Monday, March 14, 2016

Unbalanced

         Last week, the Selinger government announced that it was hiring noted economist David Dodge to review Manitoba’s balanced budget legislation.  The law, which in theory “prevents deficits”, has been a thorn in the side of the NDP government for Selinger’s entire time as premier now. 

          The effects of the law are to ‘punish’ the government if it does run a deficit by limiting ministerial salaries (the pay bump ministers get to compensate for the fact that they’re basically always working).

          Balanced budget legislation are like referendums: great in theory, but a terrible way to get anything done.  Similar legislation was passed across Canada in the late 1990s and early 2000s, mostly by conservative governments, but they became the orthodoxy, so everyone passed one.  Even left of center governments got swept up in the zeitgeist.

          And while the economy was doing well in the first half of the 2000s, it was fine.  Governments were posting surpluses, so everything was great. 

          But then the 2008 recession happened and governments suddenly found themselves having to go into deficits, and so in a number of provinces, governments have found themselves in the awkward position of contorting their words and budgets so that they avoid getting penalized by balanced budget legislation.

          Balanced budget legislation is stupid.  Let’s be clear.  Balanced budget legislation no more prevents deficits than announcing your diet to everyone prevents you from eating at McDonald’s. 

          I’m not going to argue the merits or problems of continued deficit spending, except to note that debt-to-GDP is a better indicator of fiscal health.

             But even the most rampant anti-NDPer has to concur that deficits are an occasionally necessary tool.  Governments can get stuck with unexpected expenses, or sudden losses to sources of revenue (*cough*Alberta*cough*).  In those cases, it makes perfect sense for governments to spend more than they collect.  Pretending they won’t or shouldn’t do so is just perpetuating a fraud.  Governments are going to do it.  Full stop.  So let’s do away with legislation based on the fantastical notion that they won’t.    

2 comments:

  1. Every dime spent by government is deficit financed because government has no pile of money to call its own. It does not enter the markets with its goods and engage in voluntary exchanges. It takes from a collective what it needs and gives back whatever it pleases. Government is, always has been and always will be a financial loser.

    So the present deficit of the Manitoba Government, taxed or borrowed, is $13 billion.

    Taxpayers fund government, specifically their assets, properties and incomes. The aggregate of the assets of a community, a state, province, or national government, is that which funds government.

    Analyze public finances properly, from the finances of those that actually fund government, and one discovers that it does not matter whether government taxes or borrows. However, as there are enormous costs in Taxation, squander and the deterrent effect, that disappear with public borrowing, the community is always better off having its government borrow to fund public expenditures.

    You may find the proof here: https://mbparty.ca/10000-public-finance-challenge/

    Find the flaw and I shall reward the person with $10,000.

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    Replies
    1. WOW!! Look at all those fancy charts and diagrams that are straight out of the 90s. You guys must be really professional.

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