In the 1960s, the phrase “we are all Keynesians now” was uttered by Milton Friedman, possibly as some sort of a lament about how Keynesian interventionist ideas had come to dominate mainstream