"We can't allow things that are inaccurate to stand." — The Word of Our Dan, February 19, 2008.

Wednesday, March 31, 2010

Danny Williams-Government: Economic Genius

Bondpapers lights up a terrific quote from ostensible Finance Minister, Tom someone:

When there is uncertainty, when the economy is fragile, government steps into the breach.
This is the same "fragile" economy, of course, that for the past four years has been the object of veneration of the Church of Official Optimism.

Everything's booming, everyone's happy... but it's a fragile happy boom.

As the Finance Minister, whoever that is, said in his budget speech on Monday:

As a government, we feel it is necessary to continue with our efforts to stimulate as the world returns to normal and more broadly based levels of economic activity. This is not the time to retreat. This is not the time to slam on the brakes. We want to keep the momentum going in the right direction.

In order to achieve this goal and not cut programs and services that are crucial to Newfoundland and Labrador families, the Province is forecasting a deficit of $194.3 million for 2010-2011. We will continue to invest in infrastructure. We will continue to invest in programs and services that are crucial to the people of this Province. And, as an added stimulus, we will again reduce taxes.
Adding, for good measure, in remarks to The Telegram on Tuesday:

"Obviously, I don't like to run deficits, but if I've got to fight a recession ... if we've got to get the economy booming again, then I'm not afraid to spend money and we're not afraid to lower taxes to stimulate the economy - that's good public policy," the minister said.
So here's the thing: what imperical evidence is there that this deficit-financed public spending fiesta will actually cause the economy, in which everyone is happy and optimistic and upbeat and fragile at the same time, to be stimulated?

In your answer, you may make use of the following charts, which combine historical data available here with current and forecast data (outlined) from the latest provincial budget estimates, released on Monday. The comparison isn't apples-to-apples, but it's close enough for this exercise.

So how did that "good public policy" work out during the 2000s, the 1990s, the 1980s, and, for that matter, the deficit-financed years, going back to the dying days of the Smallwood regime, which pre-date the start of the chart?

How well did it stimulate the economy and ward off or end recessions?

You would think, from the Minister's happy words, that Danny Williams-Government had discovered some amazing public-finance and economic magic bullet; something so blindingly obvious that no one had ever tried it before: deficit-finance your way to prosperity. Spend money. Stimulate. Step into the breach.

Astounding! Allô, Nobel Prize Committee?

No wonder the man's a recovering Rhodes Scholar, and you're not. Nyahn.

But is there not some lingering doubt, somewhere on the Eighth Floor, somewhere in the Department of Finance, even if doubt is seemingly in poor supply everywhere else? Doubt that maybe, just maybe, the only economic and public-finance discoveries that Danny Williams-Government has made are the flip sides of the same coin.

He has discovered the sheer joy and fun of spending unprecedented windfall natural resource revenues, which he had nothing whatsoever to do with generating, and buying (or at least renting) popularity.

And he has discovered the dread of knowing that the financial party is rapidly — very, very rapidly — coming to an end.