Good Bye Budget Surplus, We Hardly Knew Ya

I think the most worrying thing I have read so far in this election was this post by Andrew Coyne. Coyne, downplaying concerns about the affordability of the Conservative platform, says,

"What the Tories can't say, but I will, is this: even if we do run a small deficit, we do not all turn into pumpkins. The Grits were earlier trying to claim, on the basis of who know's whose numbers, that the Tories would run a "$12-billion deficit." Even if that were true, which I doubt, that's $12-billion over five years, or a little more than $2-billion a year -- they could fund it out of the contingency reserve. And even if they did not, that's $2-billion, on a GDP in excess of $1.4-trillion. That's not even rounding error. It's rounding error on the rounding error.

I don't like deficits any more than the next guy -- less than most -- but let's get real here."

Or in other words, he doesn't like deficits any more than the next guy, but if they are *Conservative* deficits, he will downplay them.

I remember, back when the Reform party was new and shiny in the early 1990's, they were among the most intense deficit hawks in the country. Now, certainly the fiscal situation was drastically improved since then, but I am troubled by how far the Reform/Conservative party has moved from their old stance.

Some U.S. perspective,

"Since 1946 the Democratic Presidents increased the national debt an average of only 3.7% per year when they were in office. The Republican Presidents stay at an average increase of 9.3% per year. Over the last 59 years Republican Presidents have out borrowed Democratic Presidents by almost a three to one ratio. That is, for every dollar a Democratic President has raised the national debt in the past 59 years Republican Presidents have raised the debt by $2.87.

Prior to the Neo-Conservative take over of the Republican Party there was not much difference between the two parties debt philosophy, they both worked together to minimize it. However the debt has been on a steady incline ever since the Reagan Presidency. The only exception to the steep increase over the last 25 was during the Clinton Presidency, where he brought spending under control and the debt growth down to almost zero.

Comparing the borrowing habits of the two parties since 1981, when the Neo-Conservative movement really took hold, it is extremely obvious that the big spenders in Washington are Republican Presidents. Looking at the only Democratic President since 1981, Clinton, who raised the national debt an average of 4.3% per year; the Republican Presidents (Reagan, Bush, and Bush) raised the debt an average of 10.8% per year. That is, for every dollar a Democratic President has raised the national debt in the past 25 years Republican Presidents have raised the debt by $2.59. Any way you look at it Conservative Republican Presidents can not control government spending, yet as the graph above clearly shows, Clinton did."

Some Ontario perspective here.

Despite making severe cuts to social programs, the Harris government was only able to balance the books with the help of creative accounting and asset sales (often selling things for well below their value - see the highway 407 story for the worst example). Once these tactics had been used up, the debt resumed it's uphill march, despite Ontario (along with the rest of the continent) recording very strong economic growth over that period. By way of contrast, the Liberal federal government balanced the budget and then consistently ran surplusses over the same period.

The reasoning why neo-Conservative governments are prone to running large deficits is fairly straightforward. In the comments at Azerbic, Jay Currie notes that if the Conservatives take power, the various Conservative factions (social conservatives, red tories, libertarians, etc.) will then start battling with each other to get their agenda implemented. In order to keep the party together, the Conservatives will have to try and focus on areas of agreement.

For a number of reasons, running a deficit makes this a lot easier. For one thing, it allows the government to painlessly (except for the interest we pay for the rest of our lives) bring in a tax cut, which pleases all factions of the Conservative party. In fact, tax cuts are probably the only thing that all the Conservative factions agree on, which in itself goes a long way to explaining neo-Conservative deficits.

Another factor is that Conservatives generally have an anti-government mindset and often believe that government is just some black hole which sucks up money and does nothing. This leads them to believe they can make significant cuts to government and they won't have any impact. Once in power, much like your typical hapless reality show contestant, they realize that governing is harder (and more important) than it looks and they don't end up making the cuts they thought they would (or they do and people end up dying - see Walkerton).

This is compounded by the fact that Conservatives generally count rural and agricultural communities among their supporters and these communities tend to be both the strongest in their anti-government rhetoric and also in the fierceness with which they defend any government handouts they receive.

But surely, you say, Conservative supporters are fiscally conservative and will turn against their party if it runs deficits?

The practical response is to note that said fiscal conservatives, who can be counted on to scream loud and long if a left-wing government runs a deficit, have historically remained eerily silent in the presence of Conservative deficits. See the U.S. situation today, or go back to Coyne's column to get a taste of what is to come in Canada. Perhaps this is because these Conservatives would rather suffer deficits under a Conservative government than face an alternative party gaining power, or perhaps they don't mind if deficits are caused by tax cuts and only oppose deficits caused by social spending or perhaps many of these Conservatives are just blindly partisan. I don't know the reasons, but I do know what I have seen and heard, and especially what I have not seen or heard, both in Ontario and in the United States.

Furthermore, social conservatives are generally indifferent to fiscal issues. After all, if this world is just a test of our morals (and especially if you believe, as millions do, that the end is near) what difference does the budget surplus /deficit make?

Finally, there are a number of Conservatives (especially libertarians) who like deficits because they realize (correctly) that running deficits is one of the most effective ways to cripple government. As more and more tax dollars goes to interest payments, people see less and less benefit to their tax dollars, and support for government decreases. As an added benefit, when the deficit creating government is finally defeated, the new government that takes over will have to focus their energy on reducing the deficit, making unpopular cuts rather than implementing their agenda.

Obviously, I can't say for sure what will happen under a Conservative government. Maybe enough of that old Reform small c-conservatism remains and they will keep us in the black, but if I was betting man, I'd bet that a Conservative government which lasts more than 2 years will put us in deficit sooner or later.

Then we will see whether our hard-learned lesson about deficits (manifested as a fear of turning into pumpkins if we run a deficit) is still remembered, or if the deficit apologists will come out in force and we will begin the slide down the slippery slope into large Bush-style, day-of-reckoning-is-coming deficits.