The Canadian Independent

Ignatieff: Wrong on deficit reduction, wrong on economic policy

Posted in Politics, Role of Government, The Economy by dave on April 2, 2010

I was watching Ignatieff give a 20 minute interview with Strombo on The Hour [Relevant portion starts at 15:20], and when it came to economic policy Iggy said a few peculiar things that I don’t think make a lot of sense.

First George asks if Ignatieff would raise the GST back to 7% to try to reduce the deficit. Ignatieff says no. Good, new taxes aren’t necessary. When asked how he would tackle the deficit, Ignatieff said that he would prevent the further scheduled cuts to the corporate tax rate, freezing it at the level it is now. He claims that this would recoup 5 billion that would have not been collected had the taxes been lowered next year.

However, the deficit is 54 billion. So after he cancels the tax cut, next year it will be 49 billion if spending remains the same. Not much of a deficit reduction plan, its kind of like Harper’s: make minor policy changes, and wait.

A real deficit reduction plan would cap spending in services which the government believes are “essential,” and to bring in across the board cuts to departments over a 2-3 year time period. 5% per year for 3 years would take care of the deficit, and tighten the belt. Of course, much more of that could go, but things need to be taken one step at a time.

Oh, but now we learn that Ignatieff isn’t going to use the total 5 billion for deficit reduction. He is going to use a portion of it towards learning, training and education. Why?

Well, according to Ignatieff a major economic crisis is coming. He explains how many people will be retiring from the work force, over a million, which is true. He also tells us that in the future there is going to be not only a labor shortage due to all of these people retiring but an unemployment problem because there won’t be enough trained people to take over the jobs of the people retiring.

On the surface this should seem like a serious problem, but its not. Why? Simple, because prices coordinate the pattern of production in a society over time. What the hell does that mean? Think about it like this: Boomers are retiring from trades professions, like contractors, farmers, roofers, and the like. This means there will be fewer trades people working. If just as many people demand the services of trades people, this means there will be more bids per tradesperson. This increased competition for his services, will increase the price he can charge and the profits he will reap from hsi service.

Other individuals in society, seeing that these are now lucrative and profitable professions will move, by their own motivation, towards trades schools and getting into those industries to earn money. Think about the IT and computer repair industry in the 90s. Suddenly home desktop PCs were everywhere, and people were having problems with them. There were few skilled professionals who could deal with the demand, and in the beginning these people were very well compensated. Many colleges and universities, within a few years time, created specialized programs to teach people how to do these jobs. The DeVry institute comes to mind. Then, people drawn by the promise of a good income, moved into this area. So what happened? Demand was eventually filled, and the prices (profitability) of those professions dropped in proportion to more people working in it. Society had its computers fixed, because of individuals seeing an opportunity and moving to fill it for their own self-gain.

Ignatieff’s problem is the exact same. To commit government spending to try to solve a problem which isn’t a problem in the first place, is just waste.

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One Response

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  1. Anonymous said, on April 2, 2010 at 8:41 pm

    Lifted this from a comments section of a blog you posted in (athttp://www.calgaryliberal.com/2010/04/01/ignatieff-on-the-hour/#comments), Dave.

    “Dave, the blog you’ve linked to is wrong.

    The author of that blog is confusing a long term problem, of a need to have a higher educated work force, with the immediate concern of a deficit. Also, that blogger is dreadfully ignorant of how and how much taxes are collected because he forgets that tax revenues increase as the economy rebounds, thus making that 5 billion not just 5 billion from all the other revenue streams being increased. That 5 billion provides an almost immediate hitting down of the debt, in addition to other issues.

    [Also, j]ust because a politician points to a single issue doesn’t mean it is both the only issue he is championing and that it isn’t the head of other similar policies, and that blogger seems to be wilfully ignorant of this point.

    Following this, the author of that blog makes several critical errors in terms of economics. He likely has learned economics from watching TV and reading wikipedia articles from the method he argues about the adjustment in prices during the economic-demographic shifts that are coming. His understanding fails in three ways: (1) the shift will be messy, harm people, and be disastrous if we do nothing (the short term suffering will be huge in the blogger’s long term analysis) (2) we live in a global society and those prices will be kept to the norm in other states–specifically the United States–and we will be harmed in the process, and (3) he is assuming that the price of education will fall and that inroads into education will disappear for a generation who (a) wont have the same financial strength as before generations and (b) find themselves in a tougher, more competitive global market place. Dave, both his assumptions about economics are wrong and his analysis is inadequate.”


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