WE LIVE IN A WORLD OF RISKS, NOT CERTAINTIES; DEGREES, NOT ABSOLUTES, WRITES ANDREW COYNE. BUT ALL I ASK IN THIS WORLD IS A LITTLE COHERENCE FROM THE GOVERNMENT.

It’s always possible to rationalize going further into debt

A ll I ask is a little coherence. The news that the economy, far from the recession the Liberals were claiming as recently as last fall, grew at an annualized rate of seven per cent in January, the fourth consecutive month of growth, was greeted by the finance minister with equanimity. To be sure, he had just unveiled a budget stuffed with deficits, in the name of stimulating growth. But “our plan is not built off a short-term sense that we were facing an immediate issue,” he told a business audience in London, “but off a long-term sense.”

Never mind that this stance — it was never about stimulus — is directly contradicted by the repeated statements of his own leader (“We’re in a recession and growth has stalled so now is the time to invest”). It’s directly contradicted by the minister himself, in the same appearance. “The ability to have an impact on growth through monetary policy is more of a challenge today,” Bill Morneau averred, while “fiscal measures can make a real difference.” Whatever the merits of monetary versus fiscal stimulus, they are all about growth in the short-term sense.

So the Liberal double act continues. Was the decision to plunge the country another $ 113 billion into debt about boosting growth in the short term or the long? The correct answer is neither. It clearly isn’t about fighting a recession, because we aren’t in a recession, and because if we were deficit spending, especially in an economy open to trade, it is of little help. And it isn’t about investing in capital projects that boost productivity in the long run, because only a fraction of the tens of billions of new spending in the budget is even notionally for such purposes, and because the part that is offers no estimate of the expected long-run returns, nor any evidence they exceed the returns from alternate uses of the same funds.

Still: if the budget offers no persuasive justification for running $30-billion deficits, neither does it portend our economic doom — bankruptcy, or at least a return to the crisis of the early 1990s. I make this point, less because there have been many claims that it would, than in response to a volley of opinion pieces reassuring readers that it will not — and therefore, implicitly, that all is well. But alarmism and complacency are not the only responses open to us. It is possible to believe both that deficits of the sort the budget envisages will not ruin us and that they are not a good idea.

We live in a world of risks, not certainties; degrees, not absolutes. Taking on more debt does not, in itself, mean fiscal disaster, but it does mean exposure to greater risk. The extra risk involved in the present case may seem small, with a deficit and debt of just 1.5 per cent and 31 per cent of GDP, respectively. But it is not zero. In 1974-75, when the federal budget began its headlong descent into deficit, the risks must have seemed at least as small, with a debt-to- GDP ratio of just 18 per cent of GDP. Stuff happens.

Of course, everything worth doing comes with risk. If there were some significant offsetting return, the extra risk might be worthwhile. It’s the failure to put those borrowed funds to productivity-enhancing use that is the real indictment of the budget. Indeed, the very nature of deficit financing, far from requiring this sort of exacting scrutiny of risks and returns, is to encourage the opposite: scarcity having seemingly been abolished, hard choices no longer seem necessary.

This is especially true when, as now, there is not only no obligation to balance the books on an annual basis, but no longer-term benchmark, either: not balance over the life of the government, nor even a declining debt- to- GDP ratio. Yet there is no obvious or immediate consequence of this, either. We are forever wishing for rules to guide us, bright lines separating prosperity from calamity. But the awful truth is there are no such rules. There is only our best judgment of what is more or less likely to result from this or that choice, other things being equal.

How then should we proceed? From the foregoing, you will be unsurprised to learn that I favour a rule, as simple and absolute as possible: a balanced budget law will do nicely. For judgment, of the kind I described, is not given to democracies. The tendency to underestimate future risks, set against the delights of present spending, are too great. At any given moment, it is always possible to rationalize going further into debt, until our debts have become quite dangerous. And while it might seem as if we could simply change course at that point, the accumulated obstacles to change, in the form of the beneficiaries of current spending, by then may have become insurmountable.

At the same time, fiscal conservatives need not and should not direct their attack at deficits, as such. The best argument against much of what government now spends on is not that “we can’t afford it,” but that it is not a sensible use of public funds, on its merits. For too long, conservatives were content to let the deficit do their dirty work for them, with the result that when the deficit receded, the state resumed its relentless expansion.

Focus, rather, on first principles: on the purpose and limits of state and market, confining each to its proper role. Take that seriously and — dare I say it — the budget will balance itself.

SCARCITY HAVING SEEMINGLY BEEN ABOLISHED, HARD CHOICES NO LONGER SEEM NECESSARY.