In Milton Friedman’s 1980 PBS TV series Free To Choose, Friedman drew a simple graph showing that, mathematically, there are only four ways to spend money.
Spending your money on yourself is efficient. Tonight’s Special, prime rib with a small side dish of kale, looks like a good deal.
Spending your money on other people is efficient too. She’ll have the mac and cheese.
Spending other people’s money on yourself is not so efficient. The Wall Street Hedge Fund Managers’ Annual Dinner will be at Maxim’s in Paris.
But spending other people’s money on other people is the way government spending is done. Free caviar for all Americans! Whether they like caviar or not. And get in line because there’s nothing except caviar, and it will be rationed.
P.J. O’Rourke, “My Coffee Klatch With Rand Paul: The Kentucky small-l libertarian (and likely presidential candidate) talks with P.J. O’Rourke about philosophy, money, and hopelessness”, The Daily Beast, 2014-09-27.
September 2, 2015
August 5, 2015
This October, NATO is launching Trident Juncture, its largest and most ambitious military exercise in a decade. The massive land, sea and air exercise will be held in the Mediterranean and will include 36,000 troops from 30 nations. Its goal will be to help the fictitious country of Sorotan, “a non-NATO member torn by internal strife and facing an armed threat from an opportunistic neighbour.” Not surprisingly, this is widely seen as an explicit response to Moscow’s increasingly belligerent pressure on the alliances’ eastern borders. The Canadian government, an outspoken critic of Russian President Vladimir Putin and the invasion of Ukraine, had planned to send its flagship destroyer, HMCS Athabaskan, as “a strong signal to the Russians,” whose ships and aircraft have also been bumping up against Canada’s territorial claims in the Arctic.
But, last week, it was reported by the Ottawa Citizen that the 43-year-old Athabaskan was no longer seaworthy and is being sent back to Halifax for extensive repairs. Athabaskan is a fitting symbol of the overall state of the Navy: Its engines require an overhaul, the hull is cracked, the decks need replacing, and the weapon systems are questionable. Even Rear Admiral John Newton, commander of Maritime Forces Atlantic, describes his flagship as worn and tired.
In February, during a storm off the East Coast, Athabaskan was damaged and a number of engines failed. After that, the Royal Canadian Navy (RCN) decided it was no longer capable of weathering the heavy seas of the North Atlantic, so it was sent south for calmer seas. Nonetheless, its engines broke down in Florida, then again in placid Caribbean waters.
“It was garbage. Everything was always breaking,” says Jason Brown, who served as an electrician and technician on Athabaskan for seven years, ending in 2010. “We did 150 to 300 corrective maintenances a month.” Although Brown praises the ship’s crew, he often spent 20-hour days trying to fix equipment. “The two main engines didn’t like to play nice together. It was 4½ years before that issue got fixed.”
Compared to its allies, the Canadian Navy is now only one-third the size it should be, given our GDP, and can only play smaller and smaller roles. Stanley Weeks of the U.S. Naval War College, a former U.S. admiral who follows NATO closely, is dismayed at the decline of the RCN. “[Canadian politicians] need more seriousness. Canada is an inherently maritime nation, dependent on overseas markets, especially in Asia Pacific, and, therefore, it has to be a contributing stakeholder, militarily and diplomatically.” He believes American military leaders in the Pentagon have not yet grasped the serious implications of losing the Canadian destroyers. Regardless, “Canadians should worry more about this than Washington.”
March 1, 2015
Scott Lincicome would like to point out to the contending Republicans hoping to become the GOP’s presidential candidate that defence spending is not immune to the massive overspending problem common to big government:
Over the next 20 months, a clown-car-full of Republican politicians will vie for their party’s presidential nomination. As the candidates crisscross the nation, each will undoubtedly call for smarter, leaner, and (hopefully) smaller government. However, there is one government program that, despite being a paragon of government incompetence and mind-bending fiscal incontinence, will most likely be ignored by these champions of budgetary temperance: the F-35 Joint Strike Fighter. In so doing, these Republicans will abandon their principles and continue a long, bipartisan tradition of perpetuating the broader problems with U.S. defense spending that the troubled jet symbolizes.
