Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail
, is a column in which Jeffrey Simpson indulges in some quite unjustified nationalistic back slapping:
--------------------http://www.theglobeandmail.com/servlet/story/RTGAM.20090108.wcosimp09/BNStory/National/columnists Their deficit, our perspective
From Friday's Globe and Mail
January 9, 2009 at 12:00 AM EST
Close your eyes. Assume that, in just over two weeks, Prime Minister Stephen Harper's budget warns that the country faces deficits of around $100-billion "for years to come."
It would be a nightmare scenario for Canada. Deficits at that level would eclipse by far what Canada experienced at its worst deficit years in the late 1980s and early 1990s. It would mean deficits much higher as a share of national income than in those years.
We all should remember or learn what those deficits that stretched from the mid-1970s and ended only in 1995 brought or contributed to Canada: higher taxes, lower government spending, huge interest payments, lower private and public sector investment, stagnating productivity.
Year after year, until the Liberals stopped the deficits in the mid-1990s, governments pledged to dig Canada out of the fiscal hole, only to dig an even deeper hole. Every budget during those years, Liberal and Conservative governments pledged to restrain, reduce and eventually eliminate deficits. They never did.
The $100-billion figure would be the very rough Canadian equivalent to what president-elect Barack Obama is proposing for the United States. Mr. Obama warned Americans this week to get ready for "trillion-dollar deficits for years to come."
What a long way Mr. Obama has come in such a short time. In the dreamy days of summer, and throughout the fall election, he promised much new spending and tax cuts for all but the rich andeventually a balanced budget. Now the dreaminess of his analysis has smashed against an even more dire reality than he could have imagined.
"Change," his favourite word, he now interprets to mean the desire of Americans to curtail deficits at some point - which, of course, is not at all the meaning he gave the word a little while ago.
Think about a trillion-dollar deficit not for a year or two, but for "years to come." At $1-trillion, the deficit would represent about 7 per cent of national income. The deficit could easily be higher, once Mr. Obama's "recovery" package is added to the mix - at which point, the deficit ratio could rise to 7.5 per cent or beyond. And "for years to come."
The world's biggest debtor nation, therefore, is about to become, quite massively, an even bigger debtor nation, with consequences for itself and the whole world.
The dominant country of any era does not remain the dominant country indefinitely on borrowed money. At some point, money talks, in the sense that those with it begin to flex their muscles vis-à-vis those who need it.
We are therefore witnessing, and will continue to witness, a slow relative loss of influence for the United States, the debtor, against those from whom it must borrow. After all, Americans cannot possibly finance these new debts themselves, since they could not even finance the old ones.
Canadians will have a particular perspective on this slow relative loss of influence, since no country is more closely tied to the United States. We have put almost all of our economic and foreign policy eggs into the U.S. basket, thinking very little about Asia.
We might also have a perspective - or at least could offer one, if asked - about the challenges the United States will eventually confront now that the country faces deficits for "years to come."
What Canada learned was that the slaying of deficits involved a mix of higher taxes and reduced spending - and almost nothing else. There were lots of alternative ideas, from an industrial strategy to injecting massive amounts of additional public spending into the economy to slashing taxes. The mix that worked was that of higher taxes (at least for a while) and reduced spending.
Canadians also learned that it was much easier to talk about reducing and then eliminating deficits than actually doing something, which is why the deficits endured for so long. It took considerable political courage and an impending sense of genuine crisis to create the political conditions for action.
It also took a turn in public opinion, because after years of higher taxes and stagnant incomes, people found less money in their pockets and fewer government services, and then became receptive to explanations about what had happened and why.
None of these conditions appears even on the horizon in the United States, a country where the issue of deficits was barely raised during the 20 years of Republican rule when the government ran a deficit every year. The recession has turned everyone into big spenders and deficit financers, which is acceptable for a while but not over the longer term.
As Canadians learned, getting into deficits is easy, even alluring; climbing out of them is difficult. The means Canadians eventually used combined tax increases and spending cuts that almost no American is willing to even contemplate today.
As Lorne Gunter said
, on an unrelated topic, there is an ”infinite malleability of the Liberal conscience,”
which allows for anything a Liberal does being forgotten ”by all other Liberals (and the vast majority of the Parliamentary press gallery), if shoving it down the memory hole is in the best interest of the Liberal party.”
Thus Jeffrey Simpson, being one of those who truly believes that the Liberals are the natural governing party
because they are not the despised Alberta red necks
, is able to consign the truth down the memory hole.
The truth is that there are, normally, two components to a rising government deficit: programme spending that exceeds revenue (taxes) and interest on the debt that must
increase steadily until programme spending < revenue.
The truth is that Mulroney/Wilson balanced the programme
spending in the mid ‘80s – they cut spending on most things, including, especially, defence, until all government spending on everything except the interest on the national debt
was less than the revenue collected in the same year from taxes, customs duties, fees, etc.
The truth is that Mulroney understood exactly how to balance the whole budget by making all
Canadians share in the pain. But, on a damp spring day in 2004 he met a lady named Solange Denis, who said, roughly, keep your hands off our pensions (and, by implication, other social programmes like Medicare) or, come the next election “it’s goodbye Charlie Brown.
” Mulroney was shaken to his boots and the plans to cut the ‘social spending envelope’ were shelved.
The truth is that Chrétien/Martin were equally terrified of the voters in traditional Liberal strongholds like Québec and Atlantic Canada that are deeply attached to federal government social programmes.
The truth is that Chrétien/Martin decided that only a select few Canadians – those living in AB, BC and ON and those involved in national defence – should bear the burden of reducing the residual deficit created by interest payments on the national debt.
But, Simpson is right in saying:”Canadians also learned that it was much easier to talk about reducing and then eliminating deficits than actually doing something, which is why the deficits endured for so long. It took considerable political courage and an impending sense of genuine crisis to create the political conditions for action.
It also took a turn in public opinion, because after years of higher taxes and stagnant incomes, people found less money in their pockets and fewer government services, and then became receptive to explanations about what had happened and why.”
And I suspect
Simpson is close to the mark when he says:”None of these conditions appears even on the horizon in the United States, a country where the issue of deficits was barely raised during the 20 years of Republican rule when the government ran a deficit every year. The recession has turned everyone into big spenders and deficit financers, which is acceptable for a while but not over the longer term.
As Canadians learned, getting into deficits is easy, even alluring; climbing out of them is difficult. The means Canadians eventually used combined tax increases and spending cuts that almost no American is willing to even contemplate today.”
Simpson is wedded to the idea that high and even higher taxes are an essential component to a sound economy. In my opinion
that is unproven, at best. However: Low and still lower government spending – by smaller, less intrusive governments – is, demonstrably, a good way to avoid large debts and deficits.
Many Canadian social programmes could be privatized: funded, through private sector providers, by user/insurance fees and, for the low income cohorts, direct government payments. I suspect
that many social programmes could be provided, in a competitive, market based, environment at lower costs, than is the case today, and with better outcomes (we’re what? 30th in quality
of health care) than we now enjoy.
The only sensible way to lower government spending in Canada is to cut the 'social' envelope. Everything else of substantial size/dollar value, including - especially - national defence, is already at an irreducable minimum level thanks to Chrétien/Martin and Trudeau/Chrétien - who got us into the unnecessary deficit downward spiral in the first place.