There really isn’t very much that’s required to turn Canada into a world power, a country filled with jobs (and good ones) galore that attracts the best and the brightest from around the planet.
It’s simply to remove the dead hand of government from the economy. Not by undoing regulation, or playing the tax abatement game, but by not taking up so much space in the economy.
Dead hand? What other name would you have for $276,100,000,000 of spending by Ottawa? (Remember, first of all, they’re only going to take in $255,000,000,000, so first and foremost we’re overspending our choices in national income by $21,100,000,000 this year.)
All that money, after all, didn’t come from nowhere: it came from you and me. That’s just a tall latté and a slice of lemon poppy-seed loaf at Starbucks (or a lunch special at Tim Horton’s) away from $7,950.00 from each and every Canadian: new-born babe, school child, university student, adult worker and retiree.
This year, next year, every year.
That seventy-nine hundred and fifty dollars doesn’t count the take by your province, or your municipality, but it does cover every tax the Federal Government assesses: the GST, the gas tax, the air conditioning levy, the tire levy and the like. Oh, and the increased debt we’ll pay interest on each and every year until we retire it.
Not roll it over. Retire it. Collect taxes and pay it off getting nothing for it, because we spent it today.
Oh, and your province? Well, Ontario, where I live, plans to spend $126,390,000,000 on top of the federal spending. Of course, it’s only going to collect a paltry $112,400,000,000, racking up another $13,900,000,000 in debt this year.
So, on top of that lovely $7,950.00 from the feds, Ontario adds $9,451.88 to every person in the province. That means … $17,401.88 for me. $17,401.88 for my wife. $17,401.88 for my son. $17,401.88 for my daughter. Thank goodness the cats don’t count.
I’ll leave that there, other than to say just one thing.
$30,800,000,000 of Ottawa’s spending is interest on the debt we’ve run up thus far. $10,600,000,000 of Ontario’s spending is interest. Almost all of that is at the ultra-low interest rates of the past four years.
Suppose Canadian public debt, instead of selling at interest rates from 0.90% to 1.10%, got pushed up to their historic norms around 5%?
The roll-over of debt — and most of this debt is in shorter-term instruments, so it will roll over quickly (goodness knows we can’t retire it now). Try $77,000,000,000 of interest in Ottawa; $26,500,000,000 in Ontario. All of that increase would require issuing more debt to cover it, because we’re not running surpluses, are we?
Want to bet global financial crisis round two — pick your trigger point: Europe, China, Japan, the US, it doesn’t matter — won’t see a sudden sharp shock to interest rates no matter what central bankers think they’re in charge of?
And all these numbers, interest rate rises or not, get worse next year, because we’re adding to them with this year’s deficits.
This might be a good place for the old joke “it’s a good thing we don’t get the government we pay for”, but …
There’s the cost of administration. With 400,000+ Federal civil servants, even assuming a low $100,000 each for salary, benefits, office space, etc. we’d have 14.5% of that two hundred seventy-six billion simply going to pay for all the people whose hands touch this money through their work. Don’t forget all the money that goes to pay for contractors and consultants to augment the federal headcount, provide for skills that don’t fit within the current pay bands due to their demand, and the usual second opinions in the endless game of “my ass is covered”. It’s probably not at all unreasonable to figure that a good 20% of every tax dollar goes into “administration” in this way.
Ontario? They like to crow that the public sector is only 68,000 civil servants. But there’s this little thing called “the broader public sector”: jobs not directly part of the Ontario Public Service, but 100% paid by the province. Teachers, medical professionals, university staff. That grand total is 1,200,000 more or less.
Given that a little under 60% of Ontarians are “of working years”, that means we’re running around 15% of the people in this province that work, work for the provincial government.
Oh, and about half of those federal numbers live in Ontario, too. Add another 1.4% for that.
We haven’t counted municipal services, but that should have made the point.
Work is work, I suppose, and someone’s got to do it. What did we get for our money?
Well, ostensibly we got programmes and services.
Great chunks of the Federal spending, of course, are simply transfers: take the money from here and send it to there, collect money from this and pour it into that. Papa knows best, and all that.
The more productive corners of this large country keep shifting. It would no doubt be desirable if we could just keep the strength of each region and others grew up, but that’s not what happens in the real world. Power and population, economic models, etc. shift and change. Accept it.
Capital, in fact, goes where it receives the most respect (i.e. isn’t nibbled away endlessly either by erosion of the value of the currency or ever-changing fees, rules and taxes).