During the Obama years, the Republican Party magically rediscovered its commitment — at least rhetorically — to limited government and fiscal sanity. Criticizing the graft, incompetence, and cost of boondoggles like the 2009 stimulus bill, green-energy subsidies, or Obamacare, GOP politicians not only highlighted these programs’ specific failings, but also often explained how such problems were the inevitable result of an unwieldy federal government that lacked discipline and accountability and was inherently susceptible to capture by well-funded interest groups like unions or insurance companies.
They railed against massive bureaucracies, like the Department of Energy, that paid off cronies with scant congressional oversight. And, in the case of well-publicized debacles like the botched, billion-dollar Healthcare.gov roll-out, many Republicans were quick to note that the root of the problem lay not in one glitchy website, but the entire federal procurement process, and even Big Government itself
One wonders, however, if these Republicans’ philosophical understanding of Big Government’s inherent weaknesses extends to national defense and, in particular, the F-35. According to the latest (2012) estimate from the Pentagon, the total cost to develop, buy and operate the F-35 will be $1.45 trillion — yes, trillion, with a “t” — over the next 50 years, up from a measly $1 trillion estimated in 2011. For those of you keeping score at home, this means that the F-35’s lifetime cost grew about $450 billion in one year. (Who says inflation is dead?)
That number — $1.45 trillion — might be difficult to grasp, especially in the context of U.S. defense spending, so let me try to put it in perspective: the entire Manhattan Project, which took around three years and led to the development of the atom bomb, cost a total of $26 billion (2015), most of which went to “building factories and producing the fissile materials, with less than 10% for development and production of the weapons.” By contrast, the F-35 will cost $29 billion. Per year.
For the next 50 years.
February 17, 2015
Dan Mitchell explains why there’s a need to change the way the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) “keep score” on how proposed legislative changes will impact the US economy:
The CBO, for instance, puts together economic analysis and baseline forecasts of revenue and spending, while also estimating what will happen if there are changes to spending programs. Seems like a straightforward task, but what if the bureaucrats assume that government spending “stimulates” the economy and they fail to measure the harmful impact of diverting resources from the productive sector of the economy to Washington?
The JCT, by contrast, prepares estimates of what will happen to revenue if politicians make various changes in tax policy. Sounds like a simple task, but what if the bureaucrats make the ridiculous assumption that tax policy has no measurable impact on jobs, growth, or competitiveness, which leads to the preposterous conclusion that you maximize revenue with 100 percent tax rates?
Writing for Investor’s Business Daily, former Treasury Department officials Ernie Christian and Gary Robbins explain why the controversy over these topics – sometimes referred to as “static scoring” vs “dynamic scoring” – is so important.
It is Economics 101 that many federal taxes, regulations and spending programs create powerful incentives for people not to work, save, invest or otherwise efficiently perform the functions essential to their own well-being. These government-induced changes in behavior set off a chain reaction of macroeconomic effects that impair GDP growth, kill jobs, lower incomes and restrict upward mobility, especially among lower- and middle-income families. …Such measurements are de rigueur among credible academic and private-sector researchers who seek to determine the true size of the tax and regulatory burden on the economy and the true value of government spending, taking into account the economic damage it often causes.
But not all supposed experts look at these second-order or indirect effects of government policy.
And what’s amazing is that the official scorekeepers in Washington are the ones who refuse to recognize the real-world impact of changes in government policy.
These indirect costs of government, in particular or in total, have not been calculated and disclosed in the Budget of the United States or in analyses by the Congressional Budget Office. The result of this deliberate omission by Washington has been to understate many costs of government, often by more than 100%, and grossly overstate its benefits. …It is on this foundation of disinformation that the highly disrespected, overly expensive and too often destructive federal government in Washington has been built.
February 13, 2015
Think Defence looks at the 2015 iteration of the British defence review process:
There is a pre defence review ritual that everyone with an interest indulges in. It starts with a few gentle discussions on Great Britain’s ‘place in the world’, the scale of our global ambition and obligations as a G8 regional power with a seat with our name on at the UN.
