Our National Debt

[THELIBERAL]

Mr. Williams is now a Conservative by the way plus the Liberals have since lowered the debt by 61 billion.

http://www.parl.gc.ca/36/1/parlbus/chambus...n223_1700-e.htm

Mr. John Williams (St. Albert, Ref.): Mr. Speaker, I cannot help but object to the member's comments welcoming debate on paying down the debt.

In 1984 Mr. Mulroney campaigned and indicated that we were $170 billion in debt courtesy of the Liberal Party and this was going to sink us under a whole margin of debt. Mr. Mulroney's government was going to fix this when it took office. From 1984 to 1993 the Mulroney government ran up the debt from $170 billion to approximately $450 billion. The Liberals continued on and ran it up to $580 billion.

RESULTS::

Trudeau's share of the debt 170 billion.

Mulroney's share: 280 billion.

Chretien's share: 130 billion.

The Conservative government under Mulroney drove up the debt more than Trudeau did and more than Chretien did!

Another reason I do not vote Conservative.

[Bakunin]

I think trudeau,murloney and chretiens should be ashame to have given us one of the biggest debt in the world...

[The Terrible Sweal]

Thank goodness we had Paul Martin to turn this mess around!

[Argus]

The Conservative government under Mulroney drove up the debt more than Trudeau did and more than Chretien did!

Another reason I do not vote Conservative.

<{POST_SNAPBACK}>

And the title of that reason; ignorance.

People who clearly have no understanding of either economics or basic math should not be trying to whine about government spending history.

[bigdude]

I think trudeau,murloney and chretiens should be ashame to have given us one of the biggest debt in the world...

<{POST_SNAPBACK}>

If I remember correctly Lucien Bouchard was part of the Mulroney regime.

[August1991]

This thread shows a frightening economic illiteracy.

Nominal dollars from one year are compared to nominal dollars in another year. In discussions of debt, it is critical to consider interest rates. Finally, as I have often stated here - government debt is simply not like a family's mortgage debt. In public finance, the truly important variable is government purchases.

Until 1980, federal government debt was "relatively" small. In the early 1980s, the economy went into a severe recession, government tax revenues fell but expenditures stayed constant. The deficit soared. The federal government's nominal debt rose to $170 billion in 1984 as noted above.

The recession was the result of US Fed (and Bank of Canada) policies to control inflation. These policies meant high interest rates which stayed high until the mid-1990s. All through the 1980s, the Mulroney government had to contend with large interest payments on the debt.

The government's debt situation improved considerably around 1995 with real interest rates (zero risk) returning to the long-run historical average of about 1-2%.

-----

Do not judge a government's economic competence by deficits or debt. Judge a government by the purchases it makes and in particular whether it is promising to spend more.

I'll be sexist for a moment: When your husband comes home with a new-fangled digital camera, does it matter whether he bought it with a credit card or debit card? Well, if you have lots of money in the bank, it doesn't matter. And governments have lots of money in the bank since they have access to all our money. So, the real question is whether the family needs a new-fangled digital camera.

[takeanumber]

I hardly think August is in a position to be lecturing anybody on economics.

Although it is true that nominal dollars are different than real dollars, when the Liberals were running up a debt from 1972 until 1980, the rate of growth exceeded the real interest rate...in effect, the economy was growing faster than the debt was.

The Liberals were spending because it made sense to. (And indeed, it did.)

However:

The real sin comes from 1980 to 1993, when suddenly the bank of Canada slammed the breaks on the nominal growth rate (inflation) and suddenly the interest rates exceeded real growth.

Moneterists freaked out, telling the government to stop going into debt because they were really, really incurring 'real' debt. (the debt-gdp ratio was going up very quickly.)

What did Mulroney do?

He kept on spending.

I'm afraid Mulroney is responsible for most of the debt...he ran up the debt-gdp ratio from around 15 percent to over 50 percent.

------

Cons love Bush. If Bush is the poster child for the Con party, get ready for some huge deficits. That's the only way to pay for their tax cut and increased spending.

What the cons don't tell you is that most of the benefits Canadians enjoy are locked in (EI, OAS, CPP)...they'll have to cut money to the senior, students, and the unemployed.

The Cons want you to believe that all government spending is 'pork'. The reality is:

Pork accounts for too much of the budget (5%), but even getting rid of most of the pork (down to 3%, because lets face it, Cons are hipicrites and will deliver the pork to the West and rural areas) will allow for a hefty tax cut.

