deficits matter

With the Trudeau government's maiden budget looming amid threats of stimulus spending, it is a virtual lock that the Canadian federal government will run a 15-20 billion dollar deficit this year. And while so called 'deficit hawks' may be quick to point the blame at one of the few good thing that Trudeau has done so far (the middle class tax cut) the reality is that balancing the budget by raising taxes (or not cutting them) is like curing the disease by killing the patient.  Deficits matters because government spending matters.

There is a truly bewildering array of statistics and misinformation (but I repeat myself) surrounding all things political. Economics has long been one of the softest of soft sciences, coloured significantly by political bias and economic interests. But of the morass of numbers and data points that claim to elucidate current events there is one you should keep track of; aggregate government spending in nominal terms. This is the true measure of whether government is growing or not; of whether we are headed towards a free society or leaving it behind. Massive borrowing on the part of the state enables significant expansions in spending programs that would not be politically feasible were the electorate forced to pay up front in the form of tax hikes. But despite the silver tongued claims of etatists there is no free lunch. Ultimately a price must be paid for these borrow and spend policies, either through the devaluation of savings, sluggish economic growth or capital flight as investors seek more business friendly jurisdictions. The more money the government spends the poorer our nation. Resources are finite; this money does not simply appear out of thin air. It is taken from individuals and businesses. Every dollar of government spending means less money in the private sector and fewer resources directed towards creating wealth and satisfying consumer demands. There is a massive loss in utility when you take money from someone, who would be spending it on their highest ranking ends, and instead have some bureaucrat decide to spend it on their behalf, inevitably on an end which is significantly lower down on their hierarchy of values. It is precisely because of the constant growth of government throughout the 20th century in Canada that we now live in an age of anemic economic growth and perpetual depression. With such a massive amount of the wealth created in this country every year expropriated by the state it has become increasingly more difficult for ordinary Canadians to make ends meet. 

Deficits can be inflationary. Whether or not deficit spending is inflationary depends on whether they are financed through the sale of savings bonds, in which case they would not be, or if the money comes from expanding bank credit (printing new money).  Given that only some 2 billion dollars was obtained through the sale of government savings bonds in 2011 it seems reasonable to conclude that this deficit will be financed through the expansion of bank credit and contribute to the inflation that has plagued our nation for too long. Inflation distorts price signals, causes havoc in our economy and makes it difficult for people to save. A stable monetary unit is crucial to a nation's economic health. Money is the blood of the economy, through which everything flows. What we should have is a sound monetary policy; a dollar, backed by gold, which instead of constantly depreciating in value actually appreciated as the number of goods available for purchase steadily increased. With sound money comes prosperity. Paper money is inherently unstable and the temptation to print more of it will always prove irresistible for politicians who are never the most principled of people to begin with.

Deficits matter. The Canadian government is moving full speed ahead in the wrong direction. Instead of less government, every year we are saddled with new spending obligations and expansions of old, failed programs. Where we need deregulation and non intervention in the economy we see instead ever expanding government control and regulations lobbied for by established business interests to perpetuate their profits and harm small competitors. Unfortunately for Canadians, Trudeau's handlers (and let's not fool ourselves about who is calling the shots, Trudeau is an utter moron, incapable of doing anything aside from mouthing vague platitudes, no doubt because he's been hit in the head a few too many times) are devoted to a dirigiste ideology and completely opposed to the free society and liberal economic policies. If our nation is to avoid bankruptcy and return to our rightful place in the sun then we as a people must rise up and demand that the run away government spending stop and some fiscal sanity be imposed on Ottawa.