Why a Conservative government would be bad for Ontario

Like many people, I’ve spent a lot of time fussing over the astonishingly mendacious campaign that the Progressive Conservative party has been running in Ontario. The centrepiece of it all was the fiasco of the “million jobs plan,” which turned out to be based on ridiculously faulty math. From there the PCs moved on to a campaign ad called “Truth,” the central premise of which was an obvious falsehood (“The truth is,” Hudak intoned, “that a million people in our province woke up this morning without a job” — this is true only if you count children and seniors. There are only about a half-million people looking for work in Ontario.) And the strategy has been the same at all levels. Just the other day, I got a flyer at home from my local PC candidate, with a picture of a subway train one side – along with a promise to build new subways – and a commitment to lowering my taxes on the other side.

Okay, but so what? After all, it’s not as though a seasoned observer is unable to discern the underlying intent, or to figure out what the PCs actually plan to do. For instance, when it comes to transit, they have committed themselves to cancelling a set of LRT projects, to investing more in highways… and then to building magical subways that will cost nothing (or that will be paid for by finding “efficiencies”). It’s not hard to figure out what the real plan is here – there will be no subways. The theme is pretty consistent: the PCs like cars and they don’t like mass transit, and so if elected, they will increase public subsidies to private transit (e.g. more free roads) and decrease public subsidies to mass transit.

Similarly, there’s been a lot of talk about the deficit and the need to balance the books, but at the same time the PCs have been talking about cutting income taxes. So any attentive observer can tell that there is no real plan to reduce the deficit – Conservative governments have a strong incentive to leave behind large deficits, in order to bind the hands of subsequent governments. Balancing the books is nothing but a standing invitation for future Liberal governments to increase spending. So they will undoubtedly be careful to ensure that any reductions in spending will be paired with even greater reductions in revenue (as Mike Harris was, and as the federal Conservatives have been).

In any case, if we all know what they are planning, there is an argument out there that says, don’t get so hung up on the messaging, let’s debate the substance of the issues. Do we want a larger or a small government? Andrew Coyne has put this position most clearly. Regarding the “million job plan” he suggests that the math doesn’t matter so much, because everyone already knew that the number was bullshit:

As various economists have shown, the figures used to justify that suspiciously round number are a hot mess: one-half wishful thinking, one-half double counting and one-half bad math… After this no one should attach any weight to the Conservatives’ job creation numbers. Of course, no one should have attached any weight to them before this, either. All we have really learned from this episode is what we knew before: that the number, one million, was made up…

So we should forget about it all, and debate the fundamental question:

What strikes me as the relevant consideration in thinking about the Tory plan is this: the Tories would borrow less, spend less and tax less than their rivals, at a time when less of all three would seem to be in order.

This, he suggests, is the proposition that we should be debating.

Coyne is right about this – strip away all the lies and spin, and it’s fairly clear what the PCs are planning. They are proposing a general shift in Ontario away from consumption of public goods towards increased consumption of private goods. For example, they aren’t making any noises about privatizing things, shifting production out of the public sector into the private, but where the general profile of consumption would be the same. They are proposing that we actually produce and consume less of the sort of goods that are best produced by government: in particular, less primary education, less environment protection, less public transit, and no provincial pensions. This will be done in order to lower taxes, so that people will have more disposable income, to buy various private goods.

Now I guess it’s worth noting that the PCs have not even tried to make the case for this (nor has Coyne, really, although we did get into it a bit once). In other words, they haven’t said one thing about why they think that it would be good for us, as a society, to shift consumption away from public (or quasi-public, you know what I mean) toward private goods. And at first glance, I’m not sure what that case would be. I’ve spent a fair bit of time in middle-class suburban homes in Ontario, and when I look around there, I don’t usually say to myself “you know what these people really need?… more shit from Costco.”

So if you were to put it in the form of a debating club proposition: “be it resolved, that what the people of Ontario need is more private goods and fewer public goods” I would be more than happy to take the negative. In fact, when I hear people complaining about their various work-life/financial woes, I find that a large fraction of them can be traced back to a chronic undersupply of public goods. For example, one of the major reasons that I spend so much time talking about transit is that bad transit (and brutal congestion) in the entire Hamilton-Oshawa corridor is the major factor driving real estate prices, and real estate prices are the major factor that is squeezing middle class budgets. Canada is not running out of space: if you drive three hours north, you can buy an entire island for the price of a 500 square foot condo in downtown Toronto.

The typical person looks at the household budget and sees that she is having trouble making ends meet. Her mortgage payment is undoubtedly the single largest item, followed by her car lease. And so she thinks, quite naturally, “if I didn’t have to pay so much in taxes, it would be easier to pay these bills.” Yet this is a mistake. The reason the mortgage is so high is that the house is expensive, and the reason that the house is expensive is because of its location, and what makes that location expensive is the commute time between that house and downtown Toronto. If you cut the commute time in half, then she could live twice as far away, and probably pay half the price for the house. I’m not saying I recommend this, I just want to point out that this would not be a small saving, it would be gigantic. Unfortunately, it depends upon a somewhat complicated chain of connections, which are a bit difficult to explain – much easier just to complain about taxes being too high.

If we get down then to fundamental questions of political judgment, my reason for preferring increased public spending over increased private consumption is that I think that most increases in private income going to the broad middle classes in our society are absorbed into competitive consumption, and therefore generate no lasting increases in welfare. Money spent on real estate is a case in point – Canada is a very big country, building supplies are cheap and widely available, so housing should be cheap. The only reason it isn’t is because of poor mobility, the fact that you can’t get from one place to another more easily. And that’s a problem that “more cars and highways” is not going to solve.

Money spent on the actual cars (typically the second-largest budget item) is pretty much the same – most of the spending is absorbed into a competitive premium that makes cars essentially positional goods. (For those not familiar with the details of such an argument, here’s a piece I wrote that explains it by-the-by, and here is the classic work.) Give people more money, they will just buy more expensive cars, leading to household budgets that are just as “tight” as ever. Middle class consumption is largely a hamster wheel, where people think that if they just had a bit more money they could get ahead, but when everyone gets a bit more money, no one gets ahead. So tax cuts are not going to fix anything (and neither is cheap electricity — the last thing we need).

On the other hand, one of the central characteristics of the public goods whose level of supply is being debated (primary education, reduced congestion, better air quality & other environmental goods) is that they are not subject to competitive consumption. As a result, increasing the supply of these goods stands poised to generate real, sustained increases in individual welfare. This is a point that has been made most persuasively by Robert Frank (in various place, including here, here and here). The pervasive tendency in our society will be to underestimate the severity of negative externalities (precisely because they are not priced) and to overestimate the value of market goods (because we ignore positional effects). This is sufficient to license a general presumption that, whatever the politically achievable level of government spending, it is probably too low, relative to the actual consumption preferences of citizens. Further reducing it will do absolutely nothing to solve the problems that people hope to solve with it, and is likely to produce nothing but unnecessary suffering.

So that is why a Conservative government would be bad for Ontario — because their basic plan, if implemented, would make life worse for pretty much everyone.



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