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The Conservatives don’t mind big government if it’s cheap

Stephen Gordon on doing damage the cost-effect way


 

Adrian Wyld/CP

If asked, the Conservatives will tell you that they favour a smaller government that intervenes sparingly in the functioning of the market, and it’s been pretty well-established that a medium- and long-term goal of the Conservative government has been to reduce the share of Canadian GDP that is taxed and spent by the federal government. But lower taxes and lower levels of spending are not the same thing as a smaller government.

Here are the highlights (sic) of the “Strengthening the Competitiveness of the Manufacturing Sector” section of  Chapter 3.2 of the budget plan:

  • $1.4 billion in tax relief for Canada’s manufacturing and processing sector over the 2014-15 to 2017-18 period through a two-year extension of the temporary accelerated capital cost allowance for new investment in machinery and equipment. What is the problem this measure is supposed to solve? Capital consumption allowances make sense in themselves, so long as they are aligned with economic capital depreciation rates. But accelerated CCAs introduce distortions into the tax system, and introducing them only for one sector amounts to diverting capital away from where the market would send it to where the government wants it to go.
  • $920 million to renew the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) for five years, starting on April 1, 2014. Seriously? A slush fund economic development agency for Southern Ontario? 
  • $200 million for a new Advanced Manufacturing Fund in Ontario for five years, starting on April 1, 2014, funded from the renewed FedDev Ontario. More pork to be distributed to firms that enjoy the favour of the government.
  • Building on the success of the National Shipbuilding Procurement Strategy, the Government will better ensure that purchases of military equipment create economic opportunities for Canadians by developing key domestic industrial capabilities to help guide procurement, by promoting export opportunities, and by reforming the current procurement process to improve outcomes. The Conservatives can’t even be bothered to sustain the fiction that government procurement should be aimed at obtaining the best value for the taxpayer. Public money is to be spent where politicians want to see public money being spent.
  • Providing stable funding of close to $1 billion over five years for the permanent Strategic Aerospace and Defence Initiative, as well as providing $110 million over four years, beginning in 2014-15, and $55 million annually thereafter, for the creation of an Aerospace Technology Demonstration Program. Another example of the government providing cash to a favoured sector. (Bonus points for gratuitous use of the word “strategic.”)
  • $92 million over two years starting in 2014-15 to continue support for forestry innovation and market development. Because if you’ve gone this far, what possible reason could you have not to throw money around at random?

And on and on the budget goes, for page after mind-numbingly interventionist page. How is this small government?

One response might be that the spending involved is tiny, which is true enough. But the Conservative focus on government spending is misplaced as far as promoting economic growth goes. In his survey (pdf) of the empirical evidence on the determinants of economic growth, Columbia University economist Xavier Sala i Martin — one of the leading researchers in the field — concluded that:

The size of the government does not appear to matter much. What is important is the “quality of government” (governments that produce hyperinflations, distortions in foreign exchange markets, extreme deficits, inefficient bureaucracies, etc., are governments that are detrimental to an economy).

This emphasis on the quality of government — and not its size — is a crucial:

Institutions (such as free markets, property rights and the rule of law) are important for growth.

You don’t need a big government to interfere with markets, or to weaken property rights and the rule of law. The decision to forbid shareholders of Potash Corp from selling their holdings to BHP Billiton didn’t cost the federal government a dime. Nor did instructing banks to not offer lower mortgage rates. And then there’s the example of the government’s preference for the clumsy and heavy hand of regulation over more efficient, market-based approaches to reducing greenhouse gas emissions.

I don’t think it’s quite correct to say that the Conservatives want a smaller government. They seem happy to run a government that is as big and dumb as its predecessors — so long as it’s cheap.


 

The Conservatives don’t mind big government if it’s cheap

    • Yes, those payraises are wrong. But were they also wrong when the Liberal government did them?? Or just when the “Cons’ do things??

      Such a cheap comment you are.

      • That’s one of my very first political memories and I recall it being quite amusing. REformers and Pcs howled howled about how unnecessary the pay raises were, and then JC made them voluntary -d on’t take ’em if you don’t wan them, individual MPs choice.

        Every. single. righte-leaning. MP. took their cut.

        • and by “cut” I mean their entitlement.

      • Maybe you didn’t read the part, of my above post “along with the rest of our politicians!”. Key word REST, referring to all politicians, all parties. You assume I support the libs, or the ndp, but you’re wrong, ass.

  1. Prof Gordon I wish you were my banker – my partner and I bought a house a few years ago and we wanted millions of $$$ for a new home but our mortgage woman was ‘cheap’ and she only gave us a few hundred thousand $$$. It is outrageous how ‘cheap’ people are, especially the private sector that actually has to be responsible with money.

    Do you ever bother to look at actual spending numbers or are you just focused on GDP % and spending? I reckon you are one of the economists who make the public believe economists are similar to buddhists.

    The Economist – Room With A View:

    “Ms Sapienza and Mr Zingales note that when Americans are told what economists believe before answering a question, their view scarcely budges …. The public actually grew more confident in its ability to pick stocks successfully after learning that economists think it is close to impossible. Americans seem to believe that economists operate in a fact-free environment, a bit like Buddhists, commented Robert Hall of Stanford University.”

  2. “…. so long as it’s cheap.”

    National Post:

    – Federal spending jumped 22% in the first five years the Harper Conservatives were in power, says a government of Canada performance report, released Thursday.

    – Federal expenditures in 2010-11 totalled $270.5-billion, compared with $222.2-billion in 2006-07 — the Harper government’s first full year in power — according to the annual federal government performance report, introduced Thursday in the House of Commons.

    – The size of the total federal public sector (which includes core public servants as well as the RCMP, Canadian Forces personnel and Crown Corporations) has grown 25 per cent, to more than 530,000 employees in 2010 from around 423,000 a decade earlier.

    – The national debt is set to reach $600-billion …… At the current rate, Canada’s national debt is rising by $74.6-million a day, or $863.27 every second.

    – Canadian public-sector workers are paid 12% more than their private-sector counterparts, says a study released Thursday by the Fraser Institute.

  3. “If asked, the Conservatives will tell you that they favour a smaller government —” and “More pork to be distributed to firms that enjoy the favour of the government.” and “Another example of the
    government providing cash to a favoured sector. (Bonus points for
    gratuitous use of the word “strategic.”)”.

    You’ve captured the essence of the situation, but miss the point that this is a government in perpetual re-election mode. No principle is too fundamental to sacrifice, and no truth is too important to bend in what they perceive as furtherance of that end. As long as they believe cuts won’t cost them political points they will cut with no regard for the citizens involved.

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