Prepare for the cost of pandemic spending and the scrambling by governments to stay afloat

Leaderless 3


Just as a rising tide famously floats many boats, one that goes out with a whoosh leaves a lot of debris on the beach.  And when we start tallying up the true cost of the pandemic quarantine, a lot of government programs are going to be left broken and smelly amid the seaweed.

I know, I know.  Never make predictions, especially about the future.  But if this one were in a sailing race you’d bet on it because it’s already in sight with a big lead: In the wake of the pandemic, governments will find themselves spending so much more and taking in so much less that something will have to give.  A lot of things in fact.

At the moment politicians are very full of themselves for pumping “liquidity” in vast amounts “into” the economy while giving us sweeping orders in solemn tones, the sheep are huddling gratefully around the trough in the paddock, and our leaders think they’re Churchill or FDR.  But some day they, and we, are going to realize “liquidity” is a euphemism for “borrowed money” or the printed kind, and that the metaphor of pumping it “into” the economy wrongly implies they keep a big tank of it somewhere else.

On that day, all government spending is going to be battered by a storm that will reveal that much of it was badly constructed and could not last.

It’s trite to point out that governments are inefficient and generally get away with it for a variety of reasons including low expectations based on long experience.  And that it’s been inefficient since before Rameses II was a thing because the state doesn’t have feedback mechanisms like profit and loss that draw reinforcements toward success and repel them from failure.

Entrepreneurs don’t like to admit failure any more than pundits or politicians.  But in business, you either put your money where your mouth is or swallow your words, and if you do the former and you’re wrong, the invisible hand grasps your collar and flings you from your shop.

Governments genuinely don’t have much way of knowing what’s working.  Nor do they have much incentive to figure it out because when things fail they can always go get more of someone else’s money.  Well, almost always.

In the coming months and years it won’t be true.  Too many governments will be chasing too little available money in borrowing markets.  There will be too little tax revenue.  And it will be a rude awakening.

Right now our Prime Minister is pretty much in his element.  Admittedly his gravitas needed work and still does.  But he’s bossy and profligate and loving it.

His promises to balance the budget were always more of a cover story for his voters than for him.  Nobody believed it.  Whereas he certainly did believe in this fabled “multiplier effect” they told us of in college before the debt crisis of the 1980s and 1990s told us otherwise.

The theory is that a dollar spent by government “stimulates” the private economy in such a way that it creates well over a dollar in prosperity.  So much more, in fact, that it covers the tax revenue needed to pay the interest and maybe even some day the principal.

Don’t give me that look.  I know it’s silly and there’s no free lunch.  But if they didn’t believe it, they’d have balanced the books while the balancing was good.  Instead even the Harperites said it would be reckless not to run deficits in a recession or eliminate them too fast in a recovery.  See, they “stimulate” the economy whereas paying down debt turns it off.

Well, it ain’t so.  Even if a $200 billion federal deficit is justified to rush emergency aid to people and firms, it’s going to be very difficult to pay for and will make economic recovery harder not easier.  So the rusty hulk of Keynesianism will be left broken and rotting on the beach as the tide ebbs.  But not alone.

For grim starters, Canadian health care was already bursting at the seams.  Hospitals were routinely over 100% capacity, waiting lists went round the block and into next fall, healthcare took over 40% of program spending and rising in every jurisdiction and instead of making structural reforms while bobbing safely at anchor rather than in a howling gale with rocks everywhere, governments bitterly resisted any effort to make the system more flexible, responsive or resilient.  Including the BC provincial authorities fighting Brian Day et al in court for 11 years to deny you the right to control your own body when it came to getting it looked after.

It will have to stop.  The hospitals did a great job of clearing the decks for a surge of COVID-19 patients that thus far has not really materialized.  But only by pushing everyone else even further back on the waiting lists.  Our health system, the most restrictive in the world, isn’t going to stretch in response, it’s going to snap.  And with it, the rationalization that private health care is greedy substandard and abusive, while the centrally planned kind is superb and generous, will be left out for the seagulls.

A lot of other minor things will get tossed over the side as governments scramble to stay afloat carrying massive subsidies through a stormy economy including, I hope, wasteful spending on green energy and absurd cross-subsidies in the power system.

So will some very major ones.  Including, I believe, the pretense that various governments don’t have massive unfunded liabilities most notably for overly generous pension systems.  A lot of retired public sector employees honestly think they paid in their “fair share” over the years and that if only government ordered every business to pay all its employees a pension equal to 70% of their peak working income, for as long as they or their partner shall live it, would “stimulate” the economy and deliver social justice.  Instead this whole “defined benefit” thing is going to wind up there on the beach, looking funny and smelling bad.

I’m not gloating here.  I have been issuing storm warnings for decades, and we should have been offloading useless ballast and making repairs in fair weather not with huge waves pounding us while a riptide drags us toward shoals we should never have moored near in the first place.  But it’s here and we better face it.

So here’s one more thing we might chuck over the gunwales: a certain smug complacency about the Canadian big-government way of doing things that frankly I don’t know why we ever brought onto the boat.

Photo Credit: Jeff Burney, Loonie Politics

More from John Robson.    Follow John on Twitter at @thejohnrobson

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