Stockwell Day: Time will run out on the politics of debt
It helped re-elect Barack Obama, but Canada must resist the lure of 'quantitative easing'
I made two predictions in August: that U.S. President Barack Obama would be re-elected, and that Justin Trudeau would enter the Liberal leadership race.
Readers of my column know that I wish both of my predictions would have been wrong.
Personally, I like President Obama and Justin Trudeau. I worry about their separate ascendancies and agendas for family reasons: the diminishing of future job and prosperity benefits for my grandkids.
President Obama's well-intended but tragically flawed economic positions will lead to a credit downgrade for the United States. I predict that downgrade will come sooner than later (maybe as early as January or February) and will have a drag on our own economy.
Simply put, as our neighbours become poorer they will be less able to buy our products and services. That will make us poorer. The Harper government's "pivot" to Asia will accord a measure of hope for the prospects of our youth. However, it will certainly not fully offset the drag of President Obama's recession-risking policies.
How can I (or dare I) foretell the lengthening of unemployment lines or the lessening of "freedom 55" lines? Complicated predictive models and detailed logarithmic forecasts can be helpful. I've walked through or been dragged through enough of them over the last quarter-century while serving time in various financial portfolios.
But those of you who know how to make common sense out of dollars and cents should not feel unqualified to comment on fiscal matters just because you're working too hard to have the time to plow through those analyses.
Don't be fooled by 'QE'
Yes, it is true that financial matters can be scientifically and mathematically determined. The good news is they can also be intuitive and within the grasp of any working person who has figured out how to buy the groceries and still have enough left over to pay the rent at the end of the month.
Don't be fooled by high-sounding terminology such as "quantitative easing." Although QE, as it is known, may have a regal tone, I can assure you there is nothing majestic about it. It simply means that public debt is being heaped upon the shoulders of this and the next generation. It is a fleeting fix to a problem that cannot be fixed with compound interest rates.
Many political actors who mistakenly support the accumulation of debt through more spending as a way to reduce debt are hoping mainly for one thing: timing.
Using a personal example, we all know that when we first take out a consumer loan there is a temporary stimulus to our spending power. Perhaps we use that borrowed money to take a much needed vacation. Or maybe we upgrade the car or renovate the kitchen. Our neighbours observe us spending and think that our financial expertise must really be paying off.
In the same way, President Obama's political planners were entirely right. They knew the QE3 injection of debt in September would lead to some increased spending throughout the economy. They also knew it would trigger signs (sadly, temporary ones) of what would appear to be a rejuvenating economy before the November vote.
Just in time.
Of course, not all voters believed the White House had a magical formula that would save their country from an economic downturn. Just as some of my neighbours will figure out that my post-vacation depression or new hybrid SUV is actually a result of my increased borrowing and not my superior financial wizardry, many U.S. voters saw the dangers of increased "stimulus" spending.
That is why President Obama's tireless campaigning and sincere outreach, along with the predictable mainstream media favour and those temporary economic numbers, still only allowed him the tiniest of voter margins in many critical regions.
In a democracy, a one-vote margin is as good as a one-million-vote margin when it comes to decision-making power. Therefore, the United States will get its increased debt, its very temporary economic boost and, unfortunately, its not-so-temporary recession. Canada will be affected.
Our conflict-of-interest laws, which I had a hand in writing, prevent me from secretly lobbying my former colleague, Minister of Finance Jim Flaherty. So let me do it very publicly instead.
"Jim, everywhere I travel, around the country or in Asia, people talk about the steady course you and the PM are on by not plunging us into more debt and by keeping spending and taxes under control. This is resulting in increased confidence in Canada, which will lead to an increase in investment and jobs for Canadians."
"Jim, you and the governor of the Bank of Canada, like caring parents, have been telling us citizens to stay out of debt. Please do the same. Especially when the downturn in the U.S. begins to hurt us. Do not give in to those who cry and demand inappropriate 'stimulus' spending. Less borrowing now, along with some belt-tightening if necessary, will lead to more hope for my grandkids."
I would make the same public appeal to Justin Trudeau but I do not think it would help. He is a fine human being and I consider him a friend. But his advisers, like President Obama's, understand victory politics more than they understand economics. They will convince him that the politics of "trickle-down" government and increased debt and taxes will assure him the brass ring on Parliament Hill.
I predicted that Justin would enter the federal Liberal leadership race. I still predict that he will win that race, handsomely. I also predict he will eventually become leader of the Official Opposition. And, with a slightly painful smile, I predict he will hold that position longer than I did.
With the increasing mainstream media favour he will continue to enjoy, will he go on to become prime minister? Is this Justin's time?
If his adversaries foolishly try to attack him based on his family history it will only increase his chances. Look what happened in the recent U.S. elections, when opponents tried to stop the young newcomer, Joe Kennedy III, by attacking his family name. Voters did not appreciate that strategy.
Rather, conservative governments will continue to win only if they adhere to the time-tested economic policies that best help our future generations. In some ridings, that may mean winning by only one vote, not a million. But the positive long-term economic and employment numbers, appropriately displayed at election time, will win the day.
Just in time.