What’s the real issue in the debt debate?

Is there a debate about public debt in Canada—and if there is, why should anyone care about it? Ten years ago, the context for discussion of public debt in Canada was an economy in which federal and provincial governments were still running substantial deficits, despite the fact that public debt had recently risen rapidly to fractions of GDP that had not been seen in half a century. In addition, with high unemployment and a recent growth experience that contrasted very unfavourably with the USA, Canadians had ample reason for dissatisfaction with their real economic outcomes. Debate on the issue of public deficits and debts was therefore fierce, with frequent expressions of a sense of crisis, many adverse comparisons with other nations and a broad awareness of the importance of the government debt issue for Canadian society. In contrast, in 2002-03, the federal government, like most provinces, was running a financial surplus, and economic growth was strong. The debt/GDP1 ratio was, as a consequence, dropping like a stone. Canadians were adjusting to the prevalence of newspaper stories about the superior job creation record of the Canadian labour market, as growth in the U.S. slipped below that in Canada. With dramatic speed, both federal and state governments in the U.S. had shifted from large surpluses to large structural deficits. In broader international comparisons, Canada’s low and falling debt/GDP ratio compared favourably with other OECD countries, and Canada was the only G-7 country to have a budgetary surplus in 2002 and to project another surplus fo