July 30, 2014

QotD: Balancing the budget

Filed under: Economics, Government, Politics, Quotations — Tags: , — Nicholas Russon @ 00:01

… 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

Harper’s “starve the beast” policy continues

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas Russon @ 07:22

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.

March 31, 2014

Comparing NATO and Russian military spending to 2012

Filed under: Cancon, Europe, Military, USA — Tags: , , , — Nicholas Russon @ 10:23

Mark Collins links to this Washington Post graphic showing a comparison of military spending in the top five NATO countries and Russia (counting Soviet spending 1988-1991). Note that the United States and Russia now each spend the same proportion of GDP on their respective military forces:

Click to see full-size graphic

Click to see full-size graphic

For reference, Canada’s military budget doesn’t crack the top 10 in NATO: we spend about US$16.5 billion per year (not even in the top 15). Mark also points out that Australia spends proportionally more than Canada … about 50% more, in fact. But it should also be noted that while Canada and Australia have a lot in common, our defence needs are significantly different: Oz is in a much more dangerous part of the world than Canada, and they don’t share a lengthy border with the world’s biggest military spender. You could probably make a viable case that Australia isn’t spending enough given the rough neighbourhood they’re in.

March 20, 2014

Jim Flaherty’s legacy

Filed under: Cancon, Economics, Government — Tags: , , — Nicholas Russon @ 10:10

The federal finance minister announced his resignation the other day. This had been rumoured for quite some time, as Jim Flaherty had been having health issues for the last couple of years. He’s at least for the time being remaining as my local MP (full disclosure: I coached two of his sons in soccer several years ago). He wasn’t going to be my MP in the next parliament, as my village is being moved to a different riding under the new boundaries. At Gods of the Copybook Headings, Richard Anderson tries to find the right words to say goodbye:

Writing valedictory posts is always a bit tricky. You have to strike a balance between showing the bad that is the obvious at the moment with the good that might be visible only in hindsight. It be must admitted that Jim Flaherty was not a bad finance minister, a minister who surrendered to every short-term political demand of the cabinet. Nor was he a great one charting a new course for Canada. He didn’t shift the goal posts, like Michael Wilson did for Brian Mulroney or Paul Martin did for Jean Chrétien. Big Jim minded the shop better than the other guys would have. Among midgets he was a giant.

The Flaherty years consisted of digging a gigantic hole and then carefully filling it back in. Modest surpluses, massive deficits and then a projected modest surplus. To quote the old poem: “Always he led us back to where we were before.” The net result is that we have a somewhat larger national debt than if we’d balanced the books for eight straight years. Not good but not too bad either.


As for Big Jim? Well he was one of the best Liberal finances minister of the last hundred years.

Such a well-placed barb. So artistically planted. And so true.

Alberta Premier resigns (just ahead of the party lynch mob)

Filed under: Cancon, Government, Politics — Tags: , , , — Nicholas Russon @ 07:36

Colby Cosh on the resignation of Alberta’s Alison Redford:

It was a tearful surrender for Alison Redford Wednesday night as she gave a curiously backward resignation speech, grocery-listing the accomplishments of her government’s two years in power before announcing that she will step aside as Premier of Alberta on Sunday. Among these accomplishments, Redford trumpeted a “fully balanced” 2014 budget, which is “balanced” in an unusual sense of that term meaning “expenditures far exceed revenues, but in a nice way.”

That sort of cynical language was, it must be said, part of her problem with voters. The Alberta budget became more cryptic under Redford, and the usual accounting fictions have been stressed to the breaking point, with revenues assigned hugger-mugger to “operating” and “capital” purposes with no very clear line of demarcation between. If you think Albertans don’t pay attention to that sort of thing, you don’t know us too well.

There will be a temptation to sum up Redford’s ouster by citing her clownishly expensive December trip to South Africa to attend the funeral of Nelson Mandela. Redford, in truth, had almost literally every kind of problem you can imagine a Westminsterian political leader having, all of them chronically. Her relationship with her caucus was dire, as became obvious to the news-reading public in the last fortnight. Any defenders she might have had were keeping pretty quiet, and no one seemed to expend much effort reading from an orchestral score of talking points. Few MLAs ventured beyond muttering “She needs to make some changes.” From some of these, it was pretty obvious that the change they had in mind was the one that happened tonight.


