Doug's Blog
Alberta Budget Considerations
I have heard two perspectives from the media in the last few months about the upcoming provincial budget and what should be done. It seems that they want to get politicians to choose one side or the other. Spend lots of money and run a deficit or cut and slash and burn like the '90's. Ok, I admit the messages haven't been coming clear from us either, but neither of those is either a smart or realistic option. In this blog, I will lay out some foundations that I think budget decisions should be made on.
The realistic option will rest somewhere in the spectrum in between. You will say, "Of course, Doug." But it isn't so obvious these days as hysteria over the economic slowdown seems to have gripped our press, our public, and some governments. This, despite the fact that this crisis is not (yet, anyway) as bad as the 'dirty' thirties, or the crisis of the 80's even. Those were downturns that saw everything stand still, that saw unemployment of 15 to 20% of the population, that say outrageous inflation approaching 20%, and saw massive government spending as a stimulus.
Now, don't get me wrong, I am fully aware of Keynesian economics. I have always said that the largest problem with democracies is that the election cycle does not coincide with economic cycles. We should save during high economic tides, when inputs are high and the cost of building is also high, and then spend it during low economic tides, and then we could build a lot of infrastructure and invest in education and such at times when everyone else is pulling out to save money, and we could do it at bargain basement prices. This would be the time to spend money and slash taxes.
Think of it this way: Everyone who invests knows to buy low and sell high, but very few people actually do. Most people buy in when prices are high because they want a piece of a good thing, but then when the bottom falls out they hurry to get out of a bad thing and end up selling low. People should have been selling at the high prices two years ago, and right now, or soon, they should be buying in at these low prices, because even if they go lower, they will come back stronger than ever when everything comes back. The government is no different.
I believe the government has a lot of important jobs, but four pillars are the cornerstone of responsibility for all governments. 1. Infrastructure - we build the rails, road, and runways that the economy was and is built upon. 2. Education (K to 12 and Post Secondary) - we are responsible for educating the workforce of the next generation that will drive the economy. 3. Low/Reasonable Tax Levels - the government does not make jobs, business does, and reasonable tax levels are needed to attract business and allow them to employ more people. 4. Low Regulations - regulations impede business function and productivity and must be kept as minimal as possible while still keeping order and safety features in place.
I don't really like the word 'stimulus' since it gives the wrong impression of what the investments that government makes are about. If money spent in these times was a 'stimulus' then if spending $5 billion is good, $10 billion must be better, and $84 billion must be wonderful. Why not make it perfect and spend all you can borrow and finance? What Keynes meant was that governments should spend money in hard times, but not for the sole sake of a stimulus, but for the sake of getting more infrastructure and education completed at more competitive rates on which the economy can build when it bounces back. Ideally, governments should have cash in the bank to do that, but unfortunately there is only one jurisdiction in Canada that has managed to do that. The difference in the spending is no different in action, but it is very different in intent and purpose, and I believe that is critical as a foundation to the action undertaken.
In this climate, steel prices have plummeted, labour costs are down, construction costs are down, and companies are looking for work. Some universities, such as famous MIT and Harvard, are letting go professors who are some of the brightest minds in their fields throughout the world. What should the government do? In these times I would say invest in education and research positions and build those roads, railways, runways, schools and hospitals that we will need for the next twenty years. It will be much cheaper to build them now than five years from now since the price of the brains and the buildings will only go up, eventually.
This province has saved $7.8 billion in a Sustainability Fund, as much in a Infrastructure Fund, and even more in multiple other research and innovation funds. We are in a position to capitalize unlike any other jurisdication. Canada has the strongest economy in the world with projected growth of 3%, and Western Canada is the strongest part of Canada. Now is the time to work and we have available resources to do so. That doesn't mean that we have to blow the wad, however. It means we can stay even and ride the slowdown out for a couple of years. You should also note that we spend more money per capita than our two closest neighbours by 37%. Surely, spending almost $40 billion on 3.5 million people leaves some room for trimming or fine tuning the spending. Even if we only found $1 billion in current spending to redirect to the pillars of government responsibility we would be investing more in the future, not less.
Of course, I can't answer every question or concern on the matter, or completely flesh out my comments. In fairness, thousands of books have been written on the matter, and none is complete in itself, and this is just a blog. I hope it helps give you a sense of where I am coming from, and I look forward to the debates to continue on Facebook, Twitter, and blogs across the province.
That's it. That's all.
