Balanced budgets don’t save in the long run

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Pontiac Perspective  Peter J. Gauthier


Pontiac Perspective  Peter J. Gauthier

Canada has a diversity of political parties offering various, often conflicting, solutions to our problems. But one thing they all have in common is the promise to balance the budget – not to spend more than the   revenues they collect. This desire for a balanced   budget applies to both the federal and provincial   governments. This promise is accompanied by a second promise not to raise taxes. So, all parties admit that some sacrifices must be made, some programmes cut back, and some planned spending cancelled.
The main reason politicians give for balanced budgets is that we cannot saddle our children and grandchildren with debts spent to improve our lives. The citizens should be    prepared to accept a little pain now (in terms of reduced government services) for greater returns in the future. But the economics are not that simple.
Consider what happens when the government postpones needed improvements to roads. A taxpayer may be happy that this action reduces her tax bill by about one hundred     dollars, but the poor road conditions will result in more wear-and-tear on vehicles and more accidents on the road. So now the car owner is faced with increased maintenance and insurance costs that will amount to several hundred dollars. The tax savings of one hundred dollars will result in additional costs of several hundred dollars paid to private enterprises. The politicians will be quick to point out the tax savings but they will never address the extra costs paid to private enterprises.
There is a further        consideration. As far back as the 1930’s, the British economist, John Maynard Keynes, showed that state intervention in the economy was necessary to avoid prolonged periods of high unemployment. This means that, in the long term, the economy and the citizens of a state benefit if the   government runs a deficit during periods of weak economic activity. Even the most casual glance at unemployment numbers, new investments, and related economic indicators show that Canada and the provinces are experiencing such a period. This is not the time for reduced       government spending even if a short-term deficit is necessary.
But what about future generations who will have to pay back the loans with interest resulting from the deficit? Again, an example of postponed road maintenance may be useful. Consider a strip of highway that needs 20 million dollars in repairs. If the         government, as part of its effort to balance the    budget, postpones the repairs, the road deteriorates at an increased rate. So, our sons and daughters are faced with a 100 million dollar maintenance bill. Our politicians have not spared future generations. Indeed, they have saddled the next generation with much larger costs.
Before the taxpayers approve of the political mantra of balanced budgets, they must examine all short term and long term effects of restricted government spending when we are going through a time of weak economy. Normally, we elect politicians to make the correct economic policies, but on the issue of balanced budgets, we must hold our politicians responsible for the         long-term impacts of their      economic policies.