B.C.'s Debt Clock Liberals

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B.C. Liberal leader Gordon Campbell claims his party will bring increased economic growth to British Columbia. And voters who get their opinions from sources like talk radio may find this claim mighty convincing. But to the extent that economic growth depends on the wisdom of those in charge of economic policy, there is reason to doubt Mr. Campbell's claim.

Nothing better symbolizes the grounds for doubt than the debt clock Mr. Campbell's party has prominently displayed on bottom right side of its Website. View this gimmick, and you'll understand why Guerrilla Media's Election Circus parody site describes the Liberal leader as "Carny Campbell" and refers to "Dr. Gordo's Patented Tax-Cut Cure-All."

The 11-digit clock carries the label "Provincial debt under the NDP," and the Website warns, "This is how fast it is growing!" The clock shows B.C.'s debts mounting before your very eyes.

There's one big problem here. As a Bank of Montreal report on B.C.'s March 2001 budget explained: "A surplus of $1,090-million is projected for 2001-02, following upon a surplus estimated at $1,317-million for 2000-01 and a surplus of $52-million for 1999-2000."

Yes, under Mr. Ujjal Dosanjh's supposedly spendthrift NDP, B.C. is running budget surpluses. Almost by definition, if a government runs surpluses, its debts are falling, not mounting. The numbers on Mr. Campbell's haywire debt clock seem to be spinning in the wrong direction.

The clock doesn't appear to be based on official statistics, and its creators haven't referenced any source. If the Liberals could be contacted, they might have some explanation in terms of what they call "Fudge-it Budgets."

But fudge-it budgets are a thing of the past. In commenting on the 2000 B.C. budget, the Royal Bank declared: "with its Budget Transparency and Accountability Act, British Columbia has arguably set the highest standard for budget openness in Canada." On the 2001 B.C. budget, the Bank of Montreal stated unequivocally: "B.C. now has the most transparent and comprehensive financial reporting of any province."

And B.C.'s finances were never particularly bad. The debt-to-GDP ratio is the best single indicator of the cumulative impact of past government deficits and surpluses. According to the Bank of Montreal, the ratio stood at 19.6% as of March this year, the second lowest ratio among the 10 provinces, and it has held relatively stable since the 1993-94 fiscal year.

The thinking behind using the debt clock to bash the NDP is well known. The B.C. Liberals promise to cut taxes, and eventually this is supposed to lead to a surge in revenues and to big government surpluses. Then the debt, we are told, will really plummet.

"Show me a jurisdiction in Canada that cut taxes where revenues to government have gone down," Liberal finance critic Gary Farrell-Collins has crowed. "There isn't one." The same reasoning is employed in the document outlining the Opposition response to the 2001 provincial budget. The document claims that, in the latter half of the 1990s, revenues increased in all provinces that cut personal income tax rates.

In economics, and in logic, this is known as the "after this, therefore because of this" fallacy. Those who make this mistake display all the wisdom of the rooster who thinks that, because the sun came up after he started crowing, his crowing caused the sunrise.

According to standard economics, if an economy is growing, tax revenues will tend to increase automatically. If tax rates are cut somewhat, tax revenues will still tend to grow (as they did during the latter half of the 1990s), just not as rapidly as otherwise. And if an economy goes into recession, tax revenues will tend to shrink, and they'll shrink faster if tax rates are reduced.

Now, there are some good arguments for using tax cuts to counter a recession. And some voters may prefer tax cuts to debt reduction.

But those who present tax cuts as fiscal conservatism are, as conservative Vancouver economist David Bond has put it, "living in la-la land." And the mind boggles at the illogic of an opposition party using a debt clock to mock an NDP government running surpluses when that opposition party, by the admission of its leader in the TV debate earlier this month, would deliberately run deficits for a few years.

The B.C. Liberal Website, the location of the debt clock, also has an odd "Recommended Readings" page on which Gordon Campbell declares: "I'm always looking for great books and new ideas. If there's something you think I should read, please let me know."

Well, Mr. Campbell, please read an introductory economics textbook. And get one for your 36-year-old finance critic Gary Farrell-Collins as well.

Any of the leading textbooks would help, but Gregory Mankiw's Principles of Macroeconomics is particularly suited to your needs. You'll find your party's tax-cuts theory discussed in Chapter 2, under the heading "Charlatans and Cranks." Look for the reference to voodoo economics.

Brian K. MacLean is an economics professor at Laurentian University and contributing editor of rabble.ca. He is currently working on an introductory economics textbook. This piece was originally published May 14 by the National Post. It is posted on rabble with permission.

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