Redford’s resignation completes the transition of the Alberta Progressive Conservative Party from unstoppable electoral force to the Sick Man of Canadian Politics. Sick men have risen from their deathbeds before, and the opposition Wildrose Party may not be ready to complete a journey to power that is following the Reform Party model. (You will recall that this involved negotiating quite a few twists and turns and a couple of avalanches and volcanos.)

March 8, 2014

RCN’s Joint Support Ships behind schedule and over budget

Filed under: Cancon, Military — Tags: , , — Nicholas Russon @ 11:07

Terry Milewski reports on the state of Canada’s shipbuilding program for the Royal Canadian Navy, and it’s not pretty:

An internal government memo obtained by CBC News shows that all four parts of the government’s huge shipbuilding program are either over budget, behind schedule, or both.

Written Oct. 7 last year by the deputy minister of national defence, Richard Fadden, the memo shows that three of those four programs also face “major challenges” of a technical nature, as well as difficulties lining up skilled manpower to get the ships built at all.

The memo, released to the CBC following an Access to Information request, leaves little doubt that Canada’s crippled supply ship, HMCS Protecteur, won’t be replaced before the year 2020.

The spectacle of the 46-year-old Protecteur, Canada’s only supply ship in the Pacific, being towed into Honolulu after an engine-room fire has thrown the lack of a replacement into sharp focus. Although there’s a plan to build two new supply ships, there’s no sign the work will even begin until late 2016. That means a new one won’t enter service until the end of the decade.

JSS and AOPS building status March 2014

A chart summarizing the state of the shipbuilding effort uses green and yellow squares to indicate where those problems are — the green meaning, on track, and yellow meaning, trouble — and there’s a lot of yellow.

For the Joint Support Ships — that’s the pair of supply ships — the chart shows trouble with both the schedule and the price. The memo explains that this means the program is up to 20 per cent behind schedule and up to 10 per cent over budget.

As I’ve said many times before, the Canadian government is managing to get the least possible bang for the buck on shipbuilding because they view the shipbuilding program as a regional economic development scheme (and a way of funneling money to marginal constituencies) rather than as an essential part of keeping the RCN properly equipped. It’s pretty obvious in this case:

Take the supply ships. “Yellow” suggests they’re over budget, but doesn’t indicate what the budget should be. But comparisons with Canada’s allies could raise eyebrows even further.

Britain, for example, opted to build its four new naval supply ships much more cheaply, at the Daewoo shipyard in South Korea. The contract is for roughly $1.1 billion Cdn. That’s for all four. By contrast, Canada plans to build just two ships, in Vancouver, for $1.3 billion each. So Canada’s ships will be roughly five times more costly than the British ones.

But there’s a twist. Canada’s supply ships will also carry less fuel and other supplies, because they’ll be smaller — about 20,000 tonnes. The U.K. ships are nearly twice as big — 37,000 tonnes. Canadians will lay out a lot more cash for a lot less ship.

January 26, 2014

Monty on “real” poor people

Filed under: Economics — Tags: , , — Nicholas Russon @ 12:27

At Ace of Spades HQ, Monty returns from a mundane-world-induced hiatus:

Articles like this make me wonder if the bien pensant journalist-and-pundit class knows any actual poor people. I was born poor, grew up poor, and spent a good chunk of my 20′s poor. Not genteel poor, either — I mean hard, stony-bottom, empty-pocket poor. I come from poor people.

Poor people don’t think about money in the same way that more well-off people do. When you’re poor, money — and the lack thereof — informs your every moment, waking and sleeping. You know exactly, at any given moment, how much money you have, down to the penny. How much in the bank, how much in your jeans, how much in the coffee can on the counter at home. Every purchase is a choice — if I buy this six-pack now, that means hot dogs instead of hamburger for dinner tomorrow; if I pay my cable bill, that means that instead of dinner and a movie my best girl and I get to spend a night at home watching the TV. You triage your bills — rent comes first, then heat. Then … you decide: cable or cellphone? Who can you put off the longest? How long can you float things?

