God bless the Queen, John Maynard Keynes, the Tooth Ferry, Santa Claus, and the latest economically challenged socialist liberal to storm the political landscape, Canadian Prime Minister Justin Trudeau. To wit, this headline from the desk of Josh Wingrove at Bloomberg:
Trudeau’s Message to World: Let Government Spending Do the Work
Canadian prime minister warns against balanced-budget ‘trap’
Fiscal boost comes amid talk monetary policy has lost bite
So, no more back-breaking or mind-numbing work; “let government spending do the work“. And, why stop there? No need for education or any other investments in private sector activities, right? No work required, government is here to provide the benefits that work used to provide. If somebody can explain to me the difference between the notion of a Santa Claus, where as a child there were gifts supplied at no cost, and the notion that government can supply no cost benefits to adults, I would like to hear hit. Until then…
Canadian Prime Minister Justin Trudeau is urging global leaders to rely more on government spending and less on monetary policy to spur growth as he prepares a budget that will push his country into deficit.
In a wide-ranging interview Wednesday in Vancouver, Trudeau highlighted the importance of infrastructure spending and measures to bolster incomes of middle classes he says are critical to driving growth. He also defended his plan to go willingly into the red.
First, let me address an issue the honorable Canadian prime minister fails to see, apparently lacking the mental capacity to think past his initial move. That is, the whole notion that government can stimulate the economy, or “spur growth”. Government, over time, has ZERO ability to stimulate the economy through monetary or fiscal policies. The only thing government can accomplish is to manipulate the economy. Nothing in life is free. There is always a trade-off, either a monetary cost, a physical cost or an opportunity cost. Any notion that the government can or will create jobs, opportunities and/or wealth and income without it being fully and completely offset by the loss of jobs, opportunities and income and wealth somewhere else in the economy, is the stuff of fairy tales. But, it is worse than that. It is not even a zero-sum game, the government takes a fee off the top and forces a population to run around performing unproductive activities and using resources in unproductive ways. In the end, the economy is NOT stimulated and more wealthy, it is manipulated, and LESS wealthy.
I find it highly ironic and hypocritical that a social liberal holds the twin beliefs of sound environmental policies and increased infrastructure spending. By infrastructure I am referring to transportation; highways, roads, bridges, etc., which are the go-to projects hailed by the politicians and legislators that propose them. If all transportation infrastructure was left to deteriorate then no more cars could be used, especially for long distance travel. This would not only be better for the environment and save lives, but would foster equality as the biggest and most wealthy producers would not benefit from the transportation system we now have. It is no accident, or twist of fate, that Sam Walton was able to build and grow Wal-Mart at a time when the interstate highway system was built out. I am not making a value judgement, nor am I saying we should eliminate all roads and bridges, what I am saying is that as a society we, through our legislators, have made a value judgement that we desire certain things more than others. But, should we assume that future generations will make the same trade-offs?
When talking about transportation infrastructure, we are talking about something that will be around for many years to come. So, when deciding whether or not to pursue such projects, we need to ask ourselves; will future generations value these projects in the same way we value them? I find it highly presumptive, and bordering on obnoxious, that one would assume the next generations will inherit current generational value systems. I don’t care if you examine your own family, a small community, or an entire nation, history shows very clearly that priorities, values, beliefs, wants, etc., change drastically from one generation to another in a single family, let alone multiple generations in a vast territory the size of Canada, or any other modern nation state. But, is this issue ever discussed or brought up for consideration? No, not up for consideration at all. Instead, when discussing infrastructure, stimulus and the inevitable debt that accumulates through the “stimulus” process, I hear the argument; “future generations will use the infrastructure, so they should pay for it!” So, whether or not they have the same value system, or will even want the infrastructure proposed, we jump straight to forcing them to pay for it!
Who should be responsible for the cost of initial, or rehabilitative, infrastructure? Let me ask the question this way; who will financially benefit from the initial, or rehabilitated infrastructure? If we agree that those who financially benefit from the infrastructure, should pay for the infrastructure, then we at least have a starting point. Take the following example:
In the middle of nowhere, an entire town of houses, commercial and industrial buildings, has been completed. No roads, no infrastructure of any kind, however, has been built. Who should pay for the roads going in and out of town, as well as the city streets? Clearly, the initial owners should pay for it with cash or through borrowing with them, not the general taxpayers, responsible for the liability. Their entire investment would be worthless without the new infrastructure. Owners of houses, rental and commercial buildings and industrial complexes, derive enormous benefit from the initial cost of infrastructure and, thus, derive 100% of the initial financial benefit of any new spending. This would also be true in situations where maintenance has been ignored and substantial refurbishing is required. Like, say, when roads and bridges have not been maintained for 40 years and property values are falling, businesses are leaving, and government now lacks the resources for basic services. Sound familiar?
Now, while the owner of real estate that derives value, in a large way, from the surrounding infrastructure, should pay for the initial infrastructure, that does not preclude them from passing on costs for maintenance and use to others that use or benefit from it in some way. But, when current generations and governments, like the one in Canada, propose public borrowing for current infrastructure spending, they are quite literally conscripting younger and unborn generations in to paying for current wealth and enjoyment no different than governments have conscripted slaves for labor or youth for wars.
