How to Balance the Federal Budget

Canada and many other sovereign governments all around the world currently face a huge dilemma. That is how to best go about balancing the federal government budget, while doing minimal damage to the nascent economic recovery now under way? In Canada, this is a question we dealt with very successfully in the mid 1990s. And now thanks to overspending and overzealous tax cuts by our allegedly conservative government, we will soon need to face again.

Source:Public Accounts of Canada Archives and Parliament of Canada

In the early 1990s, despite many years of growing economic output and much talk of fiscal restraint, Canada under Brian Mulroney’s Tory government was still running federal deficits in the area of 40 billion dollars a year at the end of its time in office. The Liberal Party were elected in late 1993 and within 3 years, had balanced the books. Over the next 14 years or so, the accumulated national debt was paid down by approximately one third from approximately 600 billion to approximately 400 billion dollars.

Surprising Facts About the US National Debt

A recurrent theme in US politics is that Democrats overspend and that Republicans are more careful with the nation’s finances. Every time the US has an election, the Republican right tends to call the Democratic left “Tax and Spend Liberals”, and make all sorts of charges that the election of Democrats will inevitably doom the country to huge deficits. These charges have been made so many times that most Americans inevitably take this notion as established fact. To verify if the charge is realistic, a close look at the statistics behind the US national debt is most informative.

Have a look at the graph shown below, for it tells us many things about long term trends in the US national debt.

The most striking thing about this graph is in the overall trends. Looking at the 70 year period shown in the graph, a few things stand out: 1) the national debt spiked upwards very quickly during the 1940s due to the staggering costs of WWII. 2) Debt as a Percent of GDP (DPGDP) then declined for the next four decades, from Truman in the late 40s and early 50s till the end of Jimmy Carter’s time in office in 1980. 3) DPGDP then skyrocketed during the Ronald Reagan and George Bush Sr administrations. 4) DPGDP declined again during Bill Clinton’s time in office. 5) DPGDP then rose substantially again during George W. Bush’s administration in the early to late 2000s. 6) From George W. Bush’s years of elevated debt, DPGDP has increased again during the first year of President Obama’s administration.

Remember when looking at these numbers that an increase in DPGDP is bad and a decrease in DPDGP is good. That assertion rests on the assumption that running more balanced budgets is a good thing and running more imbalanced budgets is a bad thing.

So by looking at this graph, can we conclude that Democrats generally increase the National Debt and Republicans generally decrease it? Actually, by looking at the data, we can easily conclude the opposite, that in the 70 year period shown, that Democrats have more often reduced DPGDP (Debt as a Percentage of GDP), and Republicans have more often increased it. The largest increase of DPGDP in this period was during Ronald Reagan’s administration. This is highly ironic when one considers the God-like awe that many Republicans show toward the memory of Ronald Reagan. Reagan is often held out as an example of “The Ideal Conservative” and yet he actually initiated the largest increase in the National Debt in the last 70 years.

Shown below is a table showing the change in National Debt during these various administrations.

Administration                   Change in GPGDP                Verdict

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R-Eisenhower                         – 16.2%                                 Outstanding

D-Kennedy/Johnson             – 16.5%                                  Outstanding

R-Nixon/Ford                         -  2.8%                                    Adequate

D-Carter                                   -  3.2%                                    One term only

R-Reagan                                + 20.5%                                   Terrible

R-Bush Sr.                              + 13.1%                                    Terrible

D-Clinton                                -  8.8%                                      Very Good

R-Bush Jr.                              + 12.4%                                    Terrible

Data from WhiteHouse.gov

Is Iran’s Time Running Out?

The election of Barack Obama gave much encouragement to those who hope for a negotiated settlement with Iran regarding that nation’s push to develop its nuclear capability. While I never particularly shared that hope, based on my distrust of their leadership, I have watched with interest how the negotiating process has unfolded.  So-called negotiations with the west have been ongoing for many years now. So far, they have come to no agreements. Few people have any illusions that the recent presidential election in Iran was anything but a sham. Ahmadinejad remains in power and pro-democratic protesters continue to be beaten and tortured.

Ahmadinejad and his cronies have been playing with the west for years, pretending to negotiate on the nuclear issue while they pursue their ultimate goal, that of acquiring nuclear weapons. If you believe that the Iranians only goal with their nuclear program is the “peaceful production of nuclear power”, then I have some swampland in Florida I would like to sell to you.

Let me stress one thing here clearly: a peaceful resolution of this issue is vastly preferable to one achieved by military action. However, the process of negotiating is only useful if you are negotiating with somebody who actually wants to come to an agreement.

The Liberal Party’s Lost Leadership

It is with some concern and a morbid curiosity that I view the decomposing carcass and slow motion train wreck of what was once a major political force in this country. I am referring of course to the Liberal Party of Canada under its’ last few leaders, most notably Stephane Dion, and now under current leader Michael Ignatieff. Referencing the title of this blog, The Independent View, I am often asked what that refers to, and why I claim to be an independent. What I mean by Independent is that I have no firm party affiliation. I sometimes vote Liberal and sometimes Conservative. I will admit that the NDP holds no allure for me as I find their far left positions to be more useful to a party in perpetual opposition than to a party facing the harsh realities of government.