It won't.

A Con government, like the Harris government, can only result in deficit.

[Bakunin]

Thank goodness we had Paul Martin to turn this mess around!

yeah, cleaning their mess by stopping sending money to the province instead to stop spending money on crappy program like sponsorship and gun control...

[Hugo]

Do not judge a government's economic competence by deficits or debt. Judge a government by the purchases it makes and in particular whether it is promising to spend more.

There's one crucial problem here, August. In a democracy, it is almost certain that the government (party, leader) who builds up a debt won't be the one responsible for paying it off. To apply this to your example of the husband and the digital camera, ask yourself if the likelihood is greater that the man would make a frivolous purchase on his credit card or debit card, or on a credit card where the chances of him, personally, ever receiving a bill were slim at best.

Obviously this contributes to more wasteful and irresponsible spending. Visa knows this, hence their "win what you buy" promotion. Even a slight chance of not being given the bill will apparently increase spending. Imagine what the effect is when you make that chance a near-certainty. Therefore, the government who builds up a large debt is almost certainly more irresponsible than the government who does not or who builds up debt that will mature within their realistic political lifespan.

This goes a long way to explaining the massive debt that most Western governments are in. Government spending is popular, taxes aren't. What's the best way to solve this conundrum while preserving as much political capital as possible?

[Chimera]

Moneterists freaked out, telling the government to stop going into debt because they were really, really incurring 'real' debt. (the debt-gdp ratio was going up very quickly.)

What did Mulroney do?

He kept on spending.

Yeah, you're right, he was such an a$$

We didn't really need any health care or other liberal social programs in the eighties anyway.

[August1991]

The real sin comes from 1980 to 1993, when suddenly the bank of Canada slammed the breaks on the nominal growth rate (inflation) and suddenly the interest rates exceeded real growth.

Moneterists freaked out, telling the government to stop going into debt because they were really, really incurring 'real' debt. (the debt-gdp ratio was going up very quickly.)

I have read this several times and I honestly don't know what you mean.

Inflation in Canada fell in 1983-84 but inflationary expectations, as shown through long-term nominal interest rates, only changed ten years later.

What did Mulroney do?

He kept on spending.

The largest item at the time was interest on debt so of course the government deficit increased. Is that what you mean?

What the cons don't tell you is that most of the benefits Canadians enjoy are locked in (EI, OAS, CPP)...they'll have to cut money to the senior, students, and the unemployed.

If they're locked in, how can they be cut?

To apply this to your example of the husband and the digital camera, ask yourself if the likelihood is greater that the man would make a frivolous purchase on his credit card or debit card, or on a credit card where the chances of him, personally, ever receiving a bill were slim at best.

Look Hugo, will I be more or less likely to buy something for TalkNumb if I have easier access to your credit card or your debit card? What difference does it make? It's your money, not mine.

In your example above, you seem to think that a credit card will lead to more purchases because the bill will never come to the husband. Well, the debit card means teh same thing. It's not his money. I agree with you on the more important principle. If you spend someone else's money - using their credit card or debit card - you'll likely spend more.

And let me return once again to the main idea. Do not judge a government's economic competence by debt, surplus or deficit. Judge it by what it buys. Do we need the camera?

In another thread, Jack Layton is lauded for getting $100 million annually for Toronto's metro system. Should the federal government buy subway cars?

A Con government, like the Harris government, can only result in deficit.

So what. But I'd agree with a deficit if it means that future left-wing governments feel uncomfortable spending more until they get "their house in order".

The Cons want you to believe that all government spending is 'pork'. The reality is:

Pork accounts for too much of the budget (5%), but even getting rid of most of the pork (down to 3%, because lets face it, Cons are hipicrites and will deliver the pork to the West and rural areas) will allow for a hefty tax cut.

Here, I agree with you TalkNumb - although I don't know where you got those numbers.

Indeed, some of the biggest pork-recipients are pork farmers (and wheat farmers, and beef farmers, and corn farmers...)

[Hugo]

Look Hugo, will I be more or less likely to buy something for TalkNumb if I have easier access to your credit card or your debit card? What difference does it make? It's your money, not mine.

In your example above, you seem to think that a credit card will lead to more purchases because the bill will never come to the husband. Well, the debit card means teh same thing. It's not his money. I agree with you on the more important principle. If you spend someone else's money - using their credit card or debit card - you'll likely spend more.