“My message to other government leaders is don’t fall into the trap that thinking that balancing the books” is an end in itself, he said. “It’s a means to an end.”
Trudeau’s arrival on the global scene and his endorsement of deficits marks a sharp about face from his predecessor, Stephen Harper. Along with German Chancellor Angela Merkel and U.K. Prime Minister David Cameron, Harper championed the budget austerity alliance within the Group of Seven that often clashed with the U.S. on fiscal policy.
President Barack Obama will hear a new message next week when he hosts a state dinner for Trudeau at the White House. The Canadian leader’s debut also coincides with an increasing sense in global circles that monetary policy is reaching its limit, fueled in part by Japan’s surprise move to adopt negative interest rates that caused turmoil in currency markets.
“Making sure monetary policy and fiscal policy are aligned and complementary is obviously a benefit to any economy. But at the same time I don’t want to be overly preachy,” Trudeau said. Other countries should consider balanced budgets when feasible “but don’t make it the be-all and end-all because you may be missing out on opportunities to grow your economy — to help citizens prosper — that too much rigidity would actually interfere with.”
At a Group of 20 meeting in Shanghai last week attended by Trudeau’s finance minister, Bill Morneau, officials from the world’s top economies committed their governments to doing more to boost growth amid mounting concerns over the potency of monetary policy.
Trudeau, 44, hinted he is considering expanding on pledges that have his country on pace for a deficit of nearly C$30 billion ($22.3 billion) in the fiscal year that begins April 1. Having promised C$10.5 billion in new spending during the campaign, Morneau delivered a fiscal update last month showing the government is starting from a deficit of C$18.4 billion as Canada grapples with the oil-price shock.
“It’s to me even more of a reason why we need to be investing intelligently in infrastructure, in money in the pockets of the middle class, to grow the economy,” Trudeau said of the fiscal situation he inherited after his majority win in the Oct. 19 election.
Even with C$30 billion in red ink, Canada’s debt-to-GDP ratio would remain among the lowest in the G-7. “That leaves us with more flexibility,” Trudeau said. “If we were sitting at 90 percent debt to GDP, we probably wouldn’t be contemplating the kinds of things we know we’re able to do. If interest rates were radically different — much higher, to take money to invest in our economy — we’d be looking at different kinds of investments.”
This is the danger and a fallacy upon which many governments operate. It is bad enough that current generations are passing on their values and debts and limiting the options of future generations (Mr. Trudeau clearly recognizes as debt/GDP goes higher, there is less flexibility), they are also vastly distorting the entire economy future generations will inherit. I cannot stress this enough. While the debt is a huge problem, the economy could be so harmed, that there will be no way for future generations to dig themselves out of the hole. Should governments really be coming in to prop up businesses, labor or industries or build certain types of infrastructure when certain industries are declining? No. Oil is in decline for a reason. Any capital or labor invested in to that area should be left to adjust to market conditions. Artificially supporting any industry, or growing government to replace lost industries (United States and Europe), makes a country less competitive and only serves to perpetuate decline.
The commodities slump prompted the Bank of Canada to cut its overnight rate twice last year, to 0.5 percent, and has dimmed the economic outlook. This week, Statistics Canada reported that output grew just 1.2 percent in 2015, down from 2.5 percent in 2014. To Trudeau, that’s a reason to spend more instead of tightening up to eliminate the deficit, as Harper had argued in last year’s election campaign.
“Cuts would have been terrible for the economy,” Trudeau said.
The new prime minister will stop short, however, of opening the taps endlessly, reiterating a commitment to lowering Canada’s debt-to-GDP ratio over time.
“Balancing that fiscal responsibility that Liberals have always had with an understanding that in order to grow we need to invest,” he said, “is the balance we’re working hard to strike.”
I have long thought that too much blame is placed on labor. That labor is somehow greedy and is unwilling to be flexible with their wages. Many times they are not flexible, and they have suffered for it. But, when government interferes in any way through growing in size, through more regulations, compliance requirements or stimulus, the cost of doing business increases and less capital will flow to that city, state or nation. While Mr.Trudeau may seem like a “reasonable” liberal, it is a fact that labor is harmed irreparably when government steps in, or fails to shrink in size and interference, when business conditions become more challenging.
So, far from helping the “middle class”, the policies proposed by Mr. Trudeau will only serve to harm the middle class and, in the process, condemn their children and grandchildren to scarce opportunities and conscription to debt serfdom. Everything Mr. Trudeau is considering, or wishes to propose, has already been tried. All stimulus attempts have failed, and failed miserably. There is no reason for Canada to follow other countries down a broken road. Canada has had a heritage of more fiscal and monetary responsibility as well as less debt than other developed countries and it should maintain in that tradition. For example, if Canada needs more infrastructure, current beneficiaries should pay for it. After all, Santa Claus is NOT real and work is required.