The Sport of Economics

March 11, 1998

I was a little flabbergasted to discover that the reason the Government of Canada was finally able to balance their books this year was not because of all the slashing and burning over the last five years that have left Canada's social and health care programs in a tattered wreckage. No, that's not it, and the next time you see Prime Minister Jean Chretien beaming with self-satisfaction at a press conference, please throw a pie in his face.

No, the real reason the deficit has come down is simpler than that. It is because interest rates have come down, and because the economy is in the middle of the longest continuous growth spurt since the early 1960's. Anyone who has renegotiated a mortgage from 10 3/4% down to 7 1/4% knows what effect interest rates have on a large amount of money. All of those budget cuts? They might have accounted for only 1/3 of the necessary savings.

There are some people out there who believe that the entire budget deficit was just a plot by the very rich to create a huge financial crisis to convince the general public that taxes are bad and that the government can't be trusted with the management of public resources. The way the plot worked was this:

the government used taxes to address the massive imbalance of wealth between the rich and the poor
the people supported this activity
the government raised taxes, primarily on the well-to-do, to subsidize social programs that help everyone or just the poor.
the rich realized that if this system prevailed, they would only own five homes, not ten, and eleven Bentleys, not eighteen, and decided something must be done.
the rich, who control the stock market, the bond market, and the Federal Bank, caused interest rates to go up, to "cure" inflation, at the cost of higher unemployment, which, of course, does not affect the rich.
Ronald Reagan, the tool of the rich, reduced taxes on the rich, while actually increasing government spending, which, combined with the interest rate hikes, thereby created a massive government deficit. The media, another tool of the rich, hammered home the idea that inflation was evil and must be fought at all costs, even to the extent of increasing unemployment and government debt.
the general public, not aware of the real cause of the budget deficit, became appalled at the size of the budget deficit and demand leaders who would reduce it, without raising taxes.

Here the plan goes astray: Bob Dole, Preston Manning, and John Major were supposed to be the beneficiaries of this strategy. In each case, the public, far more rational than the media give them credit for, elected relatively moderate, compassionate leaders.

Bill Clinton and Jean Chretien and now Tony Blair oblige the ill-informed public by slashing social programs, while maintaining the rhetoric of tolerant, compassionate liberals. Largely, this translates into same sex health benefits, a harmless frill, while diverting billions of dollars in wealth back into the hands of the rich.

The net result: a massive shift of wealth from the laborer to the investor. Read the newspaper, watch tv: how does the media interpret the state of health of the economy? In jobs? In pay for the average dude? In health care or social programs? No! In the value of the stock market, and in the returns on investment for the average stock-holder. When Chain-Saw Al Dunlap takes over a company and promises to slash tens of thousands of jobs, the value of the stocks of this company go up. Great news! You're out of work! Your family can go to hell, we don't care-- as long as the stock market continues to rise! (One interesting irony: so-called pro-family politicians and religious leaders don't seem to be "pro" your family, when your job is lost: they support the "lean and mean" economy, lower minimum wages, and anti-union measures. As far as they are concerned, you can go work at McDonalds.)

Here again, the plan has gone somewhat astray, in that growing numbers of middle-class wage-earners are investing in mutual funds, causing an unprecedented string of growth years for the markets. I don't think anybody really knows what this means just yet.

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