John Robson: The Spending Paradox

Commentary

It is widely agreed that if Canadians don’t start focusing more on productivity and prosperity, we’re going to be in a heap of trouble strategically as well as economically. But headlines like “prepare for a decade of thrift and lower living standards” underline the familiar problem of trying to fight an enemy with outposts inside your own head. We’re so certain ever-bigger government makes us healthy, wealthy, and wise that when it makes us ill, poor, and baffled, we think yeah, we can’t afford to spend but we also can’t afford to cut. So the usual political incentives keep us spending, wildly.

You see this problem in the lax fiscal performance of governments of nearly every stripe nearly everywhere. But even more in the way their tongues praise fiscal prudence while their hands mock it.

If you live in a poor country, the politicians insist that they cannot cut programs, balance the budget, and mind the store because your country is poor. The logic being that we must spend money we do not have because we do not have it. If you live in a rich country, the politicians insist that they cannot cut programs, balance the budget, and mind the store because your country is rich. The logic being that we must spend money we do not have because we do have it.

In some sense you can blame John Maynard Keynes, especially his 1936 “General Theory of Employment Interest and Money.” And as a great believer in the power of ideas, let me insist that when a really bad theory proves enormously influential, it is not because someone is plotting or everyone is stupid. It’s because there were plausible reasons for believing it that turned out to be wrong.

In Keynes’s case, it was widely believed that orthodox economic remedies failed after the Great Crash of 1929. Instead of restoring prosperity, laissez-faire turned a downturn into a Depression, then big spending on welfare in the 1930s, warfare in the 1940s, and social programs and the military in the 1950s pulled us out of it.

In saying this view is plausible I do not endorse it. Actually, following the crash, governments, especially the American one, abandoned free markets in a panic. But for the United States to impose the biggest tax increase and the biggest tariff increase in its history with supposedly minimal-government Republicans controlling both the White House and Congress, indicates something deeper and far from random.

It’s that even right-wing politicians tend to be left-wing. What Keynes really did was mostly give intellectual respectability to deep-seated if often mentally shabby instincts. Especially as the “General Theory” is so dense, due partly to defects in prose and partly to defects in reasoning, that fans of deficits and big social programs could proclaim that this great and terrible wizard had proved it all worked while opponents struggled to interest the public in debunking “liquidity preference.”

Still, by the 1960s and 1970s stagflation clearly refuted the theory in practice. But elect a Mulroney, Thatcher, or even Reagan, and they’d talk like Coolidge or indeed Grover Cleveland, then make policy like Franklin Roosevelt. They didn’t cut spending or eliminate programs. They fiddled at the margins, including marginal tax rates, and hoped to spend their way to austerity. Partly it was electoral calculations, but mostly that in the recesses of their minds, and those of their supporters and appointees, socialists manned the ramparts.

As a counterexample, consider Argentina under genuinely libertarian President Javier Milei. A classic November 2023 Guardian headline read, “Economists warn electing far-right Milei would spell ‘devastation’ for Argentina.” Yeah. Experts say. Also known as liberals say.

On the right, many retorted feebly that of course there will be a decade of misery as the benefits of big government are withdrawn, so that um, uh, that is to say… But instead, an immediate dramatic turnaround brought low inflation, a budgetary surplus, and legacy media headlines like “In Milei’s Argentina ‘economic miracle’, not everyone’s a winner.”

It is hardly surprising to find parties on the left today trying to implement internal free trade by preserving supply management, subsidies for all, and aggressive counter-tariffs. Or to free up health care by ruthless enforcement of the Canada Health Act. Or to balance the budget by hiking spending massively to crank up the economy and watch revenue pour in. But when parties on the right boo and hiss all the way to the affirmative vote, or propose indistinguishable alternatives, it proves you can’t defeat positions you don’t believe in if you do.

Now, in fairness to the Globe piece cited at the outset, its author wrote, indeed began, “We are poorer than we think.” So he knows the pain has already hit. But not that immediately upon ceasing to hurt ourselves, we will hurt less.

As usual, the calls are coming from inside the head.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.