Investment comes when a region has lots of opportunities to choose amongst, and where inflows to the region are sustained and sustainable: the timeframe here is not “to the next election” but measured in decades (and sometimes, centuries).
Capital is not just financial: it is educational, human, dynamic.
A good thing, that: financial capital is being systematically destroyed around the world by current policies.
How’s that 0% paid on your savings working out? You know, compared to the 18%+ you pay to use your credit card?
Darn good thing capital comes in other forms than money, I think.
It can receive more respect with the right policies: the argument for a single payer health care environment (regardless of who delivers the care) is found in low cost and universality (I can take a risk as my care is not tied to my employer); the argument for low cost education with many options (no mandated curriculum) is the allowance for developing even more human capital.
Note that we do the first of these in Canada, but not the second.
There are, in other words, some investments worth making to prime the pump. Others may facilitate sustainability: the infrastructure of urban areas, for instance.
But if the total package isn’t right, or the take to do these things is too high, the capital will go elsewhere. Or, if it’s human capital, it may well waste away.
There’s a reason the old joke is “the bureaucrat buys two newspapers, so she/he’ll have something to do in the afternoon”.
It’s not that there’s no work to do, but that it’s not exactly creating anything for the future. Just moving the pieces around, with normal friction slowly reducing their value.
It shows how badly off we are when you realise that Dubai — a place with a beastly climate, close to one or more potential wars that could spill over and engulf it, little food-producing capability, etc. — was attracting the mounds of capital it did before global financial crisis one in 2008. What was built with that capital isn’t going to multiply much: it’s been sunk into buildings. No real import substitution (as Jane Jacobs, in her works The Economies of Cities and Cities and the Wealth of Nations showed, this is the true engine of economic prosperity that lasts) will take place.
If that is the best use of capital, it shows how much we have impoverished our own prospects.
Of course, when we look at Canada in 2012, we see just how much we sunk into buildings that won’t generate a penny going forward, too.
So: get out of the redistribution game, the picking favourites game, the national champions game, the innovation agenda game, etc. Stop agonising and studying (even unto death) the locations of things.
Allow province to compete with province for the shape of the future. But not by giving the provinces the money (if you’re in Ottawa). (The same holds true for the province playing city against city.)
Leave the bloody money in the hands of citizens to start with by focusing the government’s take and structuring it to get where we need to go. There are things government can and should do, but the basic motif should always be “starve the beast”.
Remember, each dollar denied to Ottawa or to your provincial capital is actually $1.20 or more saved, thanks to the overheads of running the place.
As for the Canadian economy, the other thing that’s required is a strong and stable currency.
A dollar saved — I care not whether in an ordinary account or term deposit, or in any of the tax-advantaged vehicles that exists, or even in an ordinary taxable capital account — should still be worth a dollar in terms of its purchasing power years later.
Inflating the currency, in other words, is destructive of wealth. The policy of near-zero interest rates has been doing that, too. So has quantitative easing, otherwise known as creating money to buy debt no one else wanted.
We did less of this than others, but we did far too much of it simply to be a good team player. For some parts of the world — the UK for two centuries, Japan for two decades, the US post-Clinton, Europe since the founding of the EU — the game is to continue. What hasn’t turned their economies around is to be done more so.
There is no need for us to follow them into the pit. Not doing so would make our corner of North America the one to invest in, to accumulate capital in, to build factories in to serve the entire NAFTA area.
Why destroy our prospects and our own futures? To satisfy Dalton McGuinty’s odes to twentieth century applied Marxist corporatism (what else might you call the Samsung deal)?
Ideally, of course, we would bite the bullet, take the transitional pain, and return to a backed currency.
That doesn’t necessarily mean gold, although that was the historical choice. The first country to get serious about the long-term value of their money will see a massive inflooding to boost their economic future. It should be us. Might I suggest units of energy production, since the second law of thermodynamics does mean that energy, once used, is transformed into a non-useful form and thus the supply does have limits, yet we could develop more of our potential energy sources to avoid gold’s deflationary traps?
There is — just as there is with issues such as the environment — little likelihood that any of this will come to pass. Parties and party leaders positively thrive on siphoning off the future to bribe the voters today.
But we can dream.
And when our children are impoverished and life is hard, we can tell them just how badly we screwed up, how we missed our chance to be great, and settled instead for a little more largesse.