After a suitable period has elapsed the discussion then veers into areas of risk and threat but even during this phase the mood is still good natured.
Phase 3 gets heated because it is the first stage at which money is usually involved and therefore consideration of how the diminishing cake is sliced up between the services.
It is during this phase that negotiations and backroom deals kick in and the inevitable ‘test the water’ leaking to sympathetic journalists.
The final phase happens when it is all over and then as the implications of actual decisions made become clearer the bitterness sets in which can last for decades (see moving Australia and CVA01 for a good example).
If you start with the money and define a fixed budget you still get into the same argument and all that happens then is people tend to shape the first phases so that, oh look, my answer was right all along.
Start with risks and threats and the answers will always have to be tempered by the time it comes back around to budgets. Each review is rapidly made redundant by ‘events dear boy’ and the cycle starts again.
There are no easy answers and to think so is rather foolish, if there was an easy method, everyone would be doing it.
The ‘punching above our weight’ theme needs to be ruthlessly struck from the vocabulary because not only does it lead to illogical equipment decisions and hollowed out forces it fundamentally results in the talk loud small stick foreign policy that we seem unable to wean ourselves off.
You can only get away with this for so long until others start to realise you are bluffing and I believe this is where we are now, even our allies are starting to realise that our big talk isn’t backed up, despite having the worlds most advanced x or y, they are of little practical value if you only have a handful. Fur coat and no knickers could be an apt description of much of the UK’s defence capabilities, as painful as it may be for us all to recognise, and so I think there is a fundamental need to reassess ‘our place’.
January 6, 2015
Housing is pretty effective forced savings. We pay extra on our house each month, much to the dismay of many financial types of my acquaintance. Now, in theory, I could put that money right into mutual funds. In practice, I’m probably more likely to put it into a nice table for the backyard. As Dave Ramsey says all the time, the biggest mistake people make in talking about personal finance is treating it as a math issue. It’s not. The math behind personal finance is so risibly simple that journalists can do it. The discipline, however, is very hard. So the correct comparison for homeownership is not what the buyer could have achieved by putting all that extra money into a mutual fund; it’s what they would actually have done with the extra money if they hadn’t bought a house.
So while I’m not saying that you should definitely invest in a house, I won’t say you definitely shouldn’t, either; all I would say is that you shouldn’t count on your home value too much.
Megan McArdle, “Buying a Home Isn’t Bad for You”, Bloomberg View, 2014-04-07
October 15, 2014
Having taken a stab at sociology and political science, let me wrap up economics while I’m at it. Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much. However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data. This insight covers at least 90 percent of proposed economic policies.
Ben Bernanke “The Ten Suggestions”, speech at the Baccalaureate Ceremony at Princeton University, Princeton, New Jersey. June 2, 2013.
October 2, 2014
At The 3Ds Blog, Jack Granatstein explains why the Canadian Forces are once again being starved of funding:
A few years ago I wrote that no government since that of Louis St Laurent in the 1950s had done more to improve the defence of Canada than Stephen Harper’s Conservatives. The St Laurent Liberals built up the armed forces to deal with the war in Korea and with the defence of North America and western Europe in the face of Soviet expansionism. At its peak, the defence budget took more than seven percent of Canada’s Gross Domestic Product, and the army, navy, and air force had as many as 120,000 men and women in the regular forces.
No one could expect any government in this century to spend on that scale, but the Conservative government did treat defence well in its first years in power. The commitment to the Afghan War, never very popular, was handled capably, and the troops received everything they needed — helicopters, new artillery, upgraded armoured personnel carriers, and tanks, not to mention new transport aircraft. The number of regulars rose slowly and slightly toward 65,000, and the government presented a schematic Canada First Defence Policy in 2008 that listed a range of objectives and equipment acquisitions. The budget projections were colossal, almost $500 billions to be spent over the next 20 years.
But that was then, this is now:
The result was that the defence budget was cut, in substantial part because deficit reduction and a budget surplus were more important than “toys for the boys.” From a peak of $21 billion in 2009-10, the defence budget in this fiscal year is $18.2 billion, about a 13 percent reduction in dollars made worse by inflation. The percentage of GDP spent on defence is now hovering at one percent, the lowest since the 1930s. In 2009, it was 1.3 percent. Making matters even worse, the Department of National Defence somehow cannot spend all the money it gets, returning almost $10 billion to the Treasury since 2006.
