Giving Up On Fiscal Conservatism 

March 1st, 2015  | J. Hodgson

Debt, grinding debt, whose iron face the widow, the orphan, and the sons of genius fear and hate; debt, which consumes so much time, which so cripples and disheartens a great spirit with cares that seem so base, is a preceptor whose lessons cannot be foregone, and is needed most by those who suffer from it most.”  Ralph Waldo Emerson

In the mid-90's Canada was called “an honorary third-world nation” by the Wall Street Journal. This insult struck a nerve throughout Canada because it was dripping with truth. Our debt levels, nationally and provincially, were out of control. It became apparent that the binge spending throughout the 70's and 80's had reached a zenith in the early 90’s and we simply couldn’t take on any more debt without spiralling into crisis.

This was the beginning of a fiscal conservative revival in Canada. Our culture up to this point was one of Keynesian economics with a mammoth welfare state and all the trappings of socialist inefficiencies. Like a fat person facing the choice of “diet or die”, Canadians finally...finally, began to recognize the importance of living within your means.

Jean Chretien, Paul Martin, Ralph Klein, Mike Harris, and Roy Romanow stand out during this time as being the parade leaders of fiscal conservatism’s revival. Fiscal conservativism became the non-partisan mantra that turned Canada back from the brink of bankruptcy and allowed us to move into the 21st century with some confidence about the future.

"Well before Ontario Premier Mike Harris' Common Sense Revolution in the mid-1990s, Klein had begun a fiscal revolution of his own. He was one of the first politicians who plainly said governments should do what families do everyday - spend wisely and live within their means. Klein helped put what were foreign concepts at the time, like "balanced budgets" and "reduced spending", into action. Today, these ideas are part of mainstream political discourse. They’re what taxpayers across the country have come to expect from politicians at all levels." Adrienne Batra

Okay, great. Canadian culture turned towards a fiscally sustainable culture of conservatism. That was good, but what was the side-affect and what happened next?

#1. The main side-affect of cuts and deficit slaying was: success. Surpluses began to arrive for the first time in decades. Fiscal sustainability was the order of the day and the balance sheets across governments looked better with each passing year. However, the cuts did have real effects.

Legitimate public sector investments in infrastructure and essential services caused decline and hardship. The unemployment rate was way higher in the 90’s compared to today. Hospitals were closed or blown up. The Federal government left almost nothing uncut.

"In one budget we closed 52 hospitals, many schools and thousands of people lost their jobs. But we knew we had no choice, and we couldn't look back." Janice McKinnon, former Saskatchewan Finance Minister

#2. What happened next? It was time to play spending catch up with the newly secured surpluses. Governments began to ratchet up spending and had no excuses to avoid doing so. Some governments initially resisted the call for more spending and instead used the proceeds of surpluses to pay down debt or offer tax cuts instead. Eventually, however, the demands for more spending rang too loudly to ignore and governments capitulated. New spending was simply big government falling into the easy habit of making itself into even bigger government. Spending for the sake of spending. Wasting for the sake of wasting.

Example: Ralph Klein spent 12 years working hard to cut back government and eliminate, not only the deficit, but also the entire provincial debt!

"Never again will this government or the people of this province have to set aside another tax dollar on debt..."Those days are over and they're over for good, as far as my government is concerned, and if need be we will put in place legislation to make sure that we never have a debt again." Ralph Klein, 2004

What happened next? A couple of years later, the PC Party felt that Ralph just wasn’t “doing it” for them anymore. His folksy charm had worn out the welcome mat. The feeling was that the government was aimless and drifting leftward. It was time to move on and they kicked him out the door. A leadership race was held and Ed Stelmach, AKA The Worst Premier in the History of Alberta, accidentally won. Within a couple of years Stelmach began running massive deficits. Alison Redford replaced him and did the same. Now Alberta’s debt is over $10 billion and expected to balloon to even more enormous levels unless changes are made.

So what was all the cutting and struggling for in the 90’s?

The Klein government discipline in the 90’s simply enabled future, liberal-minded, governments to be reckless, squanderous and spendthrift. Good government, making good choices simply sets the stage for eventual bad government to make bad choices.

Which brings us back to the title of this article...

Giving up on fiscal conservatism.

The problem throughout Canadian history has been one of conservative governments doing the right thing only to eventually lose an election  or three  and have all the hard work undermined by the spendthrift liberals that take their place. It’s time to stop attempting to balance budgets like a household should but doesn’t. It’s time for conservatives to start spending borrowed money on conservative things.

Stephen Harper has bragged about how no new federal programs have been created since the great recession of 2008/09. The Liberals and NDP at the time, would’ve loved to have created big new programs that would serve to further socialize the country and spend taxpayers money doing so. Stephen Harper stopped that from happening, by targeting his stimulus spending on infrastructure projects that had an end date. Repairing roads, dredging harbours, renovating buildings...these sorts of things were long overdue anyway, and Harper ran deficits to do them. 

Now he’s eager to balance the budget before the next election in order to prove he’s a fiscal conservative. Problem is...he may lose the next election...and if not that one, then the one after that. Someday a left-wing party will take their turn at the wheel of the federal government and, when they do, the rewards of fiscal conservatism will be used to fund whatever socialistic big dreams the left-wing leader will fancy.

We may as well beat them to the punch.

Let’s continually run deficits in order to lower taxes. Let’s continually run deficits in order to beef up the military. Let’s continually run deficits in order to bolster projects that conservatives across the spectrum can support, or at least tolerate. Mostly...let’s continually run deficits in order to lower taxes.

This is the starve the beast strategy that conservatives don’t like to talk about anymore. What I am advocating is taking things further than simply cutting taxes, reducing revenue and then using that excuse to shrink government. I’m advocating cutting taxes and reducing revenue in order to run deficits, thus increasing the debt, in order to prophylactically restrain future leftist governments from expanding the state.

It’s not enough to lower taxes and then expect it to be politically poisonous for future governments to have to raise taxes in order to fulfill their socialistic dreams. We need to saddle the country with even more debt in order to keep a fiscal crisis looming just around the corner. By creating conditions in which our debt is always a problem, we can ensure that future Romanow-types and Chretien-types can’t follow their instincts and create an even bigger government and an even more liberal country. In the meantime, we benefit from lower taxes, better baseline infrastructure and conservative pet projects that liberals would never fund.

Next month, I’ll detail an idea related to this concept that I pitched to Finance Minister Joe Oliver back in September. He replied in January and it won’t surprize me if we see my suggestion implemented.

Until then, follow me on Twitter: @thegreyweb.