Federal government can't spend money on infastructure, it has no money

As pressure continues for the federal government to introduce another round of new spending, the Federation of Canadian Municipalities are adding its voice and suggesting that commuter infrastructure would be a good way to spend all that money that the federal government doesn’t have.

The first thing that comes to my mind is that even among Keynesians the usefulness of government infrastructure spending as a way to improve the short term economy is disputed. The effects on the job market are too narrow when you consider that it only employs people with specific skills, and usually it takes too long for these projects to be launched. So even if you do think that boosting aggregate demand is the thing to do (which I don’t) you have to wonder if infrastructure spending is the best way to do that.

The next thing that comes to my mind is that Toronto desperately needs a better system for commuters. I spent two weeks commuting from the Newmarket area to midtown Toronto and I vowed never to do it again. “Stimulating” the economy may just be a convenient excuse to tackle the problem. Although I would think that even if there is disagreement on what should be done and how it should be done, pretty much everyone agrees that something needs to be done.

The third thing that comes to my mind is something that I mentioned in the first paragraph: the federal government has no money. The Government of Canada has been in deficit since the 2009/2010 budget and the Minister of Finance was betting a return to surplus on a fast growing economy, which is a dubious prospect at best. So if the federal government has to borrow money without even having to take on new projects, you have to wonder where this new spending is going to come from. How much more money do we really want our government borrowing? Also, if you have to borrow just to pay your day to day bills, is that really the best financial moment to invest in a large capital project?

Back in 2007 the Government of Canada may have been able to afford the cost of improving commuter infrastructure, but over the last few years the gluttony of spending has made it impossible. It would be incredibly financially prohibitive to spend the billions it would require.

Fortunately there are things that governments can do to take pressure off the system, if they have the political will. But at some point governments will have to spend money to address the problem and that money has already been wasted away.