Monday, February 21, 2005

Fiscal conservatism from the left

Babble on.

I've never run a business, and I've never held office and made decisions on public spending. My entire experience with money is as chief bill-payer and breadwinner for my family. From that perspective, a lot of the arguments flying around regarding government spending and debt repayment seem alien to me.

Like when Jack Layton says stuff like this (not a recent quote, but still NDP policy from what I can see):

I don't believe that now is the time to accelerate the paying down of our national debt. Paul Martin does. But, if we follow his plan, even according to their own numbers, that'll take $30 or $40 billion over the next ten years out of what we could otherwise spend on healthcare, education, environment, cities and a childcare program and so on. We think that paying down debt, you know it's interesting people say, 'should we have less debt?' well, it would be niceā€¦let's suppose you're having a family discussion. You have a sick grandmother who needs some care, you've got a kid who wants to go to university and you're wondering about tuition and you've got a leaky roof. And, dad walks in and says, 'you know what we're not going to do any of those things because we're going to pay back the mortgage even faster than the bank says we have to because we just have to get rid of that mortgage, I'm fixed on it so we're not going to take care of any of those needs.'

Am I the only one who thinks this is a silly argument? Government debt isn't really like a mortgage at all. Eventually - years, and years, and *sigh* years from now - my house will be completely paid off. Can anyone seriously say our federal debt will eventually be completely paid off like my little house?

Isn't Canada's debt more like a revolving line of credit? And how many of us think having a line of credit worth a quarter of our annual income in perpetuity is an "aggressive" long-term debt-strategy?

As I've said, I'm not an economist - and since economics seems to be the new alchemy, I wouldn't brag about it if I was - so maybe I'm just desperately in need of an education as to why government finances are completely dissimilar to family finances. That remark isn't entirely facetious, either: I wouldn't be surprised if there were substantial differences of which I'm completely unaware.

But when thoughtful Canadian lefties like Declan at Crawl Across The Ocean post in defence of fiscal conservatism and "aggressive" debt repayment, you have to wonder if all the common-sense types are out to lunch, or if it's the politicians and the economists instead. Because arguments like these seem pretty solid to a layman like me:

Holding ~$500 billion in debt as we do currently, every 1% rise in interest rates puts a $5 billion hole in our budget. i.e. we are very vulnerable to a large interest rate shift. If we were to get hit with an economic mess like we got hit with in the 70's, but starting from this debt position, well, it doesn't bear thinking about.
Russell says,

"Using budget surpluses to repay debt is a highly dubious gesture of inter-generational fairness if today's children are neglected in order to lighten the load of future taxpayers."

But today's children and future taxpayers are the same people - the fairness issue has nothing to do with them. The fairness issue is about all the people who benefited from piling up the debt who will soon be leaving the workforce and will no longer be in a position to repay their debt before it passes on to their children. And the fact that controlling spending to pay down the debt affects all members of society, including children, doesn't mean that the children of future generations should have to pay interest on $500 billion of debt that we piled up and never paid down.
Now, consider one of the primary spending objectives that Russell suggests: "rebuilding the wide range of social programs that play a role in combating poverty and promoting social equity". Now, does anyone think it is really possible to do a study which will accurately estimate what the impact of doing this on total tax revenue collected by the federal government would be? And if this policy is implemented can we track whether we are getting the return we expected? And if we aren't, will these programs be shut down? We have to remember that government is not a business.

Read the whole thing. If you disagree, please tell me why, because until someone can present a more compelling counterargument, I'm inclined to agree with him.

Babble off.


At 2:26 p.m., Blogger Greg said...

I don't disagree with fiscal prudence. I think we have to balance paying down the debt so as not to burden our children with investing in things like education in order to equip our children with the skills necessary to keep our economy afloat (because paying the debt is at least a two generation exercise).

At 4:01 p.m., Blogger Michael said...

Jack Layton said, "We've got almost the largest amount of fresh water of any country on earth. I think we're second or third on that list."

Does this guy know anything? the truth is that more than half of all the fresh water lakes and rivers in the world are found in Canada. If we have more than half, how can we be 2nd or 3rd?

At 4:14 p.m., Blogger Declan said...

Well I'm just a layman myself, but I think household and government finances are pretty similar (whereas business is quite different).

My real problem with what Layton says (repeatedly), is that if our government is a household, then our grandmother isn't sick and the roof isn't leaking.

Interest rates are low, economic and job growth over the past decade has been among the best in the developed world and corporate profits are pretty solid.

If the government is a household then right now it's in the empty nest phase, where the kids are off supporting themselves, we're in a fairly senior position in our job and making good money but we need to get things in order before our impending retirement.

The government equivalent to a major health bill for a relative and a massive unexpected repair bill isn't that we have the same problems we've always had (with healthcare, education etc.), it's a large scale war or a depression or an oil crisis.

Just for the record, while I'm fairly left (libertarian?) on social issues, I don't really consider myself all that 'left' when it comes to economic ones. The NDP approach of trying to solve every problem via new government programs and spending while giving token lip service to what it's going to cost us drives me nuts.

At 1:40 a.m., Blogger Chris said...

What Jack Layton doesn't seem to realize, or decides to be willfully blind to is that debt requires interest payments. The more debt you have the more interest you must pay and the more vulnerable you are to changes in the interest rate. A large percantage of tax dollars are tied up simply making payments on the interest for this debt.

Furthermore, Jack's analogy seems to neglect the fact that he's fixing up the "house" by borrowing against the children's money. Essentially leaving the youth of the nation the bill while he runs off and pretends there really never was any debt. I'm fairly young, and quite frankly I'm rather disgusted at the state of the nation's finances and the fact I have to deal with a tax level and debt level that come from those in the 1960s and 1970s spending money like sailors on shore leave and living well beyond their means.

The worthless and self serving gestures of the past have simply been left for me and my generation to pay for. So Jack Layton can take his escapism and stick it back in his bong with the rest of his inspiration.


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