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Sean Speer: What is all this spending going to get us?


Today’s budget should finally tell us how the Trudeau government intends to spend as much as $100 billion in the name of “building back better.”

It’s an extraordinary sum that’s nearly double the size of the federal stimulus package enacted in response to the 2008-09 global financial crisis.

The commitment was first made in the government’s Fall Economic Statement last December. Such a fiscal promissory note is a bit unconventional especially in light of the evolving economic and public health conditions. It seemed premature to judge how much, if any, stimulus spending would be needed to restore economy activity in the aftermath of the COVID-19 pandemic.

Of course, those conditions continue to evolve. The good news is that economic output and employment are slowly yet steadily returning to their pre-pandemic levels. The bad news is another round of strict stay-at-home orders in Ontario and other public health restrictions elsewhere in the country are bound to stall this progress.

It remains difficult to fully discern how much stimulative policies will be needed over the next several months. Presumably that will become clearer into the fall as the country’s vaccination rates catch up to peer jurisdictions and we start to see whether the economy returns to pre-pandemic levels of investment and consumption.

But the biggest problem with the Trudeau government’s $100 billion pledge isn’t even its timing. The bigger issues here are two-fold: first, the government is redefining “fiscal stimulus” to account for long-term entitlement spending; and two, it’s using large-scale deficit financing as a means to avoid grappling with real fiscal trade-offs.

The government’s redefinition of fiscal stimulus has been evident in pre-budgeting messaging from the prime minister and finance minister. This isn’t likely to be a temporary spike in federal spending in order to jolt the economy (particularly hard-hit sectors such as bars or restaurants, hotels, and so on) from its pandemic-induced coma. One could agree or disagree with the design, magnitude, and timing of such a stimulus response but at least it would broadly conform to conventional Keynesian theory.

Instead we’re bound to get a hodge-podge of new, permanent discretionary spending such as a universal national childcare program, a pharmacare program, and various other long-standing Liberal priorities that won’t just lead to a spike in short-term deficits and debt accumulation but also have serious long-term fiscal implications.

This $100 billion promise has a bit of a Dr. Evil feel to it.

This is how temporary deficits become permanent deficits and how a relatively strong balance sheet is gradually lost. It doesn’t mean that we’ll hit an immediate fiscal wall but it will invariably result in less fiscal maneuverability in the future including less scope for public investments in science and technology that can drive long-term growth and productivity.

It reflects a general feature of the Trudeau government’s modus operandi — what one might describe as “reverse deliverology.” Its policymaking too often seems to start and end with good intentions. Standard public policy considerations such as trade-offs, opportunity costs, or scarcity tend to be de-emphasized or outright dismissed. We know the sticker price, but we rarely know what we’re actually getting or what we might have gotten instead.

One can even go back to the government’s genesis to see this fiscal formula in action. Readers will recall that it came to office with a commitment to run annual deficits of $10 billion for three years. The amount seemed to matter more than specific policies and programs that would be deficit financed. As I’ve previously written, spending and deficits soon became ends in themselves.

The current $100 billion promise, which has a bit of a Dr. Evil feel to it, is similarly characterized as a self-evident public good unto itself. There’s seemingly little concern paid to whether it’s needed, how it might be delivered efficiently or effectively, or how it fits as part of a long-term strategy to boost economic growth and productivity. Just because interest rates are low in the short-term doesn’t mean that new or more spending is justified.

This isn’t how public budgeting is supposed to work. Policymakers should apply a series of questions to the budget-making process: What are the benefits and costs of individual measures? What are the trade-offs? What are we getting for this increased spending? What are the opportunity costs? How do we make these judgments in a world of fiscal scarcity?

This has been the proper critique of the Trudeau government’s fiscal policy all along. There’s been a tendency to criticize the size of its deficits or its broken promise to eliminate the deficit after just three years. But there’s been a reluctance to go another layer and ask ourselves: For a government that increased program spending by more than 25 percent even prior to the pandemic, what did we get for it? Have Canadians’ living standards markedly improved or has our economy become markedly more productive?

Some readers might answer “yes” because the Canada Child Benefit has lowered child poverty which is indeed the case. But this seems like a bit of a diversion because no matter the new benefit’s merits (and the government deserves much credit for its reforms), it was a small fraction of pre-pandemic deficit spending and it’s bound to become an even smaller share of the forthcoming deficits. It doesn’t come close to explaining the massive increase in federal program spending since 2015.

The key lesson here is that we must refocus our public debates about government spending and deficits and debt from a quantitative one to a more qualitative one. The main question shouldn’t be about whether we can afford to spend $100 billion. It’s more fundamentally about how we set our fiscal priorities, how we make judgments about competing priorities such as consumption versus investment, efficiency versus equity, and how we ensure that any incremental spending will ultimately improve the economic and social well-being of Canadians.

The problem with starting out with an undefined $100 billion promissory note (which itself will no doubt be higher because of the long-term tail of eventual spending) is it short circuits this kind of debate. It falsely creates a sense of an end of scarcity-inducing trade-offs which, notwithstanding the best efforts of the Modern Monetary Theory crowd, remains a fundamental part of public finance.

So, as readers unpack this afternoon’s budget, the questions that they should be asking ought to be less arithmetic and more directional. Where should we be prioritizing scarce public dollars? How do we balance short-term needs with long-term goals? How do we create the conditions to break out of the “two-percent growth trap” that has held back our economy for two decades? Will any of this new spending help?

Build back better? Maybe. But let’s start by understanding why, how, what we’re getting, and what we’re missing out on before we spend another $100 billion.

Ray Pennings: Trust is our core currency


Trust is a core currency in democratic and prosperous society.

