Common Sense about Deficits and Spending

Well, it didn’t even take as long as I might have thought for the political consensus to change. All of a sudden, deficits are back in fashion in Canada. I suppose for those of us who want this country to be more like ones they deem “successful” the idea of piling debt upon debt and never making hard choices would be validated, in some perverse way, by the fact that these other nations haven’t fallen into even deeper trouble — yet. For those of us who would prefer Canada to chart a common-sensical course of its own, however (as we had been doing since the mid-1990s, spending less than we took in in taxes and paying down the accumulated inheritance from the previous generation shoved onto our shoulders to bear) this development is one of the most gloomy in a year that has had no shortfall in mood swings, financial fallout and decay.

Paul Martin, of course, has been talking to any outlet that would print his musings in the past forty-eight hours about how poorly the Harper Government has done — because they’re not sitting on that slush fund formerly known as “massive Federal surpluses”. There is a minor consideration here: had the Conservatives not consciously set out to balance the Federal books there would be a huge surplus available to throw into relief measures without the possibility of a deficit. Of course, Martin himself never saw these surpluses as feedstock for a rainy-day fund (i.e. not to be spent) — and that’s the major consideration. Martin, like Chrétien before him, was an over-taxer who saw to it that slush money was available to throw around.

At least Harper has ensured that the slush capability is gone. Far better, of course, would have been to lower taxes and let Canadians keep their hard-earned gelt — to balance the Federal budget by reducing intake to match outflow — than by sloshing around money at an even faster rate than either of his Liberal predecessors (and they were outright masters, never seeing a “priority” that didn’t need funding).

The Keynesian proposition was that it was the proper role of government to provide a counter-weight to the economic trend: if the economy slowed and hardship rose, the government should use deficits (if it did not have an accumulated rainy-day fund for the purpose) to create new activity and thereby relieve the hardship. Once the next upswing took hold, however, the government was to retire the debt it has accumulated and restock its rainy-day provisions for a future downturn.

Well, it only took the first downturn to move into the post-Keynesian consensus: “there’s no need to pay off the debt because we owe it to ourselves”. This is the source of the notion, expressed by Gordon Campbell (no lightweight in the wasteful spending department himself) of BC about how deficits create the desire for “a little more deficit, please” — and the Mulroney Government’s discovery that once an entitlement or handout is created, taking them back is the devil’s own job.

Give a grudging credit (a somewhat tarnished penny would be about right) to Chrétien and Martin for having finally faced up to the reality of a generation’s worth of indisciplined spending by balancing the budget and then beginning to retire the accumulate debt. It’s not much credit precisely because their hands were being forced: the country’s credit rating was at risk, and interest payments on the debt were more than 33% of Federal spending. (Indeed, Mulroney and Wilson managed operating budgets that were balanced — what a business calls EBIT [earnings before interest and taxes] — but ran deficits to cover the interest payments, causing them to grow annually as a percentage of spending.) Doing something that needs doing earns credit; doing it before you’re forced to is the real accomplishment.

Now a Federal deficit waits in the wings, as tax receipts are projected to fall. But the problem isn’t that income will drop below outflows. The problem is that outflows were not reduced while we had the chance. Now, as with Chrétien & Martin, we’re going to have to do it while times are tough.

The reality of this country is that taxes are too high, because we will not make hard choices.

I can recall saying, earlier in the year, that I’d cut off the whole Department of Sport and Amateur Fitness. An outcry ensued bemoaning my hard-heartedness towards the dreams of athletes, and the joy the country would feel as Canadians mounted the podium to receive their medals. Well, in a choice between panem and circenses, I choose bread over circuses. I know amateur athletes, and I know how hard they work and how little support they get today. But this is not a priority and I am willing to make hard choices about that, to say rather than “too little spread too thinly” to make a difference, “none” would be better. If times were better (or about to be so: as I’ve previously written, there are structural reasons they won’t be) I’d be more willing to spend “well and focused”. But we must choose, not try to have it all and defer the costs into a future even less able to pay for than we have been for the lavish waste of Trudeau and his followers.

