Dalton McGuinty, the duly elected premier of Ontario, has indicated that “Red Ink No Longer a Lethal Toxin“.
He thinks that the economy is slowing and therefore it is acceptable to run a deficit rather than cut spending. Poor Dalton still thinks that John Maynard Keynes had the right idea, when the fact of the matter is that Keynes was almost completely wrong.
Keynes said governments could spend more than they had (i.e. deficit spending) during bad economic times, and save money (i.e. surplus budgets) during good economic times. The problem with this is that fiscal policy (government spending / taxation) is a very slow and ineffective way to “adjust” the economy. Monetary policy (money supply / interest rates) is much faster and much more powerful tool.
Fiscal policy doesn’t work because government spending cannot create wealth. It only redistributes wealth created by real economic activity. Additionally, government spending is inefficient because it is almost always victimized by special interests. As has been shown in the failure of the communist system, government can’t make productive decisions about where to invest, because they aren’t looking for a rate of return. Mises explained this clearly in his seminal work, Socialism.
Western governments have been following the advice since the 1930s, usually with negative impacts. Additionally, Keynesian thought was never properly followed because when good times came, governments continued to run deficits as they tried to buy votes with a future generations money. Only with the coming of Margaret Thatcher and Ronald Reagan did governments start to rein in government, but the backsliding began in the 1990s under Clinton, Blair, Chretien and continues today.
Monetary policy is much more effective because adjusting the money supply and limiting it’s growth to 3-5% per year (as recommended by Milton Friedman) allows individuals and corporations to choose whether to invest or not. Inflation and economic growth can be measured (not the way they are done officially today, which is distorted for political reasons) and used to help adjust the money supply to maintain stability. Legislation to ensure honesty and ethics in business are also helpful in this regard.
But Dalton doesn’t want to cut program spending because he likes to buy votes and he doesn’t understand that government deficits make Canadians poorer.
3 comments
Powell Lucas says:
20 October 2008 at 21:04 (UTC -7 )
McGuinty and Dion are soul mates, both nurtured at the breast of outdated socialist philosophy. They have a common solution to every problem…spend more tax dollars.
JC Kelan says:
21 October 2008 at 4:05 (UTC -7 )
Good points!
However, isn’t there another consideration with the current economic turmoil?
That is, the problem facing the world is a credit crunch – there is a lack of available credit to meet the needs of other banks, businesses and individuals.
If governments run deficits, this means borrowing on the international money markets. Isn’t this counter-productive? Doesn’t this just mean that governments will be sucking up the prime credit supply, thereby reducing what is available to a starved market place?
JC Kelan
jmrSudbury says:
21 October 2008 at 6:59 (UTC -7 )
Perhaps people are learning from the government. The amount people have been spending has increased and savings has decreased. More people are living beyond their means. Just like the government, instead of tightening belts during the difficult times, the spending continues. As debt increases and any past savings gets used up, both families and the government are getting poorer. They are wasting their money on junk.
John M Reynolds