Growing concerns about the decline of trust are valid and deserve discussion, especially as we consider the resulting drop in the impact and social benefits social institutions provide.

Unfortunately, these discussions often take place without fully appreciating that trust is contextual and is not unlike banknotes. Trust needs to be exchanged into specific currencies if its benefits are to flow from various social institutions. Each context requires its own currency. So, while “trust” is relevant to politics, business, media, and non-governmental organizations, dealing with the decline in these different settings will require solutions specific to them.

As recent polling shows us, trust in our vital institutions is low.

Parsing the concept of trust invites us into the science of social capital, a term that has become a common part of the social science vocabulary only in the past few decades. The concept is of older vintage, perhaps best understood as what Alexis de Tocqueville was getting at when he wrote Democracy in America in 1840. In brief, social capital involves voluntarily working with and through institutions other than government to achieve social good. Understanding how citizens viewed and dealt with their neighbours when government wasn’t looking has been a key component to understanding the health of a democracy long before the words we use today were in vogue.

With that in mind, it’s interesting to look at January’s Edelman Trust Barometer, a two decades-old annual measurement of trust in 28 countries. After documenting the continuing decline of trust in credibility almost right across every institution, Edelman found high trust in business. (Canadian respondents viewed their employer as their most believable information source.) Even more interestingly, a full 65 percent agreed that CEOs “should step in when government does not fix societal problems.” More than 60 percent of both consumers and employees indicated that economic choices were the means to drive change. Almost half of employees (46%) indicated, “I am more likely now than a year ago to voice my objections to management or engage in workplace protest.”

The popularity of specific economic levers to influence decision-making — strikes, lockouts, boycotts, tariffs, subsidies, preferential policies, closed bidding — change over time. However, the use of economic leverage to achieve non-economic results has always influenced the exchange of labour, goods and services. But the implicit premise that somehow this will remedy the trust deficit in other institutions, specifically government in this case, is like offering pesos to buy land in France. Euros are the expected currency and the currency mismatch confuses rather than solves the problem.

We need to use the right currency in the right context.

There are at least two parts to the challenge of trust: the core basics common to all institutions and the institution-specific requirements.

The first part includes things like accurate information, ethics, honesty, and reliability, to mention just a few. These are essential ingredients no matter the context. Character matters and is inexorably tied to trust. Words must also reliably communicate dependable information.

The second part of trust involves the added dimensions of trust that need to be accounted for if the trust deficit is to be resolved. Each institution has its own task. Government is about dispensing justice, treating people fairly and equally, and ensuring security. Business is about investing inputs to create greater outputs, stewarding the resources they are given into goods and services that have value for their customers. Media is about informing people as to what is happening, providing information with courage and not skewing it to deceptive outcomes. Faith institutions are about truth and service of others. Families are about love and fidelity.

The basic, and usually overlooked, premise is that each social institution has its own leading functions or characteristics, which it must faithfully serve or express for it to maintain or regain its trust. So, when business is expected to “fix” government, or any other institution steps out of its lane to “fix” different other institutions, the result is rarely progress or an increase in trust.

So how then how can society make deposits in our trust accounts? And how can the various institutions withdraw this in order to contribute to flourishing?

There are no quick fixes but a few less-considered principles merit reflection.

First, recognize that all institutions have both a private and public dimension. Marriage and family, on the one hand, are very personal institutions, but let’s not overlook their public implications. They remain the primary context in which future citizens and taxpayers are born. Fertility rates are essential to any GDP and economic prosperity forecast. Religion is another example. Were it not for the $67.5 billion that faith institutions contribute to Canada’s GDP, a full range of services we take for granted (especially education and social services) would look very different or disappear. Every institution, while having a primary group of participants and stakeholders, also serves all of society. Through its behaviours it is either a net contributor or withdrawer on our collective trust accounts.

Second, although there are various institutions that can deliver on specific outcomes, some are better suited for the task than others. I don’t doubt that teens who join gangs build an impressive skillset of teamwork, esprit de corps, other practical know-how that could have significant economic and public benefit when applied in the workplace in later life. I also don’t doubt that most of us would prefer a society in which young people learned these skills through sports teams or community youth programs. A healthy society needs trust deposits from the full range of healthy institutions. No single institution, including government, is in a position to fill the gaps by the failure of any other institution. And just because an alternative institution may fill a vacuum when one isn’t doing its job well, that doesn’t mean the result will be interchangeable.

Third, trust is not a value-neutral term. Our egalitarian age is preoccupied with overcoming historic prejudices, which is important. Every person, regardless of their ethnicity, gender, sexual orientation, or other distinguishing aspect of their personhood, deserves respect based on the simple fact that they are a human being created with dignity. And those categories, which too often are used to divide people, should not become a shorthand for distinguishing those who are trustworthy from those who are not. But that doesn’t mean that respect is a synonym for trust. Trust is earned and our trust for others is increased or decreased by our past experiences with them. Even as we correct for past misapplications of categories being unjustly used as proxies for trust, it is naïve to think that consequently trust is an egalitarian concept.

Yes, trust is on the decline but contrary to public opinion, assuming the Edelman take is accurate, business and commerce can’t fix what is broken.

The trust bank requires deposits in the right currencies from the full range of social institutions healthily functioning. It also calls for a much more multi-dimensional take on things than the singular “this will fix it” solution. It requires us to look around and within to see where opportunities for growth might work.

While the situation is surely serious enough to warrant broad social dialogue and a consideration of how trust and flourishing interact for the common good, it also requires individual action as we interact within our families, communities, places of work and other institutions we are part of. When we live not just for ourselves but with a concern for our neighbour in our everyday lives, the interest on these trust deposits will result in an overall value that might even be measurable the next times the surveyors come along to audit the books.