Despite Harper’s tough talk on the international stage, his government’s active neglect of the needs of the armed forces means we can’t back up his pugnacious rhetoric with any serious military effort: a frigate in the Black Sea, four CF-18s in the Baltic, a couple of transport aircraft shuttling supplies into Erbil, and a small special forces contingent helping the Kurds … and that’s about our current limit for overseas deployment. The Royal Canadian Air Force is still waiting for new helicopters (after more than 20 years of stop-go-stop procurement disasters) and a decision on replacing the CF-18. The Royal Canadian Navy just announced the immediate retirement of four ships, with no replacements available for years (if ever), and the Canadian Army is struggling to maintain equipment and keep up training schedules due to budget constraints.
And, as Granatstein points out, if the Liberals or NDP win the next federal election, the situation will get worse, not better, as neither party sees the military as any kind of priority — quite the opposite.
Update: Speaking of cheeseparing “economies”, here’s the Department of National Defence’s most recent “saving”.
National Defence slashed its annual order of ammunition this year to save money — a revelation that raised fresh questions Wednesday about just how prepared Canada is to do battle with militants in the Middle East, Murray Brewster of the Canadian Press writes.
More from his article:
The 38 per cent cut was large enough to cause other government departments, Public Works and Industry Canada in particular, to sit up and take stock of the impact, internal documents obtained by The Canadian Press show.
One such document, a memo to Public Works Minister Diane Finley dated Feb. 5, 2014, indicates her department tried to convince defence officials to either abandon the cut or at least spread it out over a couple of years.
Defence officials said that would be impossible, because “they would not allow the department to meet its financial targets.”
As a result, the 2014 ammunition budget was reduced to $94 million from $153 million.
During the early phases of the Afghan war, National Defence was caught similarly flat-footed and had to rush an order through General Dynamic Ordnance, particularly for artillery shells.
The memo surfaced on the same day Prime Minister Stephen Harper told the House of Commons that the cost of deploying special forces to northern Iraq is being taken out of the department’s current budget.
September 23, 2014
Anthony Fensom reports on Saturday’s election results in New Zealand:
New Zealand’s “rock star economy” helped center-right Prime Minister John Key achieve a thumping election victory. But with major trading partner China slowing, are financial market celebrations premature?
The New Zealand dollar, government bonds, and stocks gained after Key’s National Party romped to power in Saturday’s poll, securing its third straight term and the nation’s first majority government since proportional representation was introduced in 1996.
Despite “dirty politics” claims and a late attempted campaign ambush by internet entrepreneur Kim Dotcom, the incumbent National Party won 61 of 121 parliamentary seats and 48.1 percent of the vote, the party’s best result since 1951.
In contrast, the main opposition left-leaning Labour Party, which pledged an expansion of government, secured only 24.7 percent of the vote for its worst performance since 1922. The Greens won 10 percent and New Zealand First 8.9 percent as pre-election predictions of a closer race proved false.
Key pledged to maintain strategic alliances with the Maori, ACT and United Future parties, which won four seats between them, further strengthening his parliamentary majority.
“Like [Australian Prime Minister] Abbott, Key as a new prime minister inherited a budget and an economy in deep trouble…Six years later, the budget is in surplus, unemployment at 5.6 percent is falling and the economy is growing so strongly the New Zealand Reserve Bank became the first among developed countries to raise interest rates to deter inflation,” noted the Australian Financial Review’s Jennifer Hewett.
“Not only did the Key government cut personal and corporate tax rates, it raised the goods and services tax to 15 percent while steadily reducing government spending over years of ‘zero budgets,’” wrote Hewett, who urged Abbott to “learn some sharp lessons” from Key’s electoral successes.
Key’s party has pledged to cut government debt to 20 percent of gross domestic product (GDP), reduce taxes “when there is room to do so” and create more jobs, aiming to undertake further labor and regulatory reforms as well as boosting the supply of housing.