I don't think you're following me. The issue here is that spending someone else's money on the debit card (taxation) means you'll have to get it out of them at the time it's spent. If you try and take too much, they might get mad and refuse to give it to you (vote you out of office). People probably wouldn't like social programmes so much if they saw their income taxes skyrocket year after year, for instance.

Much better if you can take it off their credit card (run a deficit) and send someone else to collect the bill later, i.e. the next party in power. In politics, people shoot the messenger. You get the kudos for buying that person all those nice things on their credit card, but when the bill comes in the mail, you'll be over the hills and far away.

In the example I gave, the husband will spend more on his wife's credit card than on her debit card if he thinks he'll have divorced her by the time the bill comes. There's much less chance of sleeping on the couch. It'll work even better if he can work things so it looks like her next husband actually spent all the money.

And let me return once again to the main idea. Do not judge a government's economic competence by debt, surplus or deficit. Judge it by what it buys. Do we need the camera?

The likelihood is far higher that the government would spend wastefully if it was not going to be the government that would actually deliver the invoice. Someone else will pay, someone else again will get blamed - how can they lose?

[August1991]

I don't think you're following me. The issue here is that spending someone else's money on the debit card (taxation) means you'll have to get it out of them at the time it's spent. If you try and take too much, they might get mad and refuse to give it to you (vote you out of office).

I follow you perfectly.

So let me try this angle. I'm a president and I want to limit government purchases except that I can't because government is this huge organization with many people doing many different things.

What to do? I cut taxes, create a huge deficit and then anyone in the future is going to find it difficult to buy more stuff.

I know that it makes no difference whether the government has a deficit or not. But if a deficit makes it politically difficult to buy more stuff, then I prefer a deficit.

The argument is the same as yours, I just moved the benchmark.

[August1991]

Part II

Much better if you can take it off their credit card (run a deficit) and send someone else to collect the bill later, i.e. the next party in power. In politics, people shoot the messenger.

Wait a second. The purchase is on my credit card bill, or is it?

Do you mean to say that governments spend more money if they can make it appear that someone else is paying (or will pay)? Wow! *I didn't think of that.* [uh, Hugo. I think that's the problem to begin with.]

....when the bill comes in the mail, you'll be over the hills and far away.

In the example I gave, the husband will spend more on his wife's credit card than on her debit card if he thinks he'll have divorced her by the time the bill comes. There's much less chance of sleeping on the couch. It'll work even better if he can work things so it looks like her next husband actually spent all the money.

Ah, if it were so easy to divorce. Or run to the hills. Alimony is one thing but taxes another.

Which raises another issue. I'll bet many women are paying lower mortgage rates because they are married, or were married.

In the same sense, the government borrows at extremely good interest rates because it can always tax.

[The Terrible Sweal]

Thank goodness we had Paul Martin to turn this mess around!

yeah, cleaning their mess by stopping sending money to the province instead to stop spending money on crappy program like sponsorship and gun control...

<{POST_SNAPBACK}>

Exactly. If ungrateful, ineffective provincials want more money to piss away on their business friends, let them tax for it like the feds have to do.

[Hugo]

Do you mean to say that governments spend more money if they can make it appear that someone else is paying (or will pay)? Wow! *I didn't think of that.* [uh, Hugo. I think that's the problem to begin with.]

Your sarcasm aside, yes, that is the point, because you didn't take it into account. You had originally said that it didn't matter if governments spent from "credit or debit cards." I merely pointed out that the "credit card" makes it much easier for the government to hide the costs, therefore, the government that spends into deficit is likely more fiscally irresponsible not just in where the money is coming from, but what they are buying. In that way, it matters. You were claiming that fiscal responsibility was irrelevant from whether a government spent from taxes or borrowing. I'm arguing that, although the correlation is not absolute, a good way to lessen irresponsible public spending would be to outlaw governmental budget deficits.

In the same sense, the government borrows at extremely good interest rates because it can always tax.

And because the government sets the interest rate and the banking reserve.

[takeanumber]

Real interest rates exceeded the real growth rate.

The debt/GDP ration ballooned, all starting in 1980.

Mulroney did the greatest damage during the 1986-1993 period in particular. As a conservative, he should have known better.

----------

OAS is subject to cutback. Politically it's impossible. As is EI. Politically it's pretty difficult.

----------

The Liberal economic track record since 1995 is far better than anything the Cons would have offered.

[Argus]

Real interest rates exceeded the real growth rate.

