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.
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.”
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.
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.”
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.