering the Zoom world, where people are living in the countryside and doing work that was formerly done congregated together, we can see the incredible prophecies of Winston Churchill, who predicted everything that we would call today the iPad, the smart phone, the Zoom and the Skype.
How did he make these kinds of predictions 90 years before they would happen? The answer is, as he put it when he advised young people at one commencement ceremony, study history, history, history. He wrote 52 volumes of Nobel Prize-winning literature, almost all of it on history. He said there was a methodology for seeing the future. Here is what he wrote it would be:
There are two processes which we adopt consciously or unconsciously when we try to prophesy. We can seek a period in the past whose conditions resemble as closely as possible those of our day, and presume that the sequel to that period will, save for some minor alterations, be repeated. Secondly, we can survey the general course of development in our immediate past, and endeavour to prolong it into the...future.
In other words, look back in order to see forward. We can do the very same thing about economics. Thankfully, Dr. Rogoff and Dr. Reinhart from Harvard University have condensed 800 years of financial and debt history into five leading indicators for a forthcoming debt crisis. Do they apply to Canada? I will quickly go through them.
One is declining output. Last year, our GDP dropped $120 billion, check.
Two is large and sustained current account deficits. That means we buy more from the world than we sell to the world. We have had that for the last five years as well, amounting to $300 billion of current account deficits, check.
Third is asset price inflation. Anybody who has tried to buy a house lately knows we have that. House prices are up somewhere around 25% in the same year when the income with which our economy buys those houses has dropped. In fact, Toronto and Vancouver are two of the most expensive housing markets on planet earth, two of the 10 most expensive, to be precise, so yes, we have asset price inflation, check.
The next thing we have is rising household leverage. We have $1.75 of debt for every dollar of take-home pay, which is the highest ratio in the G7, and a near record in Canadian history, check.
Finally, there is a rise in overall debt across the economy, which I think we can all agree is true. Last year, the deficit was equal to 17% of GDP, which is the largest single deficit we have ever had outside of the Second World War. In fact, as a share of GDP, it is twice the size it was in World War I, three times the size it was in the Great Depression and four times the size it was in the great global recession.
The only time it was ever bigger was in the middle of the Second World War, when we were fighting imperial Japan, the Nazis and the Mussolini's fascists. Other than that period, we have experienced record levels of debt increase in this short period of time.
Therefore, we have the fifth and final leading indicator based on historical experience of a forthcoming debt crisis, according to these two distinguished economists who have done exhaustive research, case by case over eight centuries. All five of those rules are checked in this case.
Some will say that this time is different. This time we will be able to break all of the rules of public finance and have nothing go wrong because we have Skype. We have new technology, and we have Twitter. We can do all the things that were mathematically impossible throughout all of history. This time it is different.
It turns out that Reinhart and Rogoff named their book This Time Is Different because, every single time there is a debt crisis, in the years leading up to it, politicians say that this time is different. Let me quote them:
The essence of this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us here and now. We are doing things better, we are smarter, we have learned from our past mistakes. The old rules of valuation no longer apply. Unfortunately, a highly leveraged economy can unwittingly be sitting with its back at the edge of a financial cliff for many years before chance and circumstance provokes a crisis of confidence that pushes it off.
We ask ourselves if we are, again, sitting with our backs at the edge of that cliff. As I said at the outset, we need to look back in order to see forward. Have we been here before? It turns out that we have, but they were totally different circumstances. For example, back then, the prime minister's name was Trudeau, and he was running a deficit of 11% of GDP. Right now, we have a Prime Minister by the same name, and he is running a deficit from last year of 17% of GDP. That is totally different.
Back then, Pierre Elliott Trudeau sent the Bank of Canada on a money-printing spree to pay for all of his spending, and the money supply, M2, grew by 15%, but now it is totally different. Money supply has only gone up 13% under completely different circumstances. Why do we keep going back to the past like that? Next, back then, federal government spending had gone over the 20% mark. Now it is almost 30%. It is completely different.
The government, as a share of the economy, is a third bigger now than it was back then. With all the same ingredients put in the pot, we expect to come away with a different stew. The reality is that history repeats itself. When we do the same things over and over and expect a different result, we are carrying out the very definition of insanity.
