Cynicism or stupidity? the eternal question

The other day, speaking in Davos, finance minister Joe Oliver expressed his commitment to maintaining a balanced budget in Canada. He described it in the usual terms, as an “ethical issue” having to do with intergenerational fairness. “We think it’s wrong to burden our children, our grandchildren with expenditures that we’re incurring today…”

Now as most educated people know, this is an economic fallacy. It’s not as though we’re eating in a restaurant en famille, then when the meal is done the parents skip out and leave the children to pay the bill. When the government borrows money, it creates both an asset and a liability, both of which get handed on to future generations, making it a wash as far as “our children and grandchildren” are concerned (e.g. some inherit the Canada Savings Bonds, and the revenue stream that goes with them, others inherit the tax liability associated with paying out that revenue). This has intragenerational distributional effects, but not intergenerational distributional effects. The only intergenerational question is whether we should be saving more now, or spending more now, and with interest rates approaching zero, it’s not so difficult to answer that question.

On the other hand, you know what does raise a genuine ethical issue? a real question of intergenerational justice? Climate change. I personally think that it is wrong to burden our children and grandchildren with the carbon emissions that we are producing today. And unlike government debt, which merely appears to be a burden on future generations because of our accounting conventions, atmospheric pollution is a real, tangible burden. Furthermore, it is a straightforward case of us consuming now, but instead of paying the full cost, passing along some fraction of it to future generations.

So how are we to interpret Oliver’s remarks? Here is a government promising immediate, principled action on an “ethical” issue involving intergenerational justice. And yet the “ethical” issue he is concerned about is almost entirely an artifact of the government’s accounting conventions. Meanwhile, he is part of a government that is not just ignoring the most pressing issue of intergenerational justice of our time, but is assiduously working behind-the-scenes to scuttle any possibility of a solution to the problem.

Rest assured, future generations will most certainly curse us, and probably even spit on our graves. But why is that? Which are they most likely to be upset about, the deficits we left them, or the fact that we changed the composition of the earth’s atmosphere in a way that made it more difficult for them to live happy, productive lives on this planet?

So this is what leads me the central question, which is always the question that I find myself asking, when contemplating the actions and the communications strategies of the Harper government. Is Oliver being stupid — as in, he really doesn’t understand the most elementary feature of public finance — or is he being cynical — as in, he understands that what he is saying isn’t literally true, but figures that it’s a good way of defending his position, because most people think it’s true.

As ever, I’m drawn towards “cynicism” as the best account. Perhaps that’s just me being charitable. On the other hand, consider how breathtakingly cynical this is. Oliver knows that deficits are neither here nor there from the standpoint of intergenerational equity. What he actually has is a standing preference for smaller government. So when government revenue falls, this gives him an opportunity to reduce the size of government, by cutting expenditures. The idea that “deficits are immoral” is just a convenient way of selling the public on this reduction in the size of government, without having to make the case for smaller government (which is a tough sell).

This is all pretty standard. I guess what makes it extra-cynical is that we are, as a matter of fact, confronting a serious problem of intergenerational justice right now, in the form of climate change. And not only are we failing to do what’s right for our children on this file, we are doing the exact opposite of what’s right. So it is obvious that a moral concern about the welfare of future generations carries absolutely no weight with the Harper government. If it did, we would be debating what to do with all the revenue being generated by new federal carbon taxes. This is what takes Oliver’s remark out of the realm of run-of-the-mill-cynical and into the realm of deeply-cynical.

Finally, just an exercise for fun. There are lots of arguments out there, suggesting that we should not be particularly worried about climate change — that things will somehow take care of themselves. Try to find one single argument for inaction on climate change that is not also an argument for ignoring government deficits.


Cynicism or stupidity? the eternal question — 4 Comments

  1. “Try to find one single argument for inaction on climate change that is not also an argument for ignoring government deficits.”

    Climate change is a myth.
    Climate change is not caused by humans, hence we can’t do anything about it.

    (not sure either qualifies as an argument, but that’s the answers that were all over the US congress the other day).

  2. Even if government deficits did burden future generations (and I’m not sure why you’d suggest this is impossible), it’s not clear why taxes should be intergenerationally balanced. Since capitalist economies tend to grow over time, we’d be taxing ourselves to benefit people who will likely be better off anyway.

    As for climate change, even if we don’t enact some significant climate change policy for the next 30 years, I would still expect younger generations to play catchup and greatly increase the tax burdens of older generations by, say, replacing incomes taxes with VATs.

    Or, returning to your point about the impossibility of intergenerational debt, they could run massive deficits to build gigantic dikes and run enormous relocation programs–hence leaving future generations to pay interest on investments with a pretty bad rate of return.

  3. I’m inclined to assume it’s stupidity, but this seemed made me reconsider.

    For those who don’t feel like clicking through:

    It’s a post about a similar situation in the UK, with a quote from the Telegraph’s economics editor admitting that the cynical interpretation is correct. The author also argues that if the government was concerned about deficits, they’d make less tax cuts and tax expenditures, which is also true in Canada.

    The most relevant part begins with “Second, the idea that the real motive is a small state is not the preserve of some small group of left wing conspiracy theorists.”

  4. Also: Debt is a human contrivance. It is negotiable, can be defaulted on in extremis. We can literally print money to pay it (where issued in cdn dollars). It’s a flexible burden.

    Climate change is the laws of physics. Nature is merciless and will collect her due come whatever.