Letter: Is government debt bad?

Is the Alberta government’s spending restraint a good thing for Albertans? You’ve probably heard the seemingly clever statement, “We should run our government finances like we run our personal finances.” There is some truth in that statement. Most of us borrow money to buy our homes. Who doesn’t? Some even get 2nd mortgages to renovate them. A few people have to borrow to re-roof. The mortgages and the big repairs are the most obvious examples of how our household finances use credit to function.

The bigger picture is the role of debt from the perspective of the overall economy. Even personal debt that leads to bankruptcy is acceptable for the economy if the number of people doing it is not too high. Why? Because people are spending money on goods and services.

How do central banks influence the economy? The answer is, by controlling the availability of debt. If the economy over heats, they crank up the interest rates. In 1981 when the bank rate rose above 21 per cent, the prime lending rate was 22.75 per cent in the attempt to curb the double-digit inflation. Canada’s inflation rate had peaked at 11.25% and US inflation rose to 14.75%. Sustained high inflation kills social order … nations fail! To prevent that, the money access is tightened.

This century has started out with very little concern about inflation. Today, we are skirting dangerously close recession for several reasons. While it is fashionable to blame Canadian Prime Ministers and 16-year-old Swedish girls for bad times, the truth is more about tariff wars, shifting economies, technological innovations, Nationalism and environmental collapse. For the moment, the only thing sustaining our tiny economic growth is consumer spending. The growth industries in this decade are those that produce consumer products. It has become so important that consumers keep buying that the central banks keep interest rates very low. (Europe is flirting with a negative interest rate … I confess, the concept makes my head hurt.) For now, it’s Borrow! Borrow! Borrow! If we stop borrowing, the economy will crash. The economy wants you to borrow.

One example of the role that consumer spending plays is Apple. In November 2019, the Bank of America Merrill Lynch announced the “…earnings surge values the company at more than the entire US energy sector.” To restate, Apple is worth more than the ENTIRE US oil industry. The companies that are thriving are those businesses that depend on consumer spending. Industry, oil and manufacturing are struggling. For a hundred years EXXON was the world’s most powerful corporation. Today, Apple holds the number one position, with Amazon coming up fast.

The most recent Bank of Canada move was to hold steady on the lending rates. The personal debt of North Americans, already at record high levels, is creeping up. It might be expected that the central banks would increase the lending rate to curb this potentially dangerous situation. They have not because they fear stalling the economic growth.

The North American economy is now debt driven. Our economic growth is dependent upon debt. Wall Street, Bay Street and the central banks are worried that households are going to stop borrowing. They fear recession. In the midst of this, our provincial government has decided to cut back, cut back and cut back more. We are told that the cut backs in spending are to reduce the deficit. The government of Alberta claims to not want to borrow.

This policy will lead to higher unemployment. Every month since the last election we get reports showing record high employment rates in Canada and increased unemployment in Alberta. The misconception is that dollars spent by the government are a burden to a society. The consequence of this Thatcherian myth is that the actual economic benefits are not recognized. Nurses, researchers, teachers, administrators and constabulary are all important to the economy. Not merely because they buy houses & cars, eat in restaurants and buy groceries, but because their stability buffers the economic up and downs of agriculture, construction and O&G. Politicians and the media are quick to mention the indirect employment benefits when the government announces a new mega project or, when a mill closes in a small town. But the politicians suddenly go quiet about the indirect employment when their policies start to unload jobs.

The UCP policies will make Alberta a less attractive place to move to. The advantage is gone. Crowded schools are not attractive. Closed wards in the hospital are not attractive. Neither are lousy highways, sparse police protection, degraded environments or increased numbers of homelessness. Corporations want amenities, culture and infrastructure. Without these features, they will leave. They’ll still operate and exploit here, but they’ll headquarter someplace else.

We are in a transition period in Alberta, as are other regions that are heavily dependent upon O&G revenues. Others, such as Texas, Oklahoma, Algeria, Norway, Russia and Azerbaijan are all experiencing drastic reduction in earnings from their O&G but are not as impacted because they have diversity. A few economies are hurting very badly because their economies were engineered to rely on O&G: Alberta, Saudi Arabia and Venezuela. The Saudis have started to divest and are, for the first time ever, selling off some of their state-owned oil (November 2019) to invest more into agriculture / land reclamation to address climate change, to develop more alternative energy sources and to step up their aggressive purchasing of industry throughout the world. Because of American intervention, Venezuela is merely floundering with the largest oil reserves in the world. Alberta? Alberta is just firing people.

In 2008 Wall Street crashed the world economy again. Canada survived, relative to almost every other nation around the world, unscathed with very few foreclosures or governments ruined. The initial buffer was afforded us because of the banking laws created by the governments of John Turner and Brian Mulroney. Then, as that immunity started to wear off, Harper started spending money. The Harper government always overspent and increased the national debt by 22.8% … (not as high as Mulroney’s 52.3%, but still managed to earn 2nd highest ever). The result was that Canada was inflicted with a relatively light injury compared to the other nations that do business with Wall Street. With continued good management, Canada now has the lowest unemployment in the 60+ years that it has been measured.

Alberta is just firing people while every real expert will show how this strategy will fail and has always failed. What other alternatives are there? How do we reduce the rate of growth of the deficit and still not develop double-digit unemployment and economic recession? The UCP need to abandon those ridiculous tax breaks for the profitable businesses. The province has to stop firing people and killing jobs. Kenney must wake up to the reality that more O&G development and more pipelines are not going to fix anything. We must, instead, invest in infrastructure and education to create a province of innovation instead of marching us down the road to 3rd world ruin.

Peter E Ganter

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  1. There are many well spoken points here. The people, especially the front line workers, are paramount to service and quality of our society.
    The issue I have is with the current rhetoric denouncing every investigation into waste and inefficiency.
    To overlook these opportunities and cry foul, with speech about a provincial sales tax solving all woes is ludicrous.
    Yes, your roof needs repair. Mine too. It does not need gold plating.

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