You start with the credit cards because you figure you have the right to treat yourself once in a while. If you have to sit at home instead of going out, what’s wrong with having a nice flat-screen TV to watch? And then the car went south, and that blew a $500 dollar hole in your budget, so you had put your groceries and gas on the credit card that week just to make ends meet. The kids needed new clothes and shoes and supplies for school. You’ve got to pay the minimums on the card just to keep things going, and the balance just creeps higher and higher until you’re butting up against the limit. Then you get another card, and maybe the old lady gets one too. And pretty soon … well. You wake up at night in a cold sweat because you know that bankruptcy and ruin are only a breath away. It’s not just a question of if you lose your job or get sick and can’t work; it’s a question of losing the overtime hours you’ve become accustomed to, or if the wife goes back to part-time instead of full time. You realize you’re barely treading water as it is; it would only take a small wave to drown you.

Not being able to afford the small luxuries isn’t poverty. Poverty is being constantly worried that you can’t afford the necessities of life. Waking up in a cold sweat because you’re not sure you can make the rent payment … again. It’s a constant nagging worry that saps your energy and keeps your stomach churning.

January 14, 2014

2014 Economic Freedom Rankings

Filed under: Cancon, Economics, Liberty — Tags: , , — Nicholas Russon @ 10:51

The Heritage Foundation has posted their 2014 economic freedom rankings. Here’s a slideshow of the top ten countries by Heritage’s ranking formula:

The United States missed the top ten, coming in at #12. Canada ranked number six:

Canada’s economic freedom score is 80.2, making its economy the 6th freest in the 2014 Index. Its overall score is 0.8 point better than last year, reflecting improvements in investment freedom, the management of government spending, and monetary freedom. Canada continues to be the freest economy in the North America region.

Over the 20-year history of the Index, Canada has advanced its economic freedom score by 10.7 points, the third biggest improvement among developed economies. Substantial score increases in seven of the 10 economic freedoms, including investment freedom, fiscal freedom, and the management of public spending, have enabled Canada to elevate its economic freedom status from “moderately free” 20 years ago to “free” today.

A transparent and stable business climate makes Canada one of the world’s most attractive investment destinations. Openness to global trade and commerce is firmly institutionalized, and the economy has rebounded relatively quickly from the global recession. The financial system has remained stable, and prudent regulations have allowed banks to withstand the global financial turmoil with little disruption.

January 11, 2014

Spain downsizes their navy under economic pressure

Filed under: Europe, Military — Tags: , , , — Nicholas Russon @ 13:11

Spain has decommissioned 18 ships over the past six years, including the aircraft carrier Príncipe de Asturias:

Despite increased budgets and investment in certain weapon developments, the Spanish Ministry of Defence states that their overall budget has depleted by 32% since the start of the financial crisis, with 8.4 billion in the kitty in 2008, dropping to a mere 5.75 billion planned for 2014.

As a result, the Ministry says that it has no choice but to reduce costs, thus resulting in a significant reduction in high profile military elements, like the decommissioning of 18 naval ships in the past 6 years.

One of the most iconic ships to be withdrawn last year was the aircraft carrier Príncipe de Asturias, decommissioned after 25 years of service, considered a somewhat tragic sight when she arrived at the Arsenal Militar de Ferrol for final discharge from service. But as the last Captain of the vessel, Alfredo Rodríguez Fariñas, explained, modernization and maintenance of the ‘Prince of Asturias’ cost the MoD a hundred million per year.

Part of the strategy is the withdrawal of these costly and purpose built ships, in favour of more modern craft that meets the needs to the Navy’s international mission, such as the activities in the Indian Ocean where the frigate Álvaro de Bazán and maritime action ship Tornado are currently patrolling, and the ship Cantabria, currently in the sea off the Australian coast.

