It’s the Choices We Make that Define Our Future

The budget must be balanced
The treasury resupplied periodically
Public debt reduced.
Civil servants’ arrogance controlled
and Assistance to other territories reduced
so Rome does not go into bankruptcy.
People must relearn to work
instead of living from state resources.
— Cicero

Two thousand years on, and we’ve learnt nothing.

Now most people who start ranting about deficits, government spending and the like get hammered immediately with being “anti-the poor”.

Let’s make something clear. We’re a rich society. We can afford many things.

What we’re not good at is making choices.

The budget must be balanced

In general, this is simply sound fiscal management. What it really talks about, though, is making the choice to match income to expenditures.

If you want to spend 40% of GDP on all the various programmes offered, then you need to take 40% of GDP in taxes.

What you can’t do is try to spend 40% of GDP on prorammes and take only 20% of GDP in taxes.

Well, at least not for long.

Each year you add to your debt pile by overspending in this way, you carry out two perfidious effects.

First, you increase the amount in your spending that goes to pay interest. If you never pay down the principal, that becomes a permanent millstone. (Great Britain is still paying for the American Revolutionary War and the Napoleonic Wars, which explains a debt ratio of nearly 500% to GDP.) That means you have less to work with.

Oh, you’ll borrow more? Exponential curves like that simply bring the point of reckoning closer, faster.

Second, your spending actually “juiced” the GDP somewhat. If you then stop some of it (you’re paying that interest now, remember?) you actually throttle the economy in turn. You make matters worse, in other words.

There’s another sense in which balance matters. Capital vs operating.

There are investments we make as societies that are not yet economically warranted.

For Canadians, think of the Canadian Pacific Railway project — and the follow-on National Transcontinental Railway done by Sir Wilfrid Laurier.

When the Canadian Pacific was paid for, there was effectively no reason to run the railway across the country. The small amount of business to be had passing through the north of Ontario, across the Prairies and over the British Columbian mountains to the coastal settlements made no economic return possible.

Except … building it opened up that same landscape. The Grand Trunk Pacific and the Canadian Northern, both built from Manitoba westward to the Pacific shore, built into an area already growing prosperous, thanks to that initial investment.

The National Transcontinental across Northern Ontario and Québec, and the Canadian Northern through Ontario to Montréal, on the other hand, never paid off in the same way. So it is a gamble.

Building for the future is a capital budget matter. It’s also the one thing where planning to use debt can make sense for a nation.

A failure to budget for capital needs means that all the spending — at whatever level — eventually devolves to operating spending. (A quick note: adding a jail, or a hospital, isn’t “capital” … it’s an operational requirement.)

The treasury resupplied periodically

This speaks to paying down the debt a nation incurs, or, if you prefer, not letting it grow to the point where it is a problem.

Some debt is a good thing, for a country. Government bonds are typically the cornerstone of a safe fixed income portfolio for a retiree, for instance. A nation with no debt would also have no such instruments to offer.

But it does need to be capped and constrained, and retired regularly.

That means you have to choose how many capital projects to take on, and over what time frames.

That means you can’t do everything with an eye to having almost all of them “pay back” in the end. Every year brings new challenges and demands.

Then, too, for non-renewable resource rents, it’s good to set that income aside (“resupply the treasury”) — they can only be gained once, and should be put to work as a capital fund that produces income for the future (but the capital is conserved).

Pensions … disability supplements … there are many operational programmes as well that require a capital base to work from.

If the rate of growth slows — it’s half (on average) of what it was forty years ago — then the capital pools to fund these entitlements should be doubled, since they can’t legitimately be expected to grow faster than the overall economy. More resupply.

Public debt reduced

A slower rate of overall growth also implies that “growing out of debt” has become harder. It signals a need to reduce the overall accumulation to accommodate that.

This is the fundamental reason that the debts of government must not be allowed to grow too large: what drives the growth rate is not how cheap labour is, but what the energy return on energy invested (EROEI) of the available sources of energy are.

Our growth rate has slowed because our EROEI has come down. In 1900 the average EROEI of North America was around 100 — you got 100 units of energy to work with for every 1 expended getting it. Today that number is around 10. (At 1 or lower there’s no point in even extracting the energy.)

Stabilizing our EROEI would be a very 21st century use of capital. But to do that, we have to sweat down our debt mountain as well.

