The real economic battle isn’t over “austerity” vs. “stimulus”

The real battle is about the dead weight of the past vs. creating the future
By Bruce Stewart, Columnist, Troy Media

Politics today seems stuck. And voters are stuck with it.

Endless deficits, mounting public debt and the worries of credit rating agencies
seems to argue for cutbacks in programs, cutbacks in government employment, along with other forms of austerity.

Meanwhile, crumbling infrastructure, stubborn unemployment, and a lack of economic growth seem to call out for stimulus programs and more government spending to get things moving again.

Just look at Europe. Europeans elect governments that promise to stimulate, and they get austerity instead. They elect governments that promise austerity, and the spending never actually reverses. And the problems just keep building.

It is the same for most of the world, but what about Canada?

Does Canada need to stop spending money it doesn’t have? Of course it does. We could choose to tax ourselves to find the money – although increasing taxes will slow the economy. Or we could cut spending to get rid of the deficits – although that, too, will slow the economy.

Without growth, though, the growing debt becomes more and more of a burden. Ask Ontario, where making interest payments on the accumulated pile competes heavily with education for second-place, behind health, in government spending. Ask the United States, where 100 per cent of the operating budget (things that aren’t interest payments or entitlements) now has to be borrowed each year (and what happens when the world doesn’t want to lend $1.6 trillion a year to your country any longer or, even worse, doesn’t have it to lend?)

But austerity vs. stimulus isn’t the real battle, despite what you’d think listening
to politicians. It’s about the dead weight of the past vs. creating the future.

What’s that dead weight?

It’s regulations that preserve the existing players and make innovative newcomers a problem. (Regulations that level the playing field and apply equally are fine; regulations that are expensive to comply with if you’re small cripple entrepreneurs while maintaining the existing leaders, who can afford it.)

It’s management practices – like supply management in Canada, or the common
agricultural policy in Europe – designed to limit markets.

It’s a tax code riddled with deductions, allowances and credits that preserve the
status quo (and require professional help if you’re trying to make ordinary
decisions about whether to take one course of action or another).

It’s a tax scheme that taxes the wrong things, holding back tomorrow in the process.

It’s redistribution schemes – equalization, welfare, etc. – that are a part of
providing for the less well-off but are expensive to operate, don’t deliver enough
to those who need it for the money spent, and create perverse outcomes.

It’s attempts to manage government costs by restricting supply – as we do in medical care, where we limit licences to practice, restrict where facilities will be built and how they’ll be equipped, among others – instead of following the example set by France and 14 U.S. states, where anyone with qualifications can open a medical care facility and compete for clients, thereby reducing costs.

We tend to focus on silly things, like the cost of expanding House of Commons by 30 MPs. The cost of Parliament is actually 1/100 of 1 per cent of the federal budget, including the gold-plated pension obligations), instead of on the serious matters of restructuring our public sector and services for the 21st century.

Maybe it’s time for a paradigm shift.

Maybe, just maybe, we’d be better off with guaranteed annual incomes – they’d make it easier to be an entrepreneur, thus create our own work – while paying something toward our non-catastrophic health care. Maybe we’d be better off with less “free trade” between nations and more of it between provinces. Maybe we’d be better off with more consumption taxes and less taxing of incomes. Maybe we don’t need lower corporate taxes per se, but a real difference between being big and being small in business.

In other words, getting a country that works for tomorrow isn’t our politicians’
responsibility – it’s ours. It’s time to get together with our neighbours and start
telling the people we elect what to do.

If we don’t – we’ll get austerity and stimulus, no growth, and less of a future.

Troy Media Columnist Bruce Stewart is a management consultant located in Toronto.

Article provided by Troy Media, http://www.troymedia.com.

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