The debt/GDP ration ballooned, all starting in 1980.

Mulroney did the greatest damage during the 1986-1993 period in particular.  As a conservative, he should have known better.

It's like watching a ten year old try to talk about genetic abnormalities. The words are sort of there, but used in such a messed up way that you gotta laugh, especially since it's utterly clear the kid hasn't got the faintest clue what he's talking about.

[Argus]

Thank goodness we had Paul Martin to turn this mess around!

<{POST_SNAPBACK}>

Actually it was the United States which turned things around.

I have asked before, many, many times. Can anyone point to any govenrment plan, program or initiative which could even remotely be considered to have pulled us or even helped to pull us out of the deep recession?

Nope.

They did nothing. The recession ended, and with that hated GST, the money just began to pour in. That's what allowed the deficit to be conquered. Nothing Martin did. Nothing Chretien did.

[takeanumber]

It's like watching a ten year old try to talk about genetic abnormalities. The words are sort of there, but used in such a messed up way that you gotta laugh, especially since it's utterly clear the kid hasn't got the faintest clue what he's talking about.

Number of Public Economics Courses taken by takeanumber: 1

Number of Public Economics Courses taken by Argus: 0

'nuff said.

Just keep trying to prop up Mulroney, just keep trying it.

[Argus]

RESULTS::

Trudeau's share of the debt 170 billion.

Mulroney's share: 280 billion.

Chretien's share: 130 billion.

The Conservative government under Mulroney drove up the debt more than Trudeau did and more than Chretien did!

Given interest rates in the mid to high teens over a number of years any debt will about double if you can't pay it off and have high interest rates

The total debt when Trudeau took power in 1967 was about 12 billion (0.3% of GDP). The deficit was at a measly 187 million. Unemployment was very low, as was inflation.

When Mulroney took over from him in 1985 the debt was up to about 200 billion (8% of GDP) and the yearly deficit had passed 38 billion. Unemployment and interest rates were both into double digits. Debt service costs represtented 22% of the budget. With the bank rate as high as it was the debt jumped to 360 billion within five years because in order to pay the previous year's debt servicing charges the government had to run a deficit - which meant borrowing more money - which meant the following year's debt charge would be still higher During Mulroney's reign his government spent $230 billion servicing the debt, all of it borrowed money. Nevertheless, the overall debt dropped from 8% of GDP to 5.8% of GDP

Further, comparing spending is telling:

The yearly budget during Trudeau's time in office doubled between 1967 and 1970 and doubled again between 1970 and 1975. The inflation rate during the first 5 year period averaged 4%, and during the second 5 year period 5%. The national debt, during the entire period of his rule, increased by 1200%

Mulroney's first year in office was 1985. The budget that year was $112,362 billion dollars. Five years later in 1990, the budget was up to $151,590. The average inflation rate during that five year period was 4%, which means the budget rose only slightly in real terms during that time, most of which probably went to pay growing debt servicing costs. By 1992, the last full year of Mulroney's reign, the budget had increased by less than the rate of inflation.

By the time Chretien took over in 1993 unemployment and interest rates were both down, and the debt was at 466 billion. Chretien raised that to 600 billion. He did cut back on the deficit, but not for the first two years. It wasn't until continuing improvement in the economy that he was able to make any substantial reduction in the deficit (in 1996).

However, it should be noted that over the last several years Liberal attitudes have shifted and gone back to the way they were during the Trudeau/Chretien years. Government spending has skyrocketed, and the spending pledges in the last two budgets and the current budget will see the biggest increases in federal spending outside wartime in Canadian history.

[August1991]

Real interest rates exceeded the real growth rate.

The debt/GDP ration ballooned, all starting in 1980.

Mulroney did the greatest damage during the 1986-1993 period in particular.  As a conservative, he should have known better.

It's like watching a ten year old try to talk about genetic abnormalities. The words are sort of there, but used in such a messed up way that you gotta laugh, especially since it's utterly clear the kid hasn't got the faintest clue what he's talking about.

<{POST_SNAPBACK}>

Smarmy, but said in such a funny way that I have to agree.

Number of Public Economics Courses taken by takeanumber: 1

Number of Public Economics Courses taken by Argus: 0

All the lights are on but nobody's home.

Real interest rates exceeded the real growth rate.

The debt/GDP ration ballooned, all starting in 1980.

I repeat: So what?

Mulroney did the greatest damage during the 1986-1993 period in particular. As a conservative, he should have known better.

