Mark that Economics Assignment an “F”

Much has been made of the Rt. Hon. Stephen Harper, PC, MA, MP’s background in Economics. Today, in his response to the Speech from the Throne, the outgoing Leader of the Opposition, Stéphane Dion, laid the blame for pending deficits and a bare cupboard in Ottawa not on the world economic situation but at Stephen Harper’s doorstep.

And the Hon. Dr. Stéphane Dion, PC, PhD, MP, although his degrees are in political science and sociology, has the right of it. The Harper Government has failed Economics. Today Dion may have spoken as a partisan — but he also spoke the truth, and it would be wise for the Conservatives to pay attention.

I have written previously on the dramatic increases in spending since Harper took power — not even Paul Martin, in his attempt to hang on to power in late 2005, has sloshed money around as Harper’s Conservatives have. The goal, of course, was to empty the proverbial cupboard, thus protecting against changes of course should they lose the 2008 election. Those of us who understand and support fiscal conservatism have been appalled at this. Now these decisions are turning to bite the Government. Witness Raphael Alexander’s rightful indignation at deficits as an intention (and this is not the first time he has called the Conservative Government on the carpet for a failure to deliver on their promise to, well, you know, actually be fiscal conservatives).

We should all look at the destruction this slopping cash around like a drunken sailor in port after a year at sea has created. Had we actually built something permanent with that money — some $40,000,000,000.00 over three years — perhaps there would be no issue. Forty billion dollars would buy a lot: it would buy a fair bit of new high-speed electrified rail line on key transportation corridors; it would buy a fair bit of rapid transit and interurban transit for our metropolitan areas; it would buy a host of other and useful things for the future. Alas, what we got were a basket of slops — some here, some there, a handout for this and a package for that — instead of anything that represented stewardship of the country for the future.

Weren’t the many programmes in Industry Canada, Heritage Canada, HRSDC, and so on created and left over from the Chrétien years enough? Weren’t the buckets of spending from the Martin years enough? (Almost all of these carry on, of course, now part of the base budget and headcount of official Ottawa, even though most of them had completed their task to a reasonable point long, long ago.)

Look, the NDP weren’t going to counsel restraint; they’re against tax cuts, and they favour operating programmes that require annual money and employ lots of people in the public sector. The Liberals had no sense of restraint in this area, either. If someone (like me) wanted fiscal rectitude, then that left the Conservatives, who preach it in their principles but fail to deliver in their practice.

Stephen Harper talks of pragmatism. I look at the neo-con that he was and see a right-wing liberal. I look at his track record and see a Liberal — worse still, a big spending one who could comfortably stand in Trudeau’s shoes — and it shames me to have Dion be the one to bell the cat.

But so be it: it is what it is.

So where next? Certainly economic changes in the global economy are tearing at the Canadian economy: commodity prices are sinking as the general world of finance capitalism lets the air out of its balloons, dragged down by weakening demand and the driving out of speculators forced to liquidate to deal with other losses. That impacts the West. Meanwhile, as loss of access to credit imperils the remaining industrial companies of North America, the branch plant and subsidiary supplier economy of Ontario and Québec get slammed as well. So it is not entirely true to say that our current fiscal capacity woes in Ottawa are entirely Harper’s fault.

Still, if he is an economist, he ought to have been able to recognize the bubbles for what they were — and somewhere in his undergraduate years he must have studied recessions, the Great Depression, and the concept of liquidation to reset pricing anomalies. My degrees are in philosophy and I could see it coming way back in the 1990s. Why can’t he?

Of course, for that matter, why can’t the Department of Finance?

Liquidation is needed to lead to capitulation: the point at which a firm footing for the future is possible. (Trying to stave off this — as the G-20 are and as the concerted efforts of Central Bankers is — merely makes it worse.) Now that our old fearless pundit, Garth Turner, is talking clearly for himself rather than trying to straddle the requirements of being a party member (and MP) with his desire to communicate the things he sees coming at us, his blog has become a sign of our near future (and worth reading for that alone). Paradoxically, he’ll do far more good for Canadians as an extra-Parliamentary voice than in it.

Now Garth calls the future as follows: major home “value” resets in multiple markets, upward of 50% or more. Why? The “rules for prudent lending” — much more important when the capital is tied up and not recycled through exotic mortgage-backed securities — are based on a century or more of experience. They proved themselves through the Great Depression and every up and down since. Those say maximum term 25 years, initial equity a minimum of 20%, and a maximum debt service ratio of 36%. Unstated — because before the downturn of the 1970s it didn’t need to be — is that that 36% can be met on one salary. Your beat up Kitsilano home going for around one million dollars is a thing of the past. The faster the crash to sustainable prices at 25/20/36 comes about, the more quickly the real estate market unlocks. You can read the rest of his projections at his site.

Paying down debt was a good thing; real tax relief was a missed opportunity; slopping money around like drunken Liberals of the past was a sheer waste. That’s the 2006-2008 track record to date.

A deficit now may well be needed, but it needn’t have been. That’s the 2008-2010 reality.

Trying to “soften the blows”, “keep the doors open” (take your demand for money elsewhere, auto industry: you make far more cars than there is a market for, anyway — and that market will shrink, not grow, so, yes, you do need to close down at least one company and many plants) and the like just wastes money we will borrow. Borrowing to build for the future, on the other hand, leaves us with assets — assets we will need in the near future and for many years to come.

So I hope, Mr. Harper, that you are deadly serious about reviewing the Ottawa that exists, because if you’re not willing to outright terminate a lot of the past programmes and slop chests and focus on investing in our futures appropriately then there is no reason to vote for you or your party in the future. After all, if you’re all going to be socialists and redistribute what was once wealth and is now only depreciating cash, making no difference between you and others in your “pragmatism”, then I might as well vote NDP.

After all, they’re honest about their intentions — and know that they can’t be too profligate. Unlike the man who spoke truth to power today and his party — and you and yours.

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.