Projecting the future of fiscal and (not) monetary policy

While some are predicting more of the same in terms of monetary and fiscal policy I suspect a couple changes are in the pipe at least vis-a-vis fiscal policy. Monetary policy is foggy: there are just too many what ifs floating around. In terms of fiscal policy I think short term 1-2 years we will simply wallow along with the old paradigm. It will take awhile to figure out that there is simply not much fat that can be cut from the budget and most program spending is already at politically minimal levels. So tax policy is eventually going to be all the rage. The direction of that conversation will partly be determined by what happens in the US both because our political conversation tends to follow not lead that in the US and because of the implied tax space that will I think be created by increasing corporate and personal income taxes in the US. Sooner than later, the US is simply going to have to pay for two imperial wars, and a serious structural deficit in terms of their trade and fiscal balance. All three point in the direction of higher profit, income and consumption taxes. Further, the long term trend income inequality in the US would seem to point in the direction of a high income surtax or more exactly a more not less progressive income tax regime. That might be 5 years out in Canada but I do think it is coming.

Hence medium to long term I suspect those conservatives who think we are simply going to pick-up where we left off before the crisis are going to find themselves where the pseudo Keynesians were circa the 70s: in a state of lament with no a discredited policy paradigm going forward.


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