- Jul 17, 2002
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So I am shamelessly promoting my blog, I'm not going to comment on my own opinion; so have at it guys!
Source: The Pragmatic Reformist
Source: The Pragmatic Reformist
As you are well aware, our governments are capable of running deficits, surpluses and debt. Many believe it is the government?s job to strive for surpluses and to minimize our debt, such that our children are not paying for our spending habits. With this piece I want to explain the positives and negatives of both deficits and surpluses; how they have an effect on our lives and what we should do about them.
The first thing I want to address is the effects money has on our way of life. When government gives money to departments, to administer social programs, funds are given to people, education, and infrastructure in the forms of schooling, hospitals, roads, and defense. When government gives money back to its citizens through tax cuts; funds again are used for goods, services all requiring people, education, and infrastructure.
Our economy as a whole is highly dependent on growth, investment and maintenance of those important factors; people, education, and infrastructure. Trying to reduce funding of these essential areas will have a significant impact on people?s lives. This is the main reason I condemn policies used to stop deficit spending (see Clinton, Harris), as it will have no effect other than creating sub-par education, medical care, over taxation, and other infrastructure in times of recession. Much like bull economies are cyclical, people?s livelihoods will become cyclical as well. Over time, as long as our country?s wealth, productivity, and quality of life increase; and our debt to gdp ratio goes down, there should be no reason to worry about temporal effects of deficits and surpluses.
Now lets fast forward to today. Canada currently has record surpluses, just had its 8th consecutive year in the black and is touted as a shining light of fiscal balance in the first world. The US on the other hand is in the red with record deficits and is seen by people around the world as being in serious fiscal trouble. Just the sound of these two assessments alone it seems Canada is ahead of the game.
Looking closer, Canada as a whole has a debt to gdp ratio of 67%, compared to the US?s 65%, EU?s 76%, and Japan?s 164%. This means that the US is generating wealth at a far greater rate than its debt accumulation; interestingly, with all the deficits the US has posted over the years, the debt to gdp ratio has been declining as the nation invests more money in people, education, and infrastructure. Another aspect one must consider is the US?s phenomenal GDP growth; over the last 5 years, the economy has been growing at a pace of 2 to 5%. The Canadian economy on the other hand has been largely stagnant besides the increase in Oil prices from $20 to $60 in the same time period. This shift in economic focus is easily seen in the recent elimination of the Albertan debt, and the large fiscal deficits in Canada?s manufacturing regions.
It?s easy to compare the US to Canada; but in the end, Canada is the most overtaxed nation in the first world, our surpluses are creating a stagnant economy due to our lack of investment and our surpluses are will make it more difficult to generate wealth and raise our standard of living over the long term. Don?t get me wrong, large deficits can really hurt an economy, but the long term benefits can significantly outweigh the satisfaction of having money in the bank for a rainy day. Our government is really putting a stranglehold on our struggling manufacturing sector and denying hardworking people the ability to be productive individuals.
For those obsessed by the US deficit, and want to know how much too much is, there really is no answer to that. What I can do is show different country?s deficits (-) and surplus (+) relative to their productivity; Canada +0.7%, US -2.7%, UK -3.5%, France -4.3%, Germany -4.2%, Italy -3.1%, Japan -9.3%. As you can see, even though the US has a ?massive? deficit, it is in no more fiscal trouble than many other first world countries.