Give a thought to Alberta’s approaching budget day: there’s little to gain and plenty to lose from ‘debt free’ government

Posted on August 25, 2015, 1:04 am
7 mins

PHOTOS: Former premier Ralph Klein, now elevated to sainthood by the neoliberal cargo cult, celebrating the retirement of Alberta’s debt in 2004, never mind the mess the infrastructure was in. Below: Alberta Finance Minister Joe Ceci, Canadian economist Jim Stanford and Wildrose Finance Critic Derek Fildebrandt, with, bottom, his old debt-trailer.

Anyone remember Ralph Klein’s declaration Alberta’s debt was “paid in full” back in 2004?

Even without the mountainous infrastructure deficit Mr. Klein left behind after his disastrous tenure as Alberta’s premier, the provincial equivalent of not patching your roof for decades and then bragging about how much money you’d saved while the rain drips into the kitchen, it turns out living debt free is not such a great idea anyway for governments.

CeciActually, economists have known this pretty well forever. But the politics of economics in Canada and especially Alberta nowadays is not driven by the study of economics as much as it is by the quasi-religious superstitions of neoliberal dogma.

This is how it came to be a truism here among Alberta’s chattering classes that if the New Democratic Government of Premier Rachel Notley, elected last May 5, fails to balance its first budget, or any of its budgets thereafter, there will be serious political consequences.

This is quite possibly true, but we need to remember when we acknowledge this fact that it is equally true there are unlikely to be many serious economic consequences from public debt alone.

On the contrary, as Nobel Prize winning economist Paul Krugman reminded our American cousins in his New York Times column on Friday, “the economy needs a sufficient amount of public debt out there to function well.”

StanfordDr. Krugman was making fun of Rand Paul, one of the loonier seekers after the Republican presidential nomination south of the Medicine Line – and in a field that includes Donald Trump and Scott Walker, that’s saying something – for his shocked observation that “the last time the United States was debt free was 1835.”

Um, yes, Dr. Krugman observed, and the United States on the whole did pretty well during those 180 years, didn’t they? Indeed, the United Kingdom hasn’t been debt-free since 1692, which, notwithstanding the current panic about debt by Britain’s Tory government, includes some fairly successful years for that country too.

“Government debt is quite acceptable, within limits,” explains Canadian economist and sometime Globe and Mail columnist Jim Stanford, adding elsewhere in his 2008 book Economics for Everyone that “it is quite wrong to assume that government debt is inherently ‘bad’ and must be eliminated.”

“Counter-intuitively, a government can maintain a stable debt burden (measured as a share of GDP) while still incurring annual deficits,” Dr. Stanford stated, explaining that the trick is that the jurisdiction’s Gross Domestic Product needs to be growing.

Fildebrandt“It is clear that conservative anti-debt and anti-deficit campaigns of the past quarter century were motivated more by politics than economics,” he concluded. “Neoliberals used fear of public debt to politically justify the elimination of public programs (like income security programs) which they wanted to get rid of anyway.”

Dr. Krugman takes the point farther in his column, however. “There’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt,” he wrote in the column published Friday. “The power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people … are making the case that we need more, not less, government debt.”

The reasons for all this aren’t that hard to understand, even for us non-economists. For one thing, you can use debt to buy and maintain useful things – like that house on which you should have replaced the roof. For another, interest rates are at historic lows – especially for governments – so the cost of debt is also at historic lows.

Debt also helps the economy function better, Dr. Krugman asserts, because “the debt of stable, reliable governments provides ‘safe assets’ that help investors manage risks, make transactions easier and avoid a destructive scramble for cash.”

DebtTrailerIn other words, Ralph Klein – who has now been pretty much sainted by the market fetishizing cargo cultists in right-wing think-tankery and demagoguery who have dominated public discourse about economics in this country for three decades – was doing no favours for Alberta or Albertans with his debt obsession.