September 11, 2014
It’s still the largest navy in the world, and will continue to be for some time yet … but it’s shrinking.
In 2009 the navy decided it could only afford to build three of the new DDG-1000s. To replace the cancelled DDG-1000s the navy resumed building older DDG-51 Arleigh Burke class destroyers. It was all about cost. The DDG-1000s would cost more than $3.5 billion each if built in large quantities. The Burkes cost $1.9 billion each. The last of 62 original Burkes was ordered in 2002 and the last of those entered service in 2011. But now, another 13 are on order and more were going to be ordered until the shrinking naval budget got too tight for that. The 9,800 ton Burkes are smaller than DDG-1000, being 154 meters (505 feet) long and 20 meters (66 feet) wide. But even the Burkes have been growing, with the first ones weighing in at only 8,300 tons. In 1945, most destroyers were about 3,000 tons. This constant size escalation is something navies, especially the Americans, have had a hard time dealing with, mainly because the cost per ton has escalated even more (even after taking inflation into account).
While the DDG-51 is much less expensive than the DDG-1000, some navy officials believe that in the long run the larger and more expensive DDG-1000 would be a better investment. The key problem here is the inability of the navy to control costs, and cost estimates, and the inability of the DDG-51s to provide space for new technologies. The navy hopes to overcome this by installing smaller versions of new tech in the DDG-51s and to upgrade other DDG-51s if the new stuff works out.
There are other problems as well, such as the costs of upgrades. Because of budget cuts the navy plans to buy some time (about a decade) by upgrading dozens of existing destroyers and cruisers. This is a bitter pill to swallow, as only a decade ago the navy was so sure about the new DDG-1000 that it accelerated the retirement of a dozen of the 31 Spruance class destroyers, in order to save the $28 million a year it would cost to keep each one of them in service. These ships were not just retired, they were all either broken up or sunk in training exercises. The dozen that entered service in 1979-83 could have been refurbished and been available until 2019. That’s a lost opportunity.
In the end these extensive refurbishments were too expensive and the navy was forced to fall back on a two-tier refurb plan that concentrated on electronic and software systems. The cheaper tier, called MILSPEC (designed specifically and only for military use) cost $113 million and takes six months per ship. This upgrades a lot of the 1980s electronics in the older DDG-51s. The other tier, COTS (commercial off-the shelf) uses commercial hardware and software to replace the older MILSPEC stuff. This makes these ships easier and cheaper to continue upgrading but all this costs $184 million and 18 months per ship. All these upgrades concentrate on the ability of DDG-51s to support the Aegis modification that enables missiles and low orbit satellites to be shot down. There is additional money (from outside the navy budget) available to do this.
The navy is still in danger of losing (to retirement because of aging and failing systems) the oldest DDG-51s if money is not available to refurbish elderly hulls and mechanical equipment. Because of the unpredictable future budget the navy also has to make plans for some radical downsizing. If the money is not there, neither are the ships and prudent admirals have to plan accordingly.
September 10, 2014
James Holmes explains why “aim” isn’t good enough for NATO members:
The Naval Diplomat is not from Missouri, America’s Show-Me State. But I’m in a show-me state of mind following last week’s NATO summit in another Newport — Newport, Wales. Lofty words were said. The summit communiqué pledges, for instance, to restore some sanity to defense spending.
NATO long ago fixed the standard for defense spending at 2 percent of GDP. Few meet the standard, but at Newport the NATO-European powers put everyone on notice that they’re really, truly serious about it. The small minority that already comply — Great Britain (for the moment) and Greece, alongside the United States — will “aim to continue to do so.” The majority that don’t vow to arrest further slippage. And they will “aim to increase defense expenditure in real terms as GDP grows,” and “aim to move towards the 2% guideline within a decade,” helping field viable forces.
Aim being the keyword — or, more accurately, the key diplomatic weasel word — in these passages. How many European allies will fulfill their commitment, and how many will avail themselves of the escape clause? Barry Pavel of the Atlantic Council observes charitably that the uptick in budgets is “not going to happen across the entire alliance, but it’s useful for framing incentives for some nations to start to contribute more.” And that tepid prediction comes from someone who’s presumably a NATO enthusiast.
