28 August 2015

Chainsaw Earle keeps austerity on the table #nlpoli

NDP leader Earle McCurdy called the province’s major open line show on Thursday and by the sounds of things he hasn’t backed off the position that the size of the government’s financial problems will mean more cuts.

Sure he said he was opposed to austerity,  but what Earle did say was that the government will have to cut jobs, lay people off and slash spending to cope with its financial problems. 

Potato, potato, Earle.

The more he talked, though, a funny thing happened.  Earle sounded like any of the Conservative premiers we have had running the place for the past while.  You know them: the ones who caused the current problem and who have no intention of changing their ways.

Earle would look at an average projected price for oil and budget on that basis.  Some years, we’d have deficits and some years we’d probably have surpluses, Earle told VOCM’s Paddy Daly.

That sounds suspiciously like Kathy Dunderdale’s plan in 2013.  Over the course of 10 years, Dunderdale said,  there’d be deficits in some years and surpluses in others and on the whole it would all average out.

She got the idea from Wade Locke. One of the big problems with Wade’s plan – as with Earle’s – is that you cannot reliably forecast the price of oil over any length of time.  As a result,  you are not actually putting a real limit on spending. What you are doing isn’t anything close to prudence. 

What you are doing is arbitrarily setting a number to spend.  You aren’t assessing your need. You don’t really care about whether you are spending money efficiently or effectively. Truth be told, the Conservative NDP concept makes no connection between what you spend and what services you need to deliver to people. You spend for other reasons.  In Earle’s case, it is to keep all the union people employed and to employee even more union people. The Conservatives wanted lots of happy voters.

Dannyism:  the Politics of Dependence

Politics in Newfoundland and Labrador is about patronage and paternalism. It isn’t about the efficient delivery of needed services. It’s about spending money to gain votes.  Since Confederation about half of all government spending has come from a source outside the local economy. 

There’s plenty of research to show that in places like that, people develop a government that acts just like Locke, McCurdy and others advocate.  They spend money.  When income drops, they just keep spending money.  They look for more cash from either borrowing or from the outside source. 

In a place like Venezuela, the government tried to squeeze more and more from the oil companies. The state-owned oil company pumped as much oil as they can, as fast as they can.  They pump even at the expense of collapsing fields and leaving millions of barrels of oil stranded in the ground.  Incidentally,  the NDP’s Lana Payne. Big time hot for Hugo Chavez’s dysfunctional Venezuela and that sort of rentierism.  She felt exactly the same way about the Conservatives under Danny Williams.

In Newfoundland and Labrador,  people have built elaborate arguments to justify trying to squeeze more and more money out of Uncle Ottawa.  From 1949 until 2009, the outside source of cash was federal hand-outs.  As the day grew closer that the provincial government would lose its Ottawa hand-outs,  the arguments got ever more shrill and, to some extent ever crazier,  to justify trying to extort more and more cash from Ottawa.

The entire “clawback” argument was, in a very real sense, nothing more than an elaborate rationale for yet another shakedown of the federal government.  Lots of people sincerely believed it, but that didn’t make it true.  Indeed, you don’t have to look too deeply in the events of 2004 to 2008 or so to see that more often than not what the provincial government said and what was true had nothing to do with each other. The provincial government substituted hysterical political theatre for substance.

What’s interesting to see in hindsight, though, is that the hysteria was, essentially, unproductive. It gained a single lump sum of cash but beyond that,  Danny Williams and his successors have been singularly unsuccessful  in dealing with the federal government and other provinces now that the financial relationship between them has shifted.  Once “have status” robbed them of the cloak of a poor cousin, a perpetual victim, local politicians had nothing to use to prey on the kindness of mainlanders..

That is another story, though.


On Wednesday, it looked for a moment like Earle might be the most sensible politician in the province. The next provincial government should do a whole bunch of things in order to sort out the financial mess that is the provincial government.  All options should be on the table.

On Thursday, we found out that he is just as addled as the rest of them. Earle is a special kind of addled though.  You see, we also know that in addition to spending and spending and borrowing and borrowing regardless of what common sense would dictate, we know that Earle would give multi-national companies a huge financial gift, courtesy of the working men and women of Newfoundland and Labrador.

