2008: Year of the Layton?
Duncan Cameron writes that it could be:
What is needed to make 2008 Jack’s year to set the policy direction for Canada? How about: something old, something new, something borrowed, and something true.
The something old is the concern for the less fortunate that has motivated New Democrats since the adoption of the Regina Manifesto in 1933 by its predecessor the Co-operative Commonwealth Federation (CCF), and that brought Jack Layton into national politics.
The something new is the call for action on climate change and the global environmental agenda that characterized Layton’s successful campaign for the leadership of the party, making him the first green national leader.
The something borrowed is the recognition that in a big country with a small population, public investment and ownership works, and will continue to work with borrowed money, despite business voices to the contrary.
The something true is that the U.S. economy is faltering, and the world needs a multilateral leadership alternative to U.S. hegemony.
Duncan, like many on the left, fails to appreciate that unrestricted government debt constitutes a transfer of wealth from the public purse to the pockets of the rich.
He is correct in noting that “in a big country with a small population, public investment and ownership works, and will continue to work with borrowed money.” However, that does not mean that we don’t manage the debt. It was no less a socialist icon than Tommy Douglas who said that we cannot stand on our feet with the bankers on our backs.
There is certainly a case to be made to slow the pace of debt reduction – and tax reduction – in order to increase social investment. There is likewise ample evidence that some forms of social investment return direct dividends downstream. For example, social investment in early childhood education, particularly among the most economically disadvantaged, saves significantly more money in later years due to reduced demand for social assistance and reduced expenditure for police and corrections.
Unfortunately, like many on the left, Duncan leaves us with the impression that debt does not matter and that unending deficits are just fine. They aren’t.
My reading is that this column argues for self-financing debt: borrowing to pay for capital investments in public enterprises or infrastructure that directly or indirectly generate additional government revenue. This is quite different than just running an operating deficit, although Duncan would certainly be more open than you to that option.
He also advocates a dramatically more progressive tax system, under which “unrestricted government debt†would be a transfer from the rich (as taxpayers) to the rich (as bondholders).
My view is that we should at least balance the operating budget over the business cycle. However, there is a reasonable argument for treating major capital investments differently.
I think that Saskatchewan’s former NDP government went too far in creating the expectation of a positive budget balance in each and every fiscal year. To meet this expectation, it needed to establish a “fiscal stabilization fund†to shift surpluses from some years to cover inevitable deficits in other years.
I agree that public borrowing is appropriate for long term infrastructure investment. What I found discouraging was Duncan’s all too predictable disparaging of debt reduction.
The right will be shooting at us quite enough. There is no need to pass them ammunition.
Generally, the problem with economists is not what they don’t know, it’s what they know that is wrong. This is very much the case on issues of finance where what even Allan Greenspan in his recent memoir calls the household finance theory of public finance prevails. Personal debt is a burden, therefore public debt needs to be paid down.
Yes, you can have too much debt, but you can also have too little. And especially you can invest in the wrong things, or not invest enough.
Canada has failed to invest sufficiently in a whole range of important areas beginning with early childhood education, poverty reduction, child care, tertiary education,research, cullture, recreation, amateur sport, public transit, green architecture, and the list goes on.
The usual excuse is we don’t have the money.
When interest rates are high, thanks to the central bank, the message is that today matter more than tomorrow. In a crisis yes, but mainly no. The Bank should be stabilizing interest rates at 1.5 -2.0 percent not fine-tuning.At reasonable rates, economic growth looks after re-paying the borrowing. A real rate of interest of 5 percent is designed to stop borrowing and that is what Crow imposed on Mulroney and Wilson.
Government debt is an asset for those who hold it; it also is fully taxed for individual holders at the marginal rate, meaning about one-half comes back to government in personal income tax. Government debt is a better asset than the toxic sludge of sub-prime related CDO securities that have the CIBC in trouble.
The increase in the U.S. government debt from 5.6 Trillion to 9 trillion is bad because the money was spent on a military adventure, and corporate hand-outs.I have not noticed the right attacking the increase in U.S. debt.
The paying down of debt by Martin was designed to reduce the role of government in providing Canadian with basic services. That was bad economics: Canadians do not need more private goods.