Spanish navy's Juan Carlos and Principe de Asturias

Spanish navy's Juan Carlos and Príncipe de Asturias

December 9, 2013

Despite cutbacks, the Royal Navy still internationally active (and valid)

Filed under: Asia, Britain, Military — Tags: , , — Nicholas Russon @ 10:32

Sir Humphrey on how the UK still manages to project force around the world in the wake of the most recent set of budget cuts:

While the numbers may be smaller than in the past, reading the twitter feed [@NavyLookout]and looking at the images of modern vessels, one is left with a genuine sense that the RN remains an immensely capable force by any reasonable standard. The ability to deploy this force globally, and to meet a wide range of missions is extremely impressive. One of the centre pieces of the SDSR was the restructuring of the RN to provide the so-called ‘Response Force Task Group’ (RFTG) which has since establishment proven to be a superb means of deploying a worked up task group around the world and reacting to events.

In this year alone the Royal Navy has been engaged in operations across the globe, and been able to not only rely on warship deployments, but also highlight the value of its wider basing and command and control capabilities. As the year draws to a close, there are by the authors reckoning three 1* command groups deployed out there co-coordinating both UK and Multi-national operations. The facility in Sembewang has once again highlighted its importance to the RN (and the wider UK) as a useful foothold in a region that the RN hasn’t frequented for some years, and HMS DARING and HMS ILLUSTRIOUS have helped restore hope to thousands of people affected by the dreadful events in the Philippines.

While many wish to be downbeat about the RN, given the pace at which it is operating globally, and the way in which it is able to respond so rapidly to so many events, it is hard to see it as a navy in decline. Yes it is smaller, but so are most Navies these days. But to judge a Navy purely by hulls and not by output is misguided — the RN today remains one of the most capable on the planet, and the events of this year have gone to show that it continues to meet the task placed on it with aplomb.

November 18, 2013

The Pentagon (accounting) papers

Filed under: Bureaucracy, Military, USA — Tags: , , , — Nicholas Russon @ 17:25

Unlike other branches of the US government, the Department of Defence still isn’t properly accounting for all its expenditure, says Scot J. Paltrow in a Reuters report:

The Defense Department’s 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.

November 10, 2013

Latest federal initiative shows “patronising contempt, arrogant presumption and impressive stupidity”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas Russon @ 13:39

The federal government is launching a program to help “ordinary Canadians” become better at managing their finances. Richard Anderson points out the amusing aspect of this:

I sometimes wonder if the hacks who put out these releases aren’t giggling to themselves the whole time, amazed at what they’re getting away with. You work for a Conservative government that wades through a sea of red ink every year. This same government has no credible plan to deal with the entitlement crisis, except point out how we’re less screwed than the Yanks. So naturally you go about lecturing the common folk on how to balance their chequebooks. This is like the morbidly obese diet coach of legend.

We see here a unique combination of patronising contempt and arrogant presumption that does not, so far as we have been able to determine, exist outside of Ottawa. Even the Soviets assumed that an ordinary adult could balance their personal budgets without being lectured to by a full time commissar. Then again they were communists, not nannies. Herein lies the great difference between the totalitarian projects of the last century and the petty authoritarianism of this one, the end result. The communist, fascists and Nazis envision a new man who would change the world. Note the underlying assumption: Man.

At some point, after rigorous indoctrination, the boy would become a man. The modern nanny state assumes that the boy never becomes a man, he’s always a boy needing to be hectored to and monitored. As the press release notes: “…brushing up on the basics of money management at any age and will include events for Canadians of all ages.” No matter how old you get, the federal government will be there to tell you how to manage your affairs. That generations of Canadians did this quite well without government involvement never comes up.