So let me get this straight. NATO-Europe resolutely promises to try … to build up to a level that barely qualifies as peacetime defense spending … over the next decade … if GDPs expand to permit it. Wow. As a matter of alliance management, think about the message the Newport communiqué telegraphs. To us in North America, it indicates that Europe sees itself inhabiting entirely tranquil surroundings, untroubled by anything like, say, Russian aggression against an Eastern European neighbor.
September 5, 2014
Philip Ewing reports on the chances of improved military “readiness” among the NATO allies:
With President Barack Obama in Europe this week for a major NATO summit, the White House hopes the growl of the Russian bear on Europe’s eastern flank means the moment is right for some long-sought reforms to the alliance. But the outlook appears dim for anything beyond incremental steps at best.
The major reason is one that has frustrated policymakers over the past several administrations: Most European nations would love a stouter defense structure — so long as they don’t have to pay for it.
The North Atlantic Treaty Organization requires that member nations devote at least 2 percent of their economies to defense spending, yet today only four do: the U.S., Britain, Greece and Estonia. Although this week’s summit in Wales appears likely to yield a “pledge” in support of increased spending in the wake of Russia’s invasion of Ukraine, no one expects a serious effort from members other than those most directly threatened, including Latvia, Lithuania and Poland.
Obama and U.S. officials also are focused on bolstering European military “readiness,” particularly as U.S. spending declines. NATO relies on the U.S. for critical military capabilities such as surveillance, in-flight refueling and transportation. European militaries field top-rate troops, ships and aircraft but keep only weeks’ or even days’ worth of munitions on hand. In NATO’s 2011 campaign against Libya, many nations ran out of munitions and the French began dropping concrete bombs.
“It’s sort of like they spent all their money on buying Ferraris and now they have no gas money,” Benitez said. “There are many allies that literally aren’t flying their planes because they can’t afford to. They have very advanced fleets, but their fleets aren’t leaving port because they can’t afford to.”
September 2, 2014
Theodore Dalrymple explains why changing the name of something does not actually change the thing being described, no matter how much politicians or journalists wish it did:
… some errors are important, and one sees them more insistently the older one grows. For example, the other day I read an article in Le Monde about the forthcoming referendum in Scotland on independence from the United Kingdom. The author of the article was clearly sympathetic to the cause of independence, but that was not the cause of my irritation with the article, nor the fact that he quoted an old man, a former trade union militant, who said that he was in favor of independence, among other reasons, because the United Kingdom was the fourth most unequal country in the world. If old men in Scotland can be as ignorant of the world as that, it is an interesting sociological observation; and the author of the article is almost certainly right that those in favor of Scottish independence favor a state even more extensive in the name of equality than the one that they already have.
No, I was irritated rather by the fact that the author of the article accepted that the policy of the present British government can properly be described as one of austerity. What the alleged austerity amounts to is this: that in the current year the government will borrow only one in six of the pounds it spends instead of one in five, as it did last year. As to the reasons for this less than startling decline in its borrowing requirements, it was not because the government was spending less but because it was receiving more taxes, from the speculative housing bubble which it has done much to fuel. If that bubble should burst, the borrowing necessary to maintain current levels of expenditure (already very high) would rise again, possibly higher than ever.
This is not a question of whether the economic policy followed by the government is the right one or not: perhaps it is and perhaps it isn’t. It is a question of the honest use of words. One would not say of a man who passed from smoking sixty cigarettes a day to fifty that he had given up smoking, or that he had exercised great self-denial. And one would not, or rather should not, say of an organization that had balanced its budget once in fifty years (the British government) that it was practicing austerity merely because it had to borrow a slightly lower percentage of what it spent than it did the year before. This is to deprive words of their meaning.
But does this matter? As the philosopher Bishop Butler once said, everything is what it is and not another thing. A budget deficit is a budget deficit, whether you call it profligacy or austerity. A thing is not changed by being called something different.
