Our grandkids may end up paying for our CERB

HALIFAX — As if the shock of being forced from a nice cosy womb into this cold and wild world weren't enough to scream about, a baby born in this province last January also came saddled with $36,841 in debt.

At least that would have been their per capita share of the net provincial and federal debts just prior to the pandemic.

In the Nova Scotia government's fiscal update provided Thursday, we learned that instead of going down by $55 million, as had been the prepandemic forecast, the provincial portion of that debt is now expected to go up by $778 million.

That number pales in comparison to the $278.8 billion the federal government had borrowed as of November to pay for the Canadian Emergency Response Benefit and other financial stimulants that have been its response to the COVID-19 pandemic's impact on the economy.

The last time we took on so much debt so fast, we were fighting Hitler.

But the demographic and economic growth that followed the Second World War won't be repeated.

Three economists with whom the Chronicle Herald spoke to warn that it is a debt that will be borne by the children, grandchildren and great-grandchildren of the generation that incurred it.

And though none argued against the use of debt, it comes with a moral question for our generation that is not being posed by our politicians or the media.

“It is a question of what is fair and what is just, what we benefited from in the past and what we owe into the future,” said Paul Kershaw, a professor of public policy at the University of British Columbia.

“It is absolutely imperative that these questions rise to the top of the public dialogue and decision-making going forward. Because all the investment (and associated debt) we've seen raises important questions about where will the cost of investment fall.”

GENERATIONAL DEBT

Melvin Cross never served in the Battle of the Atlantic. And he never charged the beaches of Normandy.

He wasn't born until 1948, but he never minded paying on the large debt Canada incurred fighting the wars that helped defend the society that cradled him.

“So you come forward to COVID-19,” the retired Dalhousie University economist said.

“Some are paying a heavier price as a result of it than others. Some are having to expose themselves to risk going to work every day, taking care of the elderly, some are losing their businesses. People who come after us are not exposed to the hazard of COVID-19 but will benefit from discoveries, like a vaccine.”

There will be a benefit to future generations of our economy not being completely shredded by the vaccine.

But there is a problem with taking solace from the example of Second World War debt.

Canada didn't so much pay that off as it grew out of it.

Most of the rest of the industrialized world had been blown to bits.

North America's soldiers returned home with their demons, but also to good jobs in an intact industrial infrastructure that had been ramped up for the war and now had access to a worldwide consumer market with little competition.

Unprecedented economic growth followed in the 1950s and '60s, along with the coming of age of the baby boomers through the mid-'60s into the '70s.

So the ratio of that debt to both the overall economy and population shrank.

"We've got to start this conversation pre-pandemic, when we were running deficits when times were good primarily to pay for social programming like old age security," said Kershaw.

"That would be fine if our demographics didn't have this baby-boomer bulge.The baby boomers supported one senior for every seven workers in the 1970s. Now there's fewer than four workers for every senior and soon there will be fewer than three."

So, before the pandemic, we were already passing a debt on to future generations. The argument made was that our economy was growing faster than the debt.

But no one is predicting the year-over-year economic growth of the 1950s and '60s because the context is wildly different.

“You look at the fall (federal) fiscal update and see there was nearly no money for the national child-care program everyone's been talking about,” Kershaw said.

“But the amount of money required to make that happen will be paid in interest on the debt incurred for the pandemic. There will be things we won't do because of this.”

HAPPY AND SAD THOUGHTS

Let us step back for a happier thought.

Let's pretend you have your very own national bank.

And that loan on a $70,000 truck you've only been making the interest payments on has come due.

You just fire up the printer and make some money to pay for it.

Or rather, if you do as our federal government is doing to pay for its COVID-19 response, you issue bonds (sell debt), then get the national bank to print money to buy them from yourself.

Interest rates being at historic lows, it has never been cheaper to borrow money from future generations.

“But if in the future, instead of at three per cent, it gets refinanced at six or seven per cent, it will be problematic,” said Greg Tkacz, a St. Francis Xavier University economics professor who formerly worked at the Bank of Canada.

Interest rates will go up because they can't get any lower than they are now.

And with the federal government predicting deficits well into the future, we won't be paying the debt off before the five-, 10- and 20-year bonds come due.

Courtesy of your own central bank, you could still be paying for that truck 20 years after you leave it to rust in the backyard.

DOWNTON ABBEY

But there's another moral imperative that we haven't addressed.

Cross uses the show "Downton Abbey," about an English big house, as a metaphor for the divide that has been growing in our economy.

“Perhaps you see this more in the United States (where there are fewer social services as levellers) but it probably applies to Canada too – people in the higher end of income distribution can hardly say they have experienced any pain,” Cross said.

In this viewpoint, the economy has evolved to be like “a big group of people being used to provide services to the mansion.”

When the pandemic hit, the Crawley family (which owns the house in Downton Abbey and serve in this metaphor as the upper class) stopped ordering Uber eats, stopped going to pilates classes and didn't go golfing in Cape Breton.

Cross's point is that that doesn't really constitute pain. Not like what happened to people in our service and tourism sectors.

In this equation, the debt taken on for CERB and other wage supports can be viewed as a great leveller in a society that was becoming increasingly more unequal.

Two thousand dollars a month makes a big difference in the life of a single mother who got laid off from her minimum-wage job.

Even if the Earl of Grantham managed to find a way to qualify for the benefit, it wouldn't have made much difference to his life.

“As a retired university professor, I'm in a pretty good position,” Cross said.

“There again, you can make the argument that people in relatively secure positions should be willing to help those who are not so secure and are suffering the pain from this pandemic.”

It's easy to forget when you are the Crawleys that the big house (our economy) is actually a place we all share.

Kershaw's warning is that we share it with the generations to come.

He doesn't dispute that economic interventions were needed, but he wants us to have a frank conversation as a society about what we should be asking our grandchildren and great-grandchildren to pay for.

“We have seen the amazing things government can do to fend off the worst hardships imposed by this pandemic,” Kershaw said.

“I hope one of the silver linings is that the real workings of how the cost is born is exposed and we can have an adult discussion about what we are willing to pay for and who is going to pay for it.”