Growth forecasts continue to over-estimate Canada’s actual economic progress

Filed under: Cancon, Economics — Tags: , , , , — Nicholas Russon @ 12:12

In Maclean’s, Debbie Downer Colin Campbell takes a survey of the state of Canada’s economy:

A key qualification for landing a job at the Bank of Canada, it seems, is an unfailing sense of optimism. In 2009, the bank forecast the economy would grow 3.3 per cent in 2011. It grew 2.5 per cent. In 2011, it said the economy would grow 2.9 per cent in 2013. It will likely be just 1.6 per cent. Now it says the economy will grow 2.3 per cent next year. How likely is that? The bank has consistently viewed the economy through rose-coloured glasses in recent years, perhaps believing its low-interest-rate policy will eventually bear fruit. Rates have been held at one per cent for three years now. But the economy seems only to be getting worse.

It grew 0.3 per cent in August, Statistics Canada said last week — mostly attributed to a familiar crutch, the oil business. Elsewhere, things aren’t looking up. A new TD Bank report said corporate Canada is “in a slump,” with profits down 16 per cent from their post-recession peak in 2011. Some observers point out that Canada is still doing better than Europe and Japan. But so are most countries that aren’t in a recession, from South Africa and New Zealand to Equatorial Guinea and Guatemala. After breezing through the recession, Canada is back to old habits: hoping its fortunes (i.e., exports) will rise along with America’s comeback. But the U.S., too, is back in a rut. Last week, the Federal Reserve said it would continue with its $85-billion-a-month bond-buying stimulus program.

With the economy sputtering, Ottawa has meanwhile remained preoccupied with fiscal restraint and balancing the budget within two years. So, with neither low interest rates nor government spending providing a boost, the outcome seems predictable: Official growth forecasts will look nice, but will keep missing the mark.

October 23, 2013

Perhaps the “starve the beast” plan is working

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas Russon @ 07:05

In Maclean’s, Stephen Gordon provides an updated look at the Harper government’s ongoing “starve the beast” policy:

Canadian federal government revenues and expenditure, 1960-2013

Canadian federal government revenues and expenditure, 1960-2013

As I’ve written before, the Conservatives have applied the “starve the beast strategy“: First, cut taxes; second, cut spending in order to match lower revenues; third, obtain a balanced-budget for a smaller government. As the red line in the chart shows, the Harper government was temporarily thrown off this past by the financial crisis, which required emergency stimulus spending. They are, however, back on track.

Once again though, we need to be careful to see that the government’s revenues are back above expenditures (so the yearly deficit has been reduced over time), but the government’s outstanding debts are still quite substantial: $892 billion for 2012-13. As long as interest rates stay low, the debt should start to decline, but if-and-when interest rates rise, so will that big pile of accumulated debt.

October 21, 2013

The US debt iceberg

Filed under: Economics, Government, USA — Tags: , , — Nicholas Russon @ 09:53

Jon Gabriel has put together a clear, understandable way to show the relationship between the US government’s revenue, deficit and debt numbers:

When Washington raised the debt ceiling this week, the Beltway media breathlessly reported that the fiscal crisis had ended. Lawyers danced in hallways, bureaucrats twerked on the Metro, congressional aides kissed strangers in the streets — the Tea Party has been defeated! It was like VJ day for wonks.

As our political class exchanged high fives and reporters praised a return to “sanity,” I wondered how these odd creatures defined insanity.

America’s fiscal crisis is not that our debt ceiling was too low, the fiscal crisis is that our debt is too high. When I mentioned this to left-leaning folks, they seemed indifferent. “Obama lowered the deficit.” “I think Bush spent more.“ “It’s Reagan’s fault!”

So I made this infographic:

US debt iceberg

Since most graphs look like this, I focused on just three big numbers: Deficit, revenue and debt.

The analogy is imperfect, but imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your Visa statement. Then imagine your spouse runs into the room and shouts, “great news honey, our fiscal crisis is over. We just got approved for a new MasterCard!” Your first call would be to a marriage counselor or a shrink.

H/T to Nick Gillespie:

What is it that Hemingway always used to say? That thing’s not loaded? Or something about how the “dignity of movement of an ice-berg is due to only one-eighth of it being above water.” Yeah, well, the horrors of federal finances is pretty undignified just looking at the amount of spending versus revenue we do and then it gets really sloppy when you look at the huge amount of debt below the waterline.

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