Stephen Gordon on doing damage the cost-effect way
Finance Minister Jim Flaherty gives a thumbs up as he takes part in a TV interview after tabling the federal budget in the House of Commons on Parliament Hill in Ottawa on Thursday March 21, 2013. THE CANADIAN PRESS/Adrian Wyld
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:
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.