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a funny thing happened on the way to the Conan O’Brien show in Toronto. We all got a lesson in one of the first principles of applied economics. A few million dollars that the feds and the Ontario Ministry of Tourism don’t really have is being invested in something as laughable as bringing in a zany comic. What, invest in something that’s not made of concrete, pavement or steel? Now, that’s not funny – that’s silly. This expenditure is expected to spruce up the city’s stodgy brand and thereby indirectly bring in thousands of cool tourists. Which will generate tax dollars that cover the cost of the initial investment many times over. Is this a joke? Is this the way economics really works?
Actually, yes. Economics is more than an excuse for Calvinism, the popular Canadian view that there’s no gain without pain. This legacy of pre-Enlightenment religion is powerful in Canada, proving that not all the things that make Canada different from the U.S. are positive and explaining why we adopt advertising slogans like “The city that works.” We probably think people will want to pay big money to come on a holiday here because it’s another opportunity to work, the only sure way to scrub away our sins.
This belief should make us laugh louder than anything Conan O’Brien says to make fun of us.
But I digress. I’m trying to find a way to explain, if only to myself, why Canadians, who mostly don’t buy into the neo-conservative mantra – and who publically urge governments to spend cash on health, education, environment and culture – nevertheless unconsciously believe such investments are evil and unaffordable because these investments often involve spending money we don’t have.
Nobody accepts an idea that stupid, not George Bush, not the Wall Street Journal, not my mom, who went through the Depression and knows the value of a penny. Nobody except the great mass of Canadians.
No family budget chief thinks it means the same thing to borrow $5,000 for a house, to borrow $5,000 for a major repair on a leaky roof or to borrow $5,000 to fly to Las Vegas to give money to slot machines. The value of the house will go up faster than the interest rate on the mortgage and we get to live in it at the same time, and the savings from not having a leaking roof will more than cover the costs of the repair, but the $5,000 Las Vegas loan still has to be paid off even though we have nothing to show for it.
This is budgeting that knows the difference between investment, avoided cost and expenditure. A neo-conservative trance has made it impossible for us to apply this everyday knowledge to government. And that’s the reason why Toronto, Ontario and Canada are in a budgetary pickle. Government treasurers who treat a dollar spent on investment, avoided cost and expenditure as if they’re all the same will make some costly mistakes.
The Institute for Competitiveness and Prosperity, chaired by U of T business professor Roger Martin, has tried challenging this dogma with a report showing that the lack of government investment in areas that increase productivity costs Canadian governments $75 billion – please note the “b” – in tax revenue. We under-invest in things that add productivity and overspend on things that don’t, Martin said when he released the report in late January at the Davos World Economic Forum.
If governments understood this, they’d know that money grows on trees and that a $30-million investment in urban tree planting would provide employment (thereby avoiding millions in unemployment insurance payouts), clean the air and reduce hospital costs related to lung disorders (thereby avoiding hundreds of millions in health care costs).
To think about things this way is a bit of a mind-bender for some. It means we wouldn’t ask the stupid question “Can we afford to spend money to end hunger suffered by a tenth of the population?” We would ask the smart question “When food is so cheap, can we afford not to solve the problem and instead spend many times more money on hospital bills and lost educational opportunities?”
The good folks at the Committee on Monetary and Economic Reform have an explanation that’s scarier than mine for why government budget chiefs can’t see the difference between a hole in the budget and a hole somewhere else. They blame live bankers, not dead theologies. Their research shows that it took until 1996 in the U.S. and 1999 in Canada before federal budgets had to acknowledge two things: that certain expenditures (on schools, for instance) create assets that should not be listed as debt, and certain failures to spend (on the environment, for instance) create liabilities that should not be listed as savings.
If we can ever get over economic Calvinism and start to get the budgetary significance of this, we’ll be just like Conan O’Brien – laughing all the way to the bank. After all, the reason we’re paying hard cash to bring Conan up here to make fun of us is that SARS costs us millions in lost tourism – all because the Tories wanted to save nickels and dimes on public health. That’s the punchline: there’s an expensive difference between investment and operating costs.