So wherever the Finance Minister Joe Ceci puts the provincial bottom line in the budget he is expected to introduce this fall, we need to remember this and take a deep breath when the Opposition starts to screech about the catastrophes debt is certain to bring to Alberta.

You know, just like those that have been visited upon Britain in every year since 1692, and the United States in every year since 1835. We all know the screed: If this keeps up, we’ll turn into Greece – just as the U.S. and the U.K. mysteriously never did.

Keep that in mind when Wildrose Finance Critic Derek Fildebrandt hooks the Canadian Taxpayers Federation’s old Alberta debt clock to his truck and starts hauling it around the province like he used to do in his old job.

This post also appears on Rabble.ca.

12 Comments to: Give a thought to Alberta’s approaching budget day: there’s little to gain and plenty to lose from ‘debt free’ government

  1. Chris

    August 25th, 2015

    “…the trick is that the jurisdiction’s Gross Domestic Product needs to be growing.”

    How true is that of Alberta today?

    Reply
  2. Sam Gunsch

    August 25th, 2015

    Krugman (and many other economists) has also has explained the RW fallacy of equating gov’t budgets with household budgets. Unfortunately the propaganda of market fundamentalists dominates in the media e.g. CTF, Fraser, PC/CPC/WRP spokespeople steadily cited as authoritative sources in most Canadian newspapers.

    http://krugman.blogs.nytimes.com/2014/04/21/the-economy-is-not-like-a-household/?gwh=72EB2B8878F53339E554254BE4A2477D&gwt=pay&assetType=opinion

    excerpt: ‘ For the essence of what’s happening now — the key to understanding the mess we’re in — is that sometimes the economy is not like a household, that our individual choices sometimes lead to outcomes that are in nobody’s interest.

    In particular, when you have economy-wide deleveraging — when everyone is trying to spend less than his or her income, so as to pay down debt — you have a fundamental adding-up problem. My spending is your income, and your spending is my income, so if both of us try to spend less at the same time, what we end up achieving is mutual impoverishment.

    Ah, you say, but the price mechanism will take care of that. Indeed: in normal times interest rates rise or fall to match desired spending to the economy’s productive capacity.

    But what if the interest rate needed to achieve this outcome is negative? Well, that can’t happen — so when the deleveraging shock is big enough, the economy goes into a depression.’

    Reply
  3. Eric Cameron

    August 25th, 2015

    Jim Stanford`s book Economics for Everyone, which you mention, is the best thing on economics I have ever read. It explains basic realities in a clear concise way and helped me get a better understanding of what is going on in the world.

    Reply
  4. Jerrymacgp

    August 25th, 2015

    The issue of public, i.e. government debt, is far more complex than either conservatives or most Canadians realize. For example, who holds at debt, that is, to whom is it owed? Many Canadians hold government debt in their RRSPs in the form of government bonds; so, Canadians owe money to themselves.

    For what purpose were the funds borrowed? Borrowing to build bridges and highways, schools and hospitals, LRTs, and the like, is certainly reasonable. Borrowing to cover the government’s day-to-day operating expenses, like wages and benefits of public servants, because tax rates are set too low, is more problematic

    Debt servicing costs are also in the mix; in the current very low interest rate climate, this is not much of an issue, but in periods of high rates and tight money, as we saw in the 80s, governments are competing with other actors for scarce money, driving up both interest rates and debt servicing costs and taking resources from other priorities. So, circumstances are important.

    Reply
  5. political ranger

    August 25th, 2015

    Back in 2004 Klien was certifiably crazy, loonie-tunes as you say, to any one who was willing to actually look. But no! The whole province was in thrall to this charlatan and his mob of obnoxious ignorant asses.

    It’s not nice to speak ill of the dead, but this about the buffoons who lined up behind that clown and still celebrate his crazy articulations as great wisdom. You can’t make this stuff up.