We are never going to make the right happy. Nothing will satisfy William Watson or Andrew Coyne who do not believe in public education let alone public health care. Letting the right set the limits to what we can do is a hopeless strategy, which guarantees ineptitude from governments who obey the rule that the right decides on what the left can do.
I know something about what Tommy Douglas was up against in 1944. He engaged Graham Spry (who was in London) as Saskatchewan agent-general to negotiate loans because no North American banks would float debt for a socialist government. And Douglas ran a province,with no currency or central bank, not a sovereign government. When he led the Federal NDP he never backed off deficit spending in times of high unemployment. He even talked about planning the industrialized economy and nationalizing resource industries with borrowed money.
What we must do is develop positions that make sense and denounce those, like taking 90 percent of the surplus and paying down the debt, that are wrong. BTW the Finance Dept. turned the U.I. programme into a deficit reduction tax, and then used it to pay down the debt without telling anybody. or admitting it publicly.
Not only does the policy make no sense, on democratic grounds the way in which debt reduction was done is unacceptable.
The left has been too quiet on the issue of the need for public ownership and the need to borrow money in order to invest in the future. I know of no better way for the federal government to make meaningful change possible.
Now, here is a useful discussion. I think that we are all agreed that it is appropriate for government to borrow in order to finance infrastructure. I think we are also agreed that, even if borrowing only for infrastructure, it is possible to borrow too much. We’d likely quibble over where the line is.
The issue is that thoughtful progressives propose the responsible use of sustainable borrowing to invest in needed infrastructure. They do dismiss public debt as a non-issue – which is what your initial article appeared to do.
There may be a simple answer to this question, but why would it not be better to use money that we have to build infrastructure, rather than borrowing it? Is borrowing necessary, or is it something we are forced into at this point?
Tom
Essentially, it is analagous to a family responsibly using debt in order to build the familial infrastructure by purchasing a car or a house, or by repairing / renovating the house. If a family waits until they have the $250,000 in the bank to purchase the house, they will have paid out at least as much to landlords.
Small renovations to the house – a new deck perhaps – are better funded from income and savings. But major renovations – refinishing the basement to address issues of mold and / or structural integrity – are too expensive to finance from income and possibly too urgent to await financing from savings. So we borrow.
As Duncan says in the article, the analogy between national and family policy has problems. But the analogy correctly (to my mind) shows how debt should be treated as one potential solution, but as one with downsides that must be considered seriously.
HI!
I think that Mr. French still has not understood the distinction that Duncan Cameron has made — that he is still caught up in the ‘naive burden’, as Modigliani put it, of equating national and household finances. Perhaps the point would be best illustrated to him by posting Jim Stanford’s excellent article of a few years ago, on the stupidity and FUTILITY of debt reduction at the present time. It contains an excellent graph depicting the effect on the budget balance of further debt reduction at the present time. The link is at: http://www.irpp.org/po/archive/apr04/stanford.pdf
For professional reasons I should be much obliged if, should you feel like posting this, you would omit even any reference to ‘anonymous’ (and of course to my email address as usual). That is, maybe ascribe the posting to someone else.
ridiculous. if you care about the environment at all, you wouldn’t advocate for debt-based economics at all.
watch this if you have time: http://video.google.com/videoplay?docid=-9050474362583451279
this crisis (as well as the subprime crisis) will continue as long as the world continues to finance a debt-based fiat economy through large loans and mass consumption rather than savings.
i personally think we should returned to the pre-1971 managed monetary system, backing a global reserve currency with the proportion of non-carbon elements in our atmosphere (rather than gold).
There is a difference between analogy and equation. Perhaps Anonymous might benefit by learning to argue facts rather than knocking down straw men.
Debt is a tool. It is right and proper that governments should use that tool as appropriate. Certainly long term infrastructure is one appropriate use. In certain circumstances – though not usually – it may also be appropriate to use debt to cover current spending.
But any government which uses debt indiscriminately is, at best, incompetent.
A hammer is also a useful tool. But a hamer isn’t that effective in opening a can of beans.
And no, anonymous, don’t bother accusing me of the “naive burden” of confusing public debt with a hammer. It’s called an analogy.