From the Fraser Institute

By Ben Eisen

In case you haven’t heard, Chrystia Freeland resigned from cabinet on Monday. Reportedly, the straw that broke the camel’s back was Prime Minister Trudeau’s plan to send all Canadians earning up to $150,000 a onetime $250 tax “rebate.” In her resignation letter, Freeland seemingly took aim at this ill-advised waste of money by noting “costly political gimmicks.” She could not have been more right, as my colleagues and I have written here, here and elsewhere.

Indeed, Freeland was right to excoriate the government for a onetime rebate cheque that would do nothing to help Canada’s long-term economic growth prospects, but her reasoning was curious given her record in office. She wrote that such gimmicks were unwise because Canada must keep its “fiscal powder dry” given the possibility of trade disputes with the United States.

Again, to a large extent Freeland’s logic is sound. Emergencies come up from time to time, and governments should be particularly frugal with public dollars during non-emergency periods so money is available when hard times come.

For example, the federal government’s generally restrained approach to spending during the 1990s and 2000s was an important reason Canada went into the pandemic with its books in better shape than most other countries. This is an example of how keeping “fiscal powder dry” can help a government be ready when emergencies strike.

However, much of the sentiment in Freeland’s resignation letter does not match her record as finance minister.

Of course, during the pandemic and its immediate aftermath, it’s understandable that the federal government ran large deficits. However, several years have now past and the Trudeau government has run large continuous deficits. This year, the government forecasts a $48.3 billion deficit, which is larger than the $40 billion target the government had previously set.

A finance minister committed to keeping Canada’s fiscal powder dry would have pushed for balanced budgets so Ottawa could start shrinking the massive debt burden accumulated during COVID. Instead, deficits persisted and debt has continued to climb. As a result, federal debt may spike beyond levels reached during the pandemic if another emergency strikes.

Minister Freeland’s reported decision to oppose the planned $250 onetime tax rebates is commendable. But we should be cautious not to rewrite history. Despite Freeland’s stated desire to keep Canada’s “fiscal powder dry,” this was not the story of her tenure as finance minister. Instead, the story is one of continuous deficits and growing debt, which have hurt Canada’s capacity to withstand the next fiscal emergency whenever it does arrive.

Ben Eisen

Senior Fellow, Fraser Institute

From the Daily Caller News Foundation

By J.D. Foster

Trump should insist on these measures and order that unless they are carried out the United States will not participate in NATO. If Canada is allowed entry to the Brussels headquarters, then United States representatives would stay out.

Steps Trump Could Take To Get NATO Free Riders Off America’s Back

In thinking about NATO, one has to ask: “How stupid do they think we are?”

The “they,” of course, are many of the other NATO members, and the answer is they think we are as stupid as we have been for the last quarter century. As President-elect Donald Trump observed in his NBC interview, NATO “takes advantage of the U.S.”

Canada is among the “they.” In November, The Economist reported that Canada spends about 1.3% of GDP on defense. The ridiculously low NATO minimum is 2%. Not to worry, though, Premier Justin Trudeau promises Canada will hit 2% — by 2032.

A quarter of NATO’s 32 members fall short of the 2% minimum. The con goes like this: We are short now, but we will get there eventually. Trust us, wink, wink.

The United States has put up with this nonsense from some members since the collapse of the Soviet Union. That is how stupid we have been.

Trump once threatened to pull the United States out of NATO, then he suggested the United States might not come to the defense of a NATO member like Canada. Naturally, free-riding NATO members grumbled.

In another context, former Army Lt. Gen. Russell Honore famously outlined the first step in how the United States should approach NATO: Don’t get stuck on stupid.

NATO is a coalition of mutual defense. Members who contribute little to the mutual defense are useless. Any country not spending its 2% of GDP on defense by mid-year 2025 should see its membership suspended immediately.

What does suspended mean? Consequences. Its military should not be permitted to participate in any NATO planning or exercises. And its offices at NATO headquarters and all other NATO facilities should be shuttered and its citizens banned until such time as their membership returns to good standing. And, of course, the famous Article V assuring mutual defense would be suspended.

Further, Trump should insist on these measures and order that unless they are carried out the United States will not participate in NATO. If Canada is allowed entry to the Brussels headquarters, then United States representatives would stay out.

Nor should he stop there. The 2% threshold would be fine in a world at peace with no enemies lurking. That does not describe the world today. Trump should declare the threshold for avoiding membership suspension will be 2.5% in 2026 and 3% by 2028 – not 2030 as some suggest.

The purpose is not to destroy NATO, but to force NATO to be relevant. America needs strong defense partners who pull their weight, not defense welfare queens. If NATO’s members cannot abide by these terms, then it is time to move on and let NATO go the way of the League of Nations.

Trump may need to take the lead in creating a new coalition of those willing to defend Western values. As he did in rewriting the former U.S.-Mexico-Canada trade agreement, it may be time to replace a defective arrangement with a much better one.

This still leaves the problem of free riders. Take Belgium, for example, another security free rider. Suppose a new defense coalition arises including the United States and Poland and others bordering Russia. Hiding behind the coalition’s protection, Belgium could just quit all defense spending to focus on making chocolates.

This won’t do. The members of the new defense coalition must also agree to impose a tariff regime on the security free riders to help pay for the defense provided.

The best solution is for NATO to rise to our mutual security challenges. If NATO can’t do this, then other arrangements will be needed. But it is time to move on from stupid.

J.D. Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.