Every economy has its own code words for bad policies.

In the 1930s, "sound money" was an implicit criticism of people who wanted to reduce the value of a currency to boost exports.

In the Reagan-era 1980s, "excessive government spending" became a euphemism for silly public expenditures.

Now, in the George Bush-Barack Obama recession of 2008-09, "structural deficit" is new buzzword for dumb economic management.

Indeed, what is essentially an accounting term has become, for some, a litmus test for whether a government is spending too much on its citizens.

"Much of the 'temporary' spending will become part of the baseline for future budgets, thus increasing government spending permanently," wrote Jason Clemens, senior fellow at the Vancouver-based Fraser Institute, a conservative think-tank, in a recent critique of Obama's fiscal stimulus package.

For other economists, however, these terms are neither upright or evil and instead just reflect an economy's current circumstances.

"Deficits are a natural consequence of an economic downturn," said Helmut Pastrick, chief economist with Vancouver's Central 1 Credit Union, which provides services to 200 credit unions in British Columbia and Ontario.

Black turns red

Regardless of what word you use, however, what has people on both sides of the structural deficit issue worried is very real.

The ongoing economic recession in most industrialized countries has shifted many government balances from nicely-in-the-black to bleeding buckets of red ink.

The government of Stephen Harper will spend enough to run a public treasury shortfall of $64 billion over the next two years.

Canada had been the envy of the western world with more than a decade of budget surpluses. Now, the government of Stephen Harper will spend enough to run a public treasury shortfall of $64 billion over the next two years.

The United States, while only a paragon of fiscal virtue in its collective mind, will see an already awful deficit of $459 billion US in 2008 explode to one of $1.845 trillion in 2009.

The United Kingdom, which posted a deficit of approximately $9.35 billion Cdn in fiscal 2007-08, now faces a shortfall worth about 11 per cent of its total gross domestic product.

The French economy is also groaning under the weight of a large deficit, red ink worth more than five per cent of that nation's income.

The wave of rising deficits coincides with soaring spending in most jurisdictions. Essentially, governments and economists, many of whom once would have shuddered at the words "stimulus spending," are now willing to use the public purse to try to get any economy outside of India and China growing again.

But liberal and conservative economists alike still remain worried about how long it will take to get back in the black.

That is the structural deficit debate in a nutshell.

"While the fiscal actions must stimulate the economy through the coming difficult period, they should not burden Canada with a structural deficit that hampers growth years ahead," said the Department of Finance in a background paper earlier this year.

Slicing up the pie

Essentially, economists are trying to parse the current deficits, whether at the national, state or provincial level, into different portions.

On the one hand, there is that chunk of a shortfall that occurs because of a downturn in tax revenue, especially from corporations, and a spike in certain types of public outlays known as "automatic stabilizers" — programs like employment insurance.

Most economists believe this part of the shortfall is manageable. After all, once the economy starts to pick up again, they assume government revenue will as well.

Even better, some of the people who found themselves on the unemployment lines or at welfare offices during the downturn will get work, moving them into the taxpaying category.

What has some concerned is what Clemens alluded to in his work — that spending which began as short-term stimulus becomes permanent.

That means no matter how much cash governments receive when the economy starts growing, the country or province will still be in the red.

"The question is, when the economy is at full production, at that point in time, is the budget balanced or not?" said Pedro Antunes, director of national and provincial forecasting for the Conference Board of Canada.

The leftover shortfall is known as a structural deficit. And, since a government cannot run a deficit forever, the budget can only get into balance by hiking taxes or cutting spending, or both.

Getting out the calculator

The obvious problem for governments and economists alike is figuring out what is a structural deficit and what is cyclical.

The theory is fairly clear — calculate what Ottawa's balance looks like once the Canadian economy is at full employment.

The reality, however, is that even the best economic thinkers debate at what point — or even if — the country will reach this employment nirvana.

Worse still, other influences, such as an oil crisis, often knock economies around before they get to full employment, making it exceedingly difficult to figure out a country's structural deficit.

American shortfall

The U.S. Congressional Budget Office, a non-partisan government organization that opines on economic policy, made an indirect estimate at Washington's structural deficit recently.

In late April, CBO director Doug Elmendorf told an audience at Harvard University that the U.S. government should see spending in cyclical areas at or below pre-recession levels as a per cent of GDP.

He did not include Medicare and Medicaid, the American versions of national health care, nor Social Security, essentially public-funded retirement payments. That was because these outlays do not rise or fall with economic prospects and thus should be considered to be part of the structural deficit.

Thus, taking 2019 as a year where the government's stimulus has been flushed out of the economy, the CBO estimated the U.S. deficit at $423 billion US. That shortfall will equal approximately 10 per cent of spending in that year, or 17 per cent of federal outlays in 2008.

As well, short of a burst of productivity that accelerates American GDP growth, Washington will need to raise taxes or cut spending eventually to eliminate that shortfall.

In the meantime, the U.S. outstanding debt would have jumped to 82 per cent of GDP, up from the pre-recession level of 56 per cent.

Canadian advantage

Central 1's Pastrick said the situation in Canada is not nearly as dire as the U.S. situation.

"I take a bit more of a laid back view. What we're seeing up here is a cyclical deficit," he said.

That means, somewhere within the next three to five years, Ottawa should see its budget deficit fall as the economy picks up, Pastrick said.

Regardless of the timeframe, the discussion is not a moral one, Pastrick said.

Instead, it is about how government decides to deal with the practical problem of a budget deficit.

"Governments have the ability to adjust their spending and taxes [to get rid of the deficit]," he said.