Hate to say I told you 50000000000 - Macleans.ca

Hate to say I told you 50000000000


Understand: there will be no going back from this, for the party or for the country. Whatever the budget’s soothing talk of “temporary” this and “extraordinary” that, and for all its well-mannered charts showing spending obediently returning to its pen, deficits meekly subsiding, multi-billion dollar “investments” repaid in full, we are in fact headed somewhere we have never been before. We are on course towards a massive and permanent increase in the size and scope of government: record spending, sky-high borrowing, and — inevitably — higher taxes…

If everything the budget foretells comes to pass, we might not come out too badly. A $34-billion deficit, after all, is only 2% of GDP, and even four years of deficits, if the budget’s projections hold, would barely budge our debt-to-GDP ratio. But if they do not — if the economy fails to recover on cue; if inflation spikes when it does, and interest rates soon after; if all those billions in new spending, once in place, do not prove so easy to trim back; if the assets the government acquires with all of its borrowed money do not turn out to be worth what they cost — then we will head into the approaching demographic storm loaded down to the gunwhales. It’s a monumental, even reckless gamble…

A. Columnist, Maclean’s, Jan. 29, 2009

Sigh. It is so tedious being proved right. Mind you, a 50% over-run inside of four months wasn’t quite what I had in mind.

This is just a total, steaming train-wreck, economically and politically. As Terry Corcoran points out in the Post today, this has very little to do with the state of the economy and everything to do with years of runaway spending. Had spending been kept under the slightest semblance of restraint, there would have been ample margin for even the worst downturn. I’m sorry, but I’m going to have to quote myself again:

It was in the 2000 budget, the deficit vanquished but memories of it still fresh, that Paul Martin promised to hold future increases in spending to no more than the rate of inflation plus population growth—“the benchmark used by most economic commentators”—or about three per cent per year. Yet hardly had he issued the pledge before he broke it. Program spending that fiscal year jumped by nearly $12 billion, or 10 per cent, twice as much as forecast. This was followed by increases of 5 per cent, 8 per cent, 6 per cent, and an astonishing 15 per cent in 2005. The Conservatives followed with increases of 7 per cent, 6 per cent, and 4 per cent—again, well in excess of the inflation-plus-population growth standard.

It is worth considering where we would be today, had governments of either party stuck to the not-terribly-exacting standard of fiscal discipline Martin promised in 2000. Had program spending been held to 2000 levels in real per capita terms—that is, allowed to increase by no more than inflation plus population growth—it would today be just $165 billion, or some $43 billion less than currently projected.

Just to update those numbers (that was written last fall, after all, which was, like, months ago): spending as of fiscal 2010 would be $169-billion vs the budget’s projected $229-billion, or whatever ghastly sum it’s at today: a difference of at least $60-billion. Even if the Tories had only held real per capita spending at 2006 levels, the deficit would be less than half its current — as of this afternoon, call back tomorrow — figure. But then, if I may quote myself yet a third time:

The $22-billion the Harper government will pile on top of program spending this year, adjusted for inflation and population growth, amounts to an increase of more than 10.1 per cent. That’s a larger rise, in real dollars per citizen, than anything the Trudeau governments ever attempted, even in the heady days of the early 1970s, when they were putting in place the institutions of the modern welfare state. (Its only possible rival is 2005, when spending increased by a similar amount — though its abrupt decline the following year suggests this was as much an accounting achievement as anything else.) For the record, it’s more even than in the infamous first budget of Bob Rae’s Ontario government.

No government in our history has spent this much, this fast. Before this budget, no government had spent more than about $6000 per citizen, in 2008 dollars — no, not even in the depths of the 1982 recession. This budget blasts through that ceiling, all the way to $6500, and stays there: four years from now, after the recession is presumably a memory, the government will still be spending nearly $6400 per capita. At the start of this decade, it was spending just $4800. Somehow the federal government is now finding ways to spend a third more inflation-adjusted dollars on each of its citizens.

So a field day for the Loyal Opposition, right? Not exactly. One, as the second quote above makes clear, the Liberals contributed more than their share to this mess, having raised spending even faster in Martin’s last years than the Conservatives have. Two, they voted for the Tories’ record-breaking January budget, taking credit for forcing them to spend more than the fall update had planned. Three, since then they have been urging the Tories at every turn to spend more (an extra round of stimulus!), faster (shovels in the ground! money out the door!), and with even less long-term direction (an extra five weeks of EI? That’s nothing! Make it nine weeks’ eligibility!) than was already the case.

Bitching about deficits is all right for green-eyeshade types like me. For born-again Keynesians like, well, everyone in Canadian politics, these should be glad days indeed. They wanted more “stimulus,” they got it. Instead, the Grits want to have it both ways, blasting the Tories for running deficits while complaining that very little extra spending has actually taken place, as in this Liberal press release:

Having arrived at Finance Minister Jim Flaherty’s 120-day self-imposed deadline for stimulus spending, the only result the Harper Conservatives can point to is a record deficit of at least $50 billion and stalled stimulus projects throughout the country…

Well, yes: more proof, if any were needed, of the futility and waste of deficit spending. But if you believe in Keynesian demand management, it really doesn’t matter a whole hell of a lot how the deficit happens: what matters is that there’s a deficit — more money being “put into” the economy than “taken out.” I know, I know: the “multiplier” is greater for spending than for tax cuts. But still, a deficit’s a deficit. And $50-billion is $50-billion.

On the other hand, if you believe such old-fashioned “pump priming” is a theoretical absurdity and a proven real-world failure, you will recognize where all this is headed.