Common sense would say that, if times are going to be structurally hard — especially if they are deflationary — cash is king, but only if it is in the hands of Canadians. Now we could tax it away, only to send it back as entitlements — but that comes at an average cost of 20% “lost” paying for the bureaucracies that do this under best circumstances (as I have previously written about). Far better to reduce tax receipts and leave the cash in the hands of Canadians with no losses due to it passing through Ottawa.

That, in turn, would require that programme spending be cut, so that outflows would once again match inflows (at a new, permanently lower level). In other words, we would choose what was better done by central redisbursement (with all its friction costs), and what was better done locally, as a matter of local choice.

But common sense comes at a steep price. It requires politicians that not only have the courage of their convictions to push an unpopular change through the din and clatter of every two bit agitator, opposition member, interest group, media “personality”, etc. claiming that the end of the world is nigh and that those taking action are heartless bastards who don’t give a damn about anyone but themselves; it requires that we learn to change our expectations. Governments aren’t in the growth business, and they’re not mummy coming to kiss every little mishap better. They aren’t here to pay for things we won’t pay for ourselves, and to support causes we think other people ought to support.

They’re in the business of peace, bien-être and good (i.e. prudent) government, and nothing else, when the chips are down. The result of that is order, including a society where subsidiarity lets decisions take place close to the action — and the closest place to the action is in each of our homes, not in some Palais des fonctionnaires off in a capital somewhere.

Common sense has been in very short supply. Call it Conservativism if you like; I call it Toryism — another capacity in very short supply. But I hope, as Harper’s 1,000th day in office approaches, he and his team can find it, and the courage to pursue it.

Hundreds of Thousands Too Far, Mr. Premier

Summer drifts lazily by — as it should. Alas, for those obsessed with every nervous twitch, “um” and twitter of the chattering class and their political enablers, summer has led to a flurry of articles and interviews, and, in the blogging community, charges and counter-charges.

Ah, well. I had hoped to be able to keep relaxing. Unfortunately, Gordon Campbell, the legend-in-his-own-mind Premier of British Columbia, has taken me from my reading of philosophy to react to his latest act against the people of this province.

I refer, of course, to the massive pay hikes given to the cadre of Deputy Ministers and Assistant Deputy Ministers in the BC civil service.

If this had been the only one, I would almost assuredly not be upset. I am aware that these pay increments come but sporadically, and therefore must come as a high percentage increase when they do. I’m also aware that, despite the public’s general impression of civil service work as a realm where two newspapers must be provided so that “there’s something left to do after lunch”, the reality is that a Government Department is a very large enterprise indeed, often with far more “lines of operation” than any sane operating company would take on. These are complex jobs: paying for the demanded skills and talent is appropriate.

Alas, two massive increases in two years is just not on.

Here’s the issue: the skills required to succeed in public sector executive management — including making the Department taut, good at execution, and good at policy anticipation — are quite different in nature from those in being a private sector enterprise executive. (Crown Corporations, of course, offer a blend of the two: a simultaneous need to master both sets of talents. Good luck with that: it’s a rare person indeed who can move between public and private thinking on a minute-by-minute basis and be good at both.) So, despite all the rhetoric about “attracting the best from the private sector” and “making sure our deputies and assistant deputies are not poached” there really is very little movement.

Indeed, the movement is far more likely to be between Departments in the same province than to another province. It’s also — to be clear — not been an issue here in BC. There’s been little movement out of the top echelons of the BC civil service of late.

No, this is all about paying off the cronies, rewarding the sickeningly supplicant, and leading, in turn, to yet another round of escalation in salaries of city managers, and between provinces “competing” with one another, and in competition with the equivalent “CEOs” of Crown agencies, than it is about stemming a tide of resignations.