The issue is not what Mulroney did or did not do....

They did nothing. The recession ended, and with that hated GST, the money just began to pour in. That's what allowed the deficit to be conquered.Nothing Martin did. Nothing Chretien did.

... or what Chretien/Martin did or did not do.

----

The lesson, if there is one, is that friggin' around with the money supply (as was common before 1979 in the US and Canada) is not a good idea. It eventually leads to inflation, stagflation and so on. It took over 10 years to get things back (monetarily speaking) to the way they were in the early 1960s.

I happen to think that growth in the 1990s was due to new technologies (computers) and stable monetary policies. You can credit Reagan, Bush Snr, Clinton, Chretien, Martin, Paul Volcker, Alan Greenspan, John Gray, Bill Gates, Peter Pan or whoever for that.

-----

Note to Hugo:

And because the government sets the interest rate and the banking reserve.

The Bank of Canada can arguably set the nominal interest rate but certainly not the real interest rate. It no longer sets reserve requirements.

You were claiming that fiscal responsibility was irrelevant from whether a government spent from taxes or borrowing. I'm arguing that, although the correlation is not absolute, a good way to lessen irresponsible public spending would be to outlaw governmental budget deficits.

I think it's impossible to outlaw budget deficits and I'm not certain anyone would want to. In any case, deficits are not the problem. Government spending is the problem.

I did not say that fiscal responsibility was irrelevant. I just said that it's irrelevant whether a government borrows or taxes.

You provided the political argument that governments are inclined to spend more if they can borrow. I question that argument but I said, OK, let's say it's true. A smart government, wanting to limit spending, would cut taxes and provoke a budget deficit.

[Argus]

It's like watching a ten year old try to talk about genetic abnormalities. The words are sort of there, but used in such a messed up way that you gotta laugh, especially since it's utterly clear the kid hasn't got the faintest clue what he's talking about.

Number of Public Economics Courses taken by takeanumber: 1

Number of Public Economics Courses taken by Argus: 0

'nuff said.

Actually, much more than too much said, since you haven't got a clue about what I have and have not taken. And to put it as honestly as I can; you having taken "a" economics course just makes me snicker.

Now I'm not claiming to be an economist - though I've taken a number of courses (I found them to be the easiest electives after English). Nor am I a fan of Mulroney. I am, however, a fan of logic. And you don't have any on your side in this argument. The numbers are undeniable. The high double digit interest rates of that time acting on the Trudeau/Chretien debt were responsible for most of the "build up" of the debt under Mulroney - and Chretien.

To put it in a way a simpleton can understand: Mulroney had to pay 22% of his first budget to service the debt. Now if you make two grand a month, that's like having a minimum charge on your mastercard of four hundred and forty dollars. The result of that is obvious to anyone who ever suffered under big credit card debt; you can't afford to pay for other things, and you wind up borrowing even more. This was exacerbated, of course, by very high unemployment and a huge business slowdown - which simultaneously drained the government of income and caused them to pay out higher amounts for UIC and welfare.

Now had Trudeau/Chretien (Chretien was finance minister for Trudeau) not built up that debt out of virtually nothing Mulroney would have had a far easier time of things. That's a lot more money to play with, and he would not have had to borrow nearly as much. Or did you not read what aI wrote - about him needing to spend $230 billion just to service the debt?

[The Terrible Sweal]

The government under Mulron$#@&*#$ paid high interest on the debt because it devised high interest rate policies.

[August1991]

The government under Mulron$#@&*#$ paid high interest on the debt because it devised high interest rate policies.

Dead wrong. Jimmy Carter, if anyone, is guilty of high nominal interest rates. We should all be thankful.

The US Fed started to apply hard monetary policies under Paul Volcker - appointed by Jimmy Carter in 1979. Gerald Bouey was appointed by Trudeau in 1973.

Volcker was responsible for high nominal interest rates in the early 1980s. Bouey followed along. You can blame Mulroney for John Crow, but that was after the fact.

IMV, Democrats make good presidents because they name smart people. Carter named Volcker as Fed Chairman.

If you are a student, go to your university library and flip through - or better read this book.

IMV, it describes monetary policy, the Fed and all that boring stuff for the math-disabled - and from a Left perspective - during a period of time when it mattered. Paul Volcker was a Carter nomination who lived under Reagan. IMV, Greider's a good reporter who knows nothing about economics but tells a good story, honestly. IOW, a good read (if you skip pages)!