    Reply
    • ema

      August 25th, 2015

      I couldn’t agree more with your assessment of Klein, the drop-out and all his crazy hangers-on. There were more than a few of us (out in the wilderness of AB) baying in the wind at his senseless governing. In my opinion, Klein individually degraded the importance of political office, which in a similar vein was later continued by the Ford brothers in TO.

      I still haven’t gotten over the fact that some clowns pushed for Klein to get the OC, which I will forever see as diminished, by them “awarding” it to him, even on his deathbed. A total travesty!

      Reply
  6. Maria

    August 25th, 2015

    I remember Ralph’s debt cutting very well. It is the root to many of the problems the NDP is trying to fix today. Infrastructure was allowed to crumble, People with mental health issues were pushed on the street leading to increasing homelessness, government employees took salary cuts while MLAs voted themselves huge transition allowances when they left government (payable even when they chose not to run again), school budgets were cut and because our family could afford it, I reduced my work-week to 4 days , helping out in my kids school every Friday as well as working at silent auctions, Casinos and contributing to office supplies, 5 years ago I was diagnosed as needing a new hip, and because I am still mobile – thanks to painkillers – I am still on someone’s waiting list.I could write a book…. Well, this is what happens when a bunch of folksy people without sufficient education read neoliberal propaganda and spend millions on think tanks and the latest economic ideas from around the world, then, over several beer slap themselves on the back on how well they manage the economy.

    Reply
  7. Derek

    August 26th, 2015

    Boy does Climenhaga ever have his head up his ass.

    Reply
    • CovKid

      August 30th, 2015

      Well, there’s a really illuminating response! What part of the argument do you disagree with?

      The facts have been clearly laid out for your perusal and your aspect on the situation is something similar to that of an ostrich although that creature prefers an easier aperture.

      Perhaps you should consider the “Cancel Reply” button before you allow yourself to be set up for ridicule.

      Reply
      • David Climenhaga

        August 30th, 2015

        Derek sounds like one of several frequent trolls on this blog who use a variety of pseudonyms. I allow such comments if they have some connection to the topic of the post (they often don’t), are not defamatory of a third party or too offensive (this one was close) on the grounds that if I can dish it out, I ought to be prepared to take it.

        Reply
  8. TC

    August 27th, 2015

    I’ve a hard time stomaching the US national debt, as well as the fact that Japan’s national debt doubles its GDP. I’m also baffled about the Hong Kong Government (a regional government, just like Alberta), can have a surplus almost every year by predominately collecting revenue on the transfer of stock and properties.

    I’m anti-debt, but different than most neoliberal thinking. I’m a strong supporter of balancing the budget by raising revenue (as well as making the necessary cuts). If debt occurs because there’s no other way of raising revenue, I can understand. But it’s not the case. Moreover, while I can accept deficits in bad economic times, I can’t accept that during the good times (e.g.: $100+ for a barrel of oil). Worse, the debt isn’t paid off when the times are good.

    Reply
  9. September 6th, 2015

    It’s very easy to think that debt is no big deal now that we’ve had low interest rates for twenty years. However, if you look at what happened from 70-95 you can see that we were forced to learn debt lessons that have now been forgotten.

    All levels of government ran massive deficits thinking it didn’t really matter. They’d fancy talk the problem away and kick the can down the road.

    Then the 90’s happened. We hit the wall. We couldn’t borrow more.
    I lived in Saskatchewan at the time and our finance minister famously went to New York to sell bonds in order to cover Saskatchewan’s perpetual debt…and no one wanted them. Too risky.
    Roy Romanow’s NDP government had to bring out the axe and Ralph Klein-style cut away at Saskatchewan’s infrastructure.
    Ralph takes heat for blowing up the general hospital…Roy Romanow closed our brand new sky scraping hospital in Regina…the Plains hospital…too.
    Debt is poisonous. Left-wingers can be left-wingers without advocating debt slavery.

    Reply

Leave a Reply

  • (not be published)