Unfortunately, matters are not quite as clear-cut as that. In human affairs, words matter, as much because of their connotations as of their denotations. Austerity means stern treatment and self-discipline. It means harshness and astringency. Needless to say, harshness in their government is not what most people look or will vote for. If reducing the rate at which you overspend and accumulate debt is called austerity, no one will dare go any further in that direction, though it were the right direction in which to go. Words, said Hobbes, are wise men’s counters but the money of fools: so that many men will take the name for the thing itself. Whether more active attempts to balance the budget would be advisable I leave to economists to decide (they can’t, of course).
July 30, 2014
… it sounds like a sober and centrist position. I mean who believes in deficit financing? Well everybody but you’re not suppose to admit it out loud. Like dwarf porn. Many watch but few will say so. What it means in practice is one of two things. If an actual conservative uses the term it means that the public service is getting taken to the tool shed. There being few actual conservatives in politics what it usually means is that we’ll keep spending until someone makes us stop.
That’s when the bond market vigilantes step in. Then everyone blames the bond market for ending the party. The kind politician would love, absolutely love, to spend more money on “X” but those evil Gordon Gekko types won’t let him. In truth the bond market traders are no more responsible for a government going broke than a doctor is responsible for giving an alcoholic DT.
The state, observed Bastiat so many years ago, is the great fiction by which everyone tries to live at the expense of everyone else. Politics is the lie that this can go on indefinitely. Voters complain about the low levels of honesty in politics. But a dishonest political class is the product of a dishonest electorate. If people want something for nothing, they’ll get the lying louses they deserve. Fool me once, shame on you. Fool me a hundred years in a row and the shame is very much on the ordinary bitchin’ voter.
Richard Anderson, “Transparent Lies”, The Gods of the Copybook Headings, 2014-07-28.
May 29, 2014
In Maclean’s, Paul Wells updates us on the multi-year diet Stephen Harper has been running on the government’s “revenue generating” tools:
If I were the Conservative Party, I’d be using the latest report [PDF] from the office of Parliamentary Budget Officer Jean-Denis Fréchette to fundraise too. By the standards that motivate Conservative donors, this report is highly motivating.
The report, by PBO analyst Trevor Shaw, examines the reduction in federal revenues resulting from all the major changes to personal income tax and the GST since 2005. It’s an odd choice of starting point — 2005 was the second of Paul Martin’s two calendar years as prime minister — but only a small part of the reduction Shaw measures is attributable to that second Martin budget. Most has happened since.
And the net effect is striking:
“In total, cumulative changes have reduced federal tax revenue by $30 billion, or 12 per cent. These changes have been progressive, overall. Low and middle income earners have benefited more, in relative terms, than higher income earners.”
Shaw attributes $17.1 billion of the reduction to changes to personal income tax level and structure, and $13.3 billion to changes in GST/HST rates. He doesn’t count revenue reductions from changes to corporate income tax. We’ll get back to that. But on the personal income-tax and GST side, the final number is probably actually a little bigger than $30 billion: Shaw writes that he couldn’t get enough data to make his own estimate of revenue reductions due to Tax Free Savings Accounts, but passes along a Finance Canada estimate that it’s good for $410 million in revenue reductions. So, figure $30 billion and change in the current tax year that Ottawa would have raised if it hadn’t been for the past decade’s worth of tax changes.
NDP leader Thomas Mulcair is apparently hoping to make up the “shortfall” (from the point of view where any reduction in government spending is bad) by jacking up corporate taxes. This may not work as well as he hopes:
First, Mulcair is fooling himself if he thinks corporate taxes can be increased to make up for the shortfall in personal-tax income Harper has engineered. As the PBO points out, “Personal income tax and the federal portion of the GST/HST account for 75 per cent of federal tax revenues.” There’s way less room to make money off rich fat cats than Mulcair pretends. I mean, he’s welcome to keep pretending, but if he keeps his word an NDP government will remain short of cash. And a Liberal government, more so.
Second, this is why Stephen Harper is in politics. I wrote a book about that. He may one day stop being prime minister, at which point the real fun begins, because his opponents are promising to run a Pierre Trudeau government or a Jack Layton government at John Diefenbaker prices. It can’t be done. Their inability to do it will be Harper’s legacy.