What happened as a result of the debt crisis of Pierre Elliott Trudeau in the early 1980s when he ran deficits of over 10% of GDP, increased the money supply in just one year by 15% and had a federal government alone that consumed more than a fifth of the economy? Well, we had something called “stagflation”, the stagflation crisis of the early 1980s.
What was the human cost of that crisis? There were 650,000 more people in poverty by 1984 than were in poverty in 1980, a 25% increase in poverty in just four years. Inflation hit a nearly half-century high of 12% and unemployment hit an all-time high also of 12%. There was an all-time high in interest rates with the bank overnight lending rate hitting 18%. Can the Speaker imagine interest rates of 18%? He is far too young to remember all the way back to that time.
When we combine inflation and unemployment, as economists do, they add one to the other to create something called the “misery index”, which is the amount by which consumer prices are rising and the percentage of the people who are without jobs. It reached 24%, again an all-time high. There is something very tragic about a high misery index.
When people's costs go up and their salaries go down, their desperation rises and often they end their own misery. In the year 1983, under Pierre Elliott Trudeau and the policies we see replicated now, the suicide rate hit 14.8 per 100,000, the single highest suicide rate in Canadian history before or since. When things get miserable enough, people have a tendency, tragically, to end their misery.
We know from economic data around the world that financial crises can be lethal. For one, according to Rogoff and Reinhart, they see a drop in housing prices of one-third, which means people's homes are worth less than their mortgages, meaning they cannot possibly ever pay off their mortgages and must default with enormous losses that cascade across the economy. Because they have no net equity, they cannot find a place to live.
Unemployment rises by seven percentage points in the average financial crisis. According to the University of Calgary, in Canada, for every one percentage point increase in the unemployment rate, we get a two percentage point increase in the suicide rate. In financial crises that happened across Asia, for example, in 1997, there were 10,000 excess suicides that occurred.
In the great global recession, the great recession of the 2008-09 period, there were also another 10,000 additional economic suicides reported by the British Journal of Psychiatry. There is an abundance of scholarly evidence that financial crises destroy not only people's livelihoods, bank accounts and their net worth, but also force many to do the most desperate of deeds, and that is exactly what we need to avoid.
History also gives us reason for hope, and let me look back at another part of our history. As I said at the outset, only once in history has the deficit in Canada been bigger than it was last year, and that was in the middle of the Second World War. Our men and women returned from the battlefield having this enormous debt, and what did they do? They immediately worked to pay it off.
By 1947, the federal government was running the single biggest budget surplus as a share of GDP in Canadian history: 5% of GDP. That would be the equivalent of a surplus of over $100 billion today were it matched relative to our economy now. As well, from the end of the war to 1973, our economy grew from $12 billion to $128 billion. That is economic growth of 1,000%, literally a 1,000% in the size of our nominal economy.
Our ancestors returned from the battlefields and went to the farm fields and factories and unleashed a torrent of production at the same time as they exercised good, responsible management. They had fought for our freedom, and then they returned to fight for our finances, and they basically vaporized the debt.
It is true that in this period there was a phenomenal growth in the industrial power of our economic system. New machinery was invented that allowed our factories, our mines, our warehouses and our transportation systems to crank out far more goods and services for our people than ever before, but, happily, the same is now occurring with technology. We are experiencing another industrial technological revolution that can empower the same kind of productive enhancements, but it will take change and it will take an effort to secure our future.
We need to unleash the free enterprise system, restore industry and frugality at the same time, so that our incomes can outpace our debts, so that we can replace a credit card economy with a paycheque economy, so that our people can be confident in their ability to pay down their mortgages and our governments to pay down their debts, so that our programs upon which our most vulnerable rely will always have a solid financial footing, and so that our hard-working public servants can continue to draw the salaries that they deserve. This is what it means to secure our future.
Unfortunately, we have a government that is focused exclusively on the myopia of the here and now, taking incredible risks as we sit on the edge of this debt cliff. It does not have to be this way, because, just as our history tells us of the folly of the past, it tells us about the hope for the future. We, in this party, will build upon that hope and stand on the shoulders of our ancestors who gave us this mighty and great country and let us keep Canada strong and free.