Jean Chretien was, in my humble estimation, the last truly effective leader of the Liberal Party,  and generally stuck to a fairly centrist course in his ten plus years as Canada’s Prime Minister.  It was of course under the combined tag-team leadership of Chretien as PM and Paul Martin as Finance Minister that Canada’s 25 year addiction to deficit spending was finally kicked into the trashcan where it belongs. I firmly believe that governments should live within their means and not run deficits.  After running deficits since the early 1970s under Pierre Trudeau,  Chretien and Martin finally balanced the budget in 1995. Chretien’s successor, Paul Martin, turned out to be a much better Finance Minister than Prime Minister. He spent much of his adult life angling for the top job, and was incredibly effective in doing so. The only problem was that once he became PM, Martin did not seem to have much of a plan, was reduced to a minority government and acquired a well-earned reputation as a ditherer. Chretien of course, had always enjoyed majorities. While a thoroughly decent man who has had a very impressive career in the business world, as PM Martin seemed to have an overly soft touch and displayed little of the fiscal restraint he was known for as Finance Minister. It seemed that any provincial premier who wished to stick Martin’s head in the toilet for more than about 5 minutes, would be quickly rewarded with a few billion here or there. Danny Williams immediately comes to mind, as do many other instances where Martin quickly found extra money to spend on some new project.

Why Protectionism is a Bad Idea

A friend of mine recently sent me an email saying something about how he went to a certain big box hardware store and found that many of the products were made in China, Mexico, India, Pakistan and other countries, and then went to another hardware store and found more North American products there. There were further mentions of foreign products in various stores, and he then said that he was no longer buying foreign products and would now exclusively buy locally made products, wherever possible. The email was one of these chain letter type things meant to be sent to a large group of people and it made many appeals to buying local and further embracing the general concept of protectionism. I should further add that this friend of mine lives in a highly unionised town in Ontario where protectionism is very popular in these difficult economic times.

While I do often buy local, I am also happy to support foreign countries which have lower standards of living. I did feel that the gist of his email was overly simplistic and that it bordered on xenophobia. And so I felt the need to write back to him. Below is what I wrote back to my friend.

Dear _______;

This is an interesting idea. But let’s think through the implications for a minute. Are Chinese, Mexican or Indian kids any less deserving than our own? Any less human? Trading spreads the wealth. We are relatively wealthy in the west and many of the countries you mentioned are relatively poor. Tempting though protectionism can be in tough times, it only heightens international divisions. We live well in this country and it seems to me that many of these countries you might discriminate against are much poorer. Should we make them starve? Freeze?

What Obama Could Learn from George W. Bush

Let me begin by saying that I like Barack Obama. While I am unlikely to agree with every decision he makes, he appears likeable and intellectually engaged. He represents a welcome change from his predecessor George W. Bush, whose intellectual processes often appeared somewhat less than rigorous, who often seemed to thumb his nose at world opinion, and under whose watch the US banking system nearly imploded. Where Bush often seemed intellectually detached, Obama appears highly engaged, sometimes to the point of micromanaging. This is witnessed by the fact that one also sees very little of many of his key cabinet secretaries. Hillary Clinton immediately comes to mind. Whatever happened to Hillary? Is she being waterboarded at Guantanamo? Hidden away in Dick Cheney’s underground lair? One wonders. But I digress.

Obama seems impressive in that he is young, intelligent, physically fit, a family man, and very well educated. He also appears to represent the best of the American Dream, in that this black son of a single white mother, whose family had neither wealth nor connections could one day become president of the most powerful nation on earth. Obama the president has inherited a litany of problems: the financial meltdown, a staggering federal debt built up over many years, other rapidly rising international powers, frayed foreign relations, the Israeli-Palestinian situation, two wars, a hyperpartisan and highly polarised electorate, lagging national productivity, a growing underclass, and falling standards of living, education and healthcare. The list goes on. These issues could hobble any president, let alone one who sometimes appears to walk on water.

This is Not Your Father’s Republican Party

There once was a time when the word Conservative meant more or less what it sounds like, i.e. the dictionary description: moderate, tending toward traditional ways, avoiding extremes… One would often think of a bunch of old men at a gentleman’s club pondering the grand issues of the day while sucking down gin and tonics.

In the United States, the conservative position is generally represented by the Republican Party. The Republicans over the years have had a number of great leaders: Abraham Lincoln, Teddy Roosevelt, Ike Eisenhower, Richard Nixon, Ronald Reagan just to name a few. They have also had their share of intellectual heavyweights. One of my favorite Republican minds of the last 30 years or so was William F. Buckley. Buckley was supremely intelligent and could debate virtually any issue with anybody. He would never resort to low blows or name calling to make a good point. He had a very humorous dry wit about him.