Choices, again. You can’t have it all.

Civil servants’ arrogance controlled

Let me start by saying that any “customer service” clerk in any private sector organization can be as arrogant and unhelpful as any civil servant — or bend over backwards to help, again as with any civil servant. This is not a comment about public sector work.

It is a recognition of two things: size breeds arrogance and oligopoly (or monopoly) breeds arrogance.

It is why I cringe when I hear someone talk about “free enterprise” but only care about large organizations. Or talk about “working people” and only care about their organized forms.

By definition, those services provided through the public sector are monopolies. We don’t (should we?) allow provinces to compete to offer welfare, schooling, health care in each other’s territories. We don’t (should we?) allow other nations to compete for postal services, criminal justice, weights and measures and inspections, public health and defence issues.

Many large corporations become akin to monopolies, hence oligopolies. If I’d like to access telephony, I can deal with the phone company or the cable company. The same for television or the Internet. Other providers start by piggy-backing on my pre-existing business with one of those two. If I can’t stand either my phone company or my cable company, my remaining choice is to do without. That’s close enough to monopoly for my book.

In all these, and many more places, rules, regulations, procedures, “by the book” behaviour, etc. can override the purpose for which the service exists.

Reform, in other words, is always needed, and should always be a key part of improving what’s on offer. It’s a needed investment.

Assistance to other territories reduced

This is a tough one, because there are conflicting interests at play here, not to mention the moral values of many citizens.

Perhaps better would be “on-going assistance reduced”.

A hand-up is potentially a good thing to offer, whether within the nation or abroad. Maybe you are mitigating a problem of direct interest. Maybe you are helping with recovery after a disaster. There are many reasons to include “sharing” in the public spending envelope.

Becoming dependent upon such, however, does neither the giver nor receiver any good.

Equalization in Canada is much like that: the notion of helping less-well-off parts of Canada become better off is a good one; areas living beyond their means permanently on the backs of others as an “entitlement” has not been. It has demeaned all parties involved.

So, too, internationally.

There is, however, a third place this does need to be applied. Organizations funded from the public purse on a permanent basis.

Committees for this. Advocacy groups for that.

If they matter to their stakeholders, why aren’t their stakeholders able to raise the money required to operate them?

Take the recently cut Katimavik programme, for instance. There’s nothing wrong with taking young people to work in other parts of a large country like Canada and to experience other regions.

But if it’s so valuable, why can’t it be funded by the people who believe in it — perhaps even those who benefitted from it? Why must it be a perpetual ward of the state?

I think what’s being said here is that transitional support is one thing; permanent entanglement is not. It precludes choice in the future.

so Rome does not go into bankruptcy

Rome then, us now.

Bankruptcy is not just a financial condition. It is a societal one.

A society that will not make choices is already bankrupt, though it be swimming in cash.

It has lost the ability to govern itself. To govern, after all, is to restrain, whether that be appetites, desires or actions.

Worse, by setting up so many permanent programmes and mechanisms, citizens get out of the habit of governing themselves.

They get lazy — after all, the state is there to take care of that. Whether “that” is their health, their welfare, or simply “that repair job over there”.

They get lazy in another way, too, because they transfer that feeling into other organizations. The idea of one person standing alone for what they believe disappears: everything must be done through an organization, the larger, the better.

Our politicians stop talking to citizens because their day is filled with the representatives of groups: ones who bring money, ones who bring votes, ones who want something and can be loud enough about it to threaten the politician.

Our “business leaders” (most are mere managerial time-wasters) stop talking to employees and customers because their day is filled with meetings, interest groups, etc. The more they’re the last ones standing, the less, indeed, they need to pay attention.

That is the definition of a bankrupt culture, society, nation.

Is it any wonder that personal debt, corporate debt, government debt all soared to, as the French say, laissez les bon temps rouler (“let the good times roll”) when our growth curve fell under our growing expectations? How we so easily confused the growth of numbers for real growth?

People must relearn to work instead of living from state resources

The thing about bankrupt societies is that the gravy train falls apart. Or, as Yeats put it:

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Rome fell. We’re falling. We need not crash as they did. But we must relearn almost everything and undo so many bad choices (or failures to choose), and soon, or the crash will be fully baked in.

Innocence is over. Now choose your future.

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