The challenges of debt management

Some time ago, the students in my Finance class were given a model of the economy and told to manage the budget. To get the debt down, they raised taxes and slashed spending. The economy promptly dove into the red, sending the debt to higher levels than before. The political lesson was that politicians would never get re-elected on such as platform and you may do more harm than good.

This is the nasty mathematics of today’s public finances. Recession and aggressive fiscal stimulus have conspired to dramatically balloon the federal deficit. Stimulus spending was essential to cushion the shock of a collapse in private demand. But in spite of that, the economy has barely emerged from recession and unemployment is still not responding to the vast injections of cash, stoking speculation that more stimulus spending may be needed. At the same time, voters are growing alarmed at the tide of red ink, and it is only a matter of time before markets follow suit. The implications for the September election are obvious.

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3 Comments

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3 responses to “The challenges of debt management

  1. NB Person

    I suspect that the major influence on the September election will be the NB power sale issue….and I don’t think that a summer of frozen rates (who really remembers how much their monthly power bill from a year ago was?) will be what people are remembering when they mark their X. What they will remember is how they have felt between last Oct and today about the “sale”, even if it never happens. Bets are that they will feel the same next September inside that cozy little “get even” voting booth. People won’t and don’t change their minds on something like this. Who really understands the ins & outs of deficits and provincial debt? Fewer, I’ll bet, than the number of voters who can tell the difference between a NB Power logo and one from another Province.
    Message to Shawn Graham…..”It’s the sale, stupid!” (with apologies to BIll Clinton)

  2. G. MacDonald

    As a taxpayer, I am very alarmed at all the red ink, not only provincially but federally too. “NB Person” is really underestimating the NB voter to assume that we are all so stupid that we cant tell the difference between the NB Power logo and one from Quebec or Ontario or Nova Scotia (really!?) and that only the NB Power issue will matter. The NB Power issue has been very useful, though. Following it along has shown me in no uncertain terms the arrogance of political elites to assume that we wouldn’t ask questions. I’ve also seen that the PC’s have no ideas other than “all politics, all the time”. This makes them an unknown for the next election when at least I have seen that premier Graham has the guts to stand for something he believes in. To the Tories I ask what would happen if all the mills closed, increasing unemployment by thousands across NB because power became the “tipping point” of high energy costs make these mills uneconomicial? Who has the answer to this?? Just screaming “sell out!” won’t work for this voter.

  3. NB Person

    Seems my point was less clear than I intended. The comment was simply a reply to the suggestion that the red ink would have implications in the September election. Restated and in clearer terms hopefully.. the NB Power sale will be the big item in the September provincial election. One big reason is that fewer persons understand the ins & outs of provincial deficits & provincial debt (both “big red ink items”) than do the number of persons who can tell the difference between an NB Power Logo (on a truck driving around or on a power bill they receive in the mail, for example)and the logo of an electrical utility from another province (that might have bought NB Power). Evident conclusion is that many, many NB folk can tell the Logo difference.

    I agree that the NB Power issue has been useful. It tells me that government “executives” do not have a revenue supply problem…they have an expenditure problem ( Just the opposite from many Small Business executives). It tells me that the current government is promoting “sell-sufficiency”, not self sufficiency. It tells me that the private sector CEO mantra “Never think out loud in front of your clients” is a foreign concept to the current government. This group has thought out loud about French Immersion, Ferry boat service, regional hospital services & university /community college structures…to name a few instances. It tells me that the current Minister of Energy who is tasked with handling the NB Power sale file can’t seem to get enough facts straight to stay out of the “retraction corner” for a day. (Sorry Minister Jack, you are a nice guy but this is not the municipal dump you are running or selling…it is a nuclear plant among other things).

    I’d be embarrased to claim that I was running or even part of a government that did these sorts of things…and if I was a shareholder in a business that was run in such a manner, I would look to change the executive level leadership. The Liberal caucus is being frog marched to defeat…we are not drinking the Kool-aid folks!

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