Let’s start with the obvious: few, if any, of these public sector executives are hired by the private sector. The fact that, in BC, it’s David Emerson who is constantly cited as a deputy minister who landed a CEOship of a publicly-traded company overlooks two points: one, he’d been a CEO before going into the civil service, and two, that was quite a long while ago — it’s certainly the path less followed since.

Ah, some might say, but we have to reward these people for the complexity of their jobs. We expect a lot from them. I suppose this is yet another “pay equity” argument of some sort.

Well, riddle me this, then. Gordon Campbell’s deputy minister just got a $105,000 per year raise (retroactive to August 1) to $349,000 yearly. What is she doing today that she wasn’t doing on July 31 for $244,000? In other words, where’s the value to the BC taxpayer?

You see, if there is value to me as a taxpayer — perhaps this is the price to be paid to shave a thousand million from the provincial budget and lower our tax rates, and to slash the size of the bureaucracy and the impact it has on us — then I am quite prepared to pay $349,000 to the person who can weave such magic. You’ll pardon me, I presume, however, for not believing it’s happening here, since (after all) it didn’t happen when her pay was raised to $244,000 last year.

Then there was the timing of this announcement. Friday afternoon last week, as the Beijing Olympic opening ceremonies were on. Talk about “burying the lead”. Compliantly, of course, the local press has done precisely that, since they seem to follow the local mantra of “we can’t let the NDP back in”.

In discussing this over coffee this morning my fellow sipper said “Oh, belt up, Bruce, you just don’t get how the system works.” Well, yes, actually, I do. Far too many people in this province are determined to vote for a cardboard cutout of a politician with a BC Liberal slogan plastered on the image rather than do what needs to be done with such effrontery: boot the bahstids out.

Of course, as I sat down to write this, it’s not as though our Opposition Leader, Carole James, has promised to roll these back and put an end to this kind of sucking at the public teat, either.

If you’re like me, and you expect a parsimonious approach to tax dollars (and their use to build infrastructure for the future), Gordon Campbell and his BC Liberals are the last choice come May, 2009. There may not be a reasonable choice to put in in their place: flaws are everywhere. But after seven years of Campbell I know one thing: he’s the same kind of spend-thrift, “papa knows best” Liberal that I detest Federally.

Boot him out. It’s how we get to say “you went too far”.

ADDENDUM: Today on CKNW “Mr. Premier” remains resolutely unrepentant. “Out of touch” doesn’t begin to cover it. As far as our BC Government is concerned, we can get over it. Such hubris deserves the response of nemesis. It will be interesting to see if enough BC citizens will get over their fear that there’s “no choice but Gordon” by next year.

Federal Budget Day a Yawner

Another Federal Budget has been brought down, and I must confess the whole thing was boring in the extreme. We might, of course, have had at least a frisson of excitement as to whether the Opposition would manage to combine forces and precipitate an election, but as we know Stéphane Dion, Follower of the Official Opposition, signalled his latest backing down from the electoral abyss even before the Finance Minister rose in the House. So we are left with a limp rag of a budget and a limp rag of an Opposition: hardly inspiring, although it does leave Opening Day free and clear on the horizon to enjoy another year of baseball.

I’m not about to whinge about the Liberals. They are as entitled as anyone to make fools of themselves in public, and I must say that I think, along with Jeff Jadras of A BCer in TO and many other Liberal bloggers, that this is one opportunity missed too many. How, really, can anyone take any bluff or bluster out of the mouths of the chicken pen seriously after this? Why, indeed, even listen to it, other than habit? Steve V of Far and Wide this morning asks the key question, which is that if this was about simple lack of readiness to compete then why not just admit it and head onward to mid-October 2009, when the fixed election date comes up, and no more snorting and pawing the ground only to tuck tails between legs one more time. When even the columnists of the Liberal Party’s House Organ, the Toronto Star, start questioning why we should care, as reported in Blogging a Dead Horse, I think the answer is clear: we shouldn’t.

Yet there were reasons for disappointment with this budget, and they’re not the ones laid out by Garth Turner. From the point of view of the twenty-first century, as opposed to the twentieth, not dumping money on dying industrial models is a good thing. Yes, in Ontario times are tough. All the money that’s been sloshed at the extended automobile industry over decades, however, hasn’t protected that economy, those jobs or the affected families. The industry – as with any industry – is prepared to take any hand-out on offer, and then do exactly what it was going to anyway. Border constraints imposed by the US Department of Homeland Security make just in time inventory processes that cross the border inefficient and unpredictable. We will end up with other marques prospering that source parts not made in Canada from outside North America, and American marques dying unless there are exceptional reasons to deal with that border. Slopping money is simply filling up the pig-trough and not solving the real problem – which is essentially beyond a Canadian solution in any case.

It’s what isn’t being done by what is ostensibly a Conservative government that bothers me, as I suspect it bothers Aaron Wudrick of the Wudrick Blog when he comments on just how “Liberal” our Conservative Government is. Oh, well, as Joanne of Blue Like You points out, there are political implications, and perhaps we should be satisfied with the opportunity for yet more self-immolation on the Red(-faced) Team’s side of the aisle. But I am not.

There is so much slop in the system already – programmes for every two-bit cause known to mankind and every supplicant under the sun, delivered through Industry Canada, the regional economic expansion arms (ACOA, WD and the rest of the handout brigade), dribbles from Heritage, pork pie from HRSDC, a bit of IRAP money from the NRC here and some CANARIE droppings there (I defy you to find the year or two you’ll need to sort through the many layers of “beg and receive” set up over the years by previous governments) – and really, after two years in office, there is little excuse for this continuing. Then, too, the whinge from the more hawk-like Liberals is that “we left you guys a whopping surplus and you’ve handed it out all over the map, so now you get to flirt with the danger of not breaking even”. True enough, but the problem isn’t with the GST reductions, the income tax changes, the new tax saving account, or the child care money. The problem is with all the other new programme spending on top of all the existing programmes, most of which have carried on blindly and blithely spreading their steaming droppings onto the Canadian economy, distorting it. Why, indeed, would anyone in VC land actually think about the size of investment needed to make the company they’re interested in successful when they know there are all those programmes out there to pick up their slack? Why would managers care to invest in their own business’s future out of earnings, or worry about whether their products have a viable market, when there’s all that money slopping around to go prop things up, or build a new product that can attract the cash but has no proven market applicability?

All this largesse, in other words, has created a Canadian entrepreneurship good at complaining, good at buck-passing, and good at form-filling and report writing, but not one that cares to get down and do the hard work of scratching out a living the old fashioned way: earning it.

A Conservative government ought to be expected to, at the very least, challenge the 400,000+ civil serpents who are busy running this national slush account in its many forms. If they wanted to keep certain types of programme – perhaps they, too, have some sort of Chrétienite “Innovation Agenda” – then at least they could clean them up, rationalise them, sweep away the programmes hanging on for the last 1% of the job they originally were specified to carry out that will never finish, and the like. But no: we just add to the pile, and the Canadian taxpayer and productive business person groans under the load.

After all, if Conservatives won’t bring fiscal order to government, who will? The “never met a handout for Québec I didn’t like” Bloc? The “there’s airtime and the pretense of relevance in asking for money” New Democrats? The “none of you are doing enough” Greens? Or the “hey, you’re being Liberal enough for us” Liberals? Don’t make me laugh.

But we’re stuck, aren’t we? It’s much more fun to hand it out than to clean it up, and it always will be. The notion that taxes are an impost (and hence an imposition) on taxpayers is long dead: the question is now put as “how much will taxpayers be left with” as opposed to “how little should we take”. The notion that programmes should have a defined end-point and then be shut down is long gone in favour of perfection, “finishing the job” (which is never done, and always expanding). We as a nation will be sucked dry – although what’s been done to this point is precisely why Ontario is dying, Québec and the Atlantic provinces died and the West – the country’s last bastion of productivity and growth – is at risk.

It’s the being stuck that made Flaherty’s budget yesterday a yawner, not the items in it.