Forgot already did you?

Dear, oh dear.

Only a few weeks ago, Earle said he believed that when commodity prices go down, the provincial government should reduce the tax rate on the multi-national corporations that develop the oil and minerals in our province.  He didn’t day that we should just expect to get less money because 10 percent of 50 bucks a barrel is less than 10 percent of a hundred bucks.


Earle McCurdy, leader of the New Democratic Party, believes that the shareholders of ExxonMobil and Statoil and all the other hard-up companies should pay – for arguments sake – five percent on that $50. if the price goes down, the shareholders should get an even g=bigger break.  He would drop the tax or royalty or rental rate even more as prices went down further.

Just when we need money most, Earle would take less money.

Now Earle and his friends might say that they would take in more money when prices were higher.  That’s true.  But just look at what happens as a result.  Since Earle and his friends would only ever increase spending – spending cuts “don’t work” according to Earle, whatever that foolishness means – they would spend all of the money they got when prices were high.

When prices went down – and their income went down with it – Earle’s  first response would be to lower government income even more.  Since Earle’s economic geniuses also believe you need to increase spending during a recession,  as his income went down, Earle would spend even more. 

You don’t need a pretty chart to see the result would be that  Earle would increase the ups and downs in economic activity. The peaks would be higher and the troughs would be lower, in all likelihood.  All that borrowing would mean that paying the interest on the growing debt would eat up more and more of your spending. 

As you had less and less to spend on other things the more and more you borrow, you’d have to increase spending to stay where you were.  That’s more borrowing and the cycle just keeps going. Well, keeps going up to the point, as in 1933 in Newfoundland or 2015 in Greece, where you can’t get money any more. Then the trough gets really, really deep.

Dipper, Tory?  Same old story

John Maynard Keynes was an economist.  In the 1930s, Keynes came up with the idea that government should regulate the economy using their spending and other financial powers.  Put simply,  government could spend to boost the economy during a recession.  In boom times, government didn’t need to spend as much.  Government could use its taxing power or decrease its own spending, in order to take some heat out of the economy.

What we have been doing in this province over the past decade is pretty much exactly the opposite of that. As times got better, the government increased spending out of all relation to anything like inflation. When things got tougher, like say around 2009, they spent more.

As oil revenue dropped down, government kept right on spending more and more. Two things happened.  The government burned through the cash windfalls they got when oil prices were really high.  They wound up borrowing again to fuel their spending spree.  On top of that,  all that government spending – including things like Muskrat Falls - superheated an already hot economy.  The cost of everything shot through the roof, which meant that we had to spend even more money just to keep up.  We actually made our costs go even higher at the same time that our income was going down.

If that doesn’t sound like a very sensible thing to do, then you’d be right.

But wait.

It gets better.

While doing that, the Conservatives cut taxes It’s a classic George Bush/Tea Party/Donald Trump move: spend more than you have,  then cut taxes to cut your income even more and then accuse everyone else of financial mismanagement.  

The result in this province was that the tax cuts pumped even more cash into an economy that sure as hell didn’t need even more money in it.  As we have seen, the government funded all that spending by borrowing more money.

Incidentally, we know that the cuts to income tax cost the government about a half a billion dollars annually.  That’s $500 million they didn’t have and had to borrow.  As the deficit grew and the borrowing ramped up,  notice that the provincial politicians didn’t connect up the rather obvious dots – tax cuts and overspending.  They blamed the deficit on the loss of federal hand-outs now that the province doesn;t get Equalization any more.  We have gone from politicians like Clyde Wells and Brian Peckford who wanted the province to be able to pay its own way to politicians who whine about the fact we don’t get federal dole payments any more

What about the Liberals?

While we have a pretty good idea of what the Conservatives and the New Democrats would do about the provincial government’s financial mess, we don’t really have any indication of what the Liberals will do if they win the next election. The Liberals and Dwight Ball have been pretty vague.

The most they have said so far is that they wouldn’t raise the harmonized sales tax as the Conservatives have planned to do.  Other than that, they have talked up infrastructure spending to stimulate the economy during the recession forecast to come over the next few years.

Beyond that we don’t have much.

Anybody feel comfortable with that?

Didn’t think so.