Tuesday, January 27, 2009

Harper, maybe Campbell, decide deficits OK

The world has changed. Stephen Harper is acting like a Liberal, leaping into budget deficits and tossing cash around to win votes.
Even Gordon Campbell, who three months ago called deficits a dangerous "addiction," now says B.C. might have to break its balanced budget law next month.
These are signs of how dramatic the economic crunch has become, how badly politicians under-estimated the problems and how worried both leaders are about election prospects.
Harper's budget called for Ottawa to spend $36 billion more than it takes in this year, ending a decade of balanced budgets. (The deficit is forecast at $30 billion for the following year, but that estimate is about as reliable as a $4 watch.)
Spending will jump 10.8 per cent, at a time when inflation is almost non-existent. Revenue will fall by 4.2 per cent, thanks in part to tax cuts.
The rationale is that the government spending will take up some of the slack in the economy. If people are laid off in the forest industry, maybe they will get work on a road infrastructure project.
There is broad agreement among economists that government intervention of this type is necessary in a serious economic slowdown to cushion the impact and hasten the recovery. That almost inevitably means several deficits.
On balance, the government's direction is sound.
But it's the details that should make you nervous.
This is all an inexact science. Few economists will hazard a guess about the real effect of the programs - how much the billions will add to economic output or reduce the jobless rate.
And once the money starts flowing, it's hard to keep track of where it's going or how wisely it's used.
Some stimulus measures make obvious sense. If a bridge is planned for construction in five years, building it now creates jobs and provides needed infrastructure. In five years, the theory goes, the economy will be stronger. The money that would have been spent on the bridge can be used to pay down the debt run up in the deficit years.
Other measures are questionable. The government has promised $160 million in new spending on cultural projects. It's hard to judge the real economic value of that spending - except in make-work terms. And it's harder to see how the government can avoid pressure to keep up the commitment once begun.
And it's committing $3 billion this year to subsidize home renovations and landscaping. That doesn't qualify as smart spending - there is no gain in productivity or long-term benefit. (In contrast, social housing for low-income serniors, the disabled, natives and northerners gets about $500 million this year.)
And some measures are just foolish. The income tax cuts announced in the federal budget aren't targeted to create jobs or improve our long-term situation. While they are nce, they are not going to bring a spending rush to stimulate the economy.
And the $4 billion in foregone revenue over the next three years will now be borrowed, for us - or our children - to pay back at some point. But the cuts will score some political points.
The budget marks quite a transformation for Harper, whose political career has been built on an abhorrence of deficits and rejection of this kind of interventionist role for government.
Gordon Campbell might be having the same kind of conversion. His government made deficit budgets illegal in B.C. Even a few months ago, when he outlined the province's initial response to the meltdown, Campbell pledged the province would remain "a deficit-free zone."
But this week, with the provincial budget less than three weeks away, Campbell told The Globe and Mail he's not sure the government will be able to balance the budget.
That's a big reversal. But probably a wise one - depending, of course, on the prudence and effectiveness of the economic stimulus measures. An ideological aversion to deficits shouldn't become a straitjacket. Families sometimes borrow to get over tough patches; governments have the same opportunity.
Footnote: Politically, I have no idea what the impact will be in the provincial election May 12. Campbell could look a little hypocritical in embracing once unthinkable deficits, if it comes to that. But that's likely better than looking detached from the economic problems affecting so many families and communities.


DPL said...

What the premier of BC says and what he does is not always the same. Legislation says no defecits, but some other bits of his legislation has placed fixed times for the Legislature to sit.
He wasn't going to sell BC Rail either. Or break contracts and the list goes on. He has broken fixed sittings more than once. He was all for smaller government at least till he got elected. Unfortuantly I see no reason to trust our premier not the present, holding on by a thread Prime Minster either. Why do politicians lie and manage to get away with it?

Anonymous said...

This may be the most crucial period the western world has experienced since WWII - at least as far as questions about what our society is for.
When I hear any politician talk about "spending on infrastructure", I get worried; mostly because they're thinking in terms of the past and not the future.
Oil may be cheap right now, but only because no one's buying.
That'll change because the theory goes that we can just keep on building and consuming like there's no tomorrow, and of course we have to anyways because jobs and our vaunted "standard of living" depends on it. And the minute the situation approaches what previously passed for "normal", oil will shoot back up again - and back we'll go...
Repeat ad infinitum until some brave, intelligent, forward thinking politician starts to tell people things they're not prepared to hear.
We *CAN'T* keep plundering the planet. It's time to re-assess the necessity of driving to work, coffee in hand, with the dream of owning a house in the burbs.
This insanity can only end when our society truly appreciates that the rat race will kill us all.
We don't need another bridge across the Fraser.
We don't need to destroy Burns Bog or valuable farmland by building wider roads so people can buy more cheap plastic stuff shipped from China.
Clowns like Harper and Campbell have reaped a nice windfall for their cronies in the development industry, etc. But what may sound "good" for the Vancouver Board of Trade et al is demonstrably damaging to anything approaching a sustainable way of life.
We need rail. We need transit. We need to think *forward* about having *less*, not backwards by having more.
I can all but guarantee that every politician will take the easy and insane way out - they'll build roads and bridges and a 20th century infrastructure, instead of a 21st.

Dawn Steele said...

From the first indications, this looks like it will be 90% shameless political pork barrelling: spending that makes no sense whatsover in terms of social or economic objectives but is designed solely to curry short-term favour with the political base.

Do I really need a tax break to re-do my kitchen more than seniors or the homeless need housing? If I can afford to spend $10,000 on a kitchen reno, should I really be first in line for a government handout when others are living on the streets or in their cars? Do unemployed carpenters and plumbers even exist in BC and if so do they really need this "stimulus" more than auto plant workers in Oshawa?

Declan said...

"Stephen Harper is acting like a Liberal, leaping into budget deficits and tossing cash around to win votes"


Am I the only person who doesn't live in the imaginary fantasy land where Conservative governments are fiscally conservative and Liberal governments run deficits? This is very strange to me.

"The budget marks quite a transformation for Harper, whose political career has been built on an abhorrence of deficits and rejection of this kind of interventionist role for government."

What transformation? This is a straight line continuation of the previous Harper budgets, taxes down, spending up; only the performance of the economy has changed.

"It's hard to judge the real economic value of that spending - except in make-work terms."

That's what stimulus is, a make work project to take up the slack in the economy. Benefits to the future are a separate issue.

Anonymous said...

If Campbell brings down a deficit budget he will look a "little hypocritical?" C'mon Paul, this is a man who has speeches upon speeches about the bad deficit budget from the NDP and then back in 2001 he was bringing in one of BC's largest deficits based on his own voodoo economics of magical tax cuts.

Let's get real and hold Campbell accountable.

Personally, I believe that this budget will be balanced by slim margins. But going forward with 3 year service plans, we will see a deficit budget based on the security costs of the Olympic games. This is why the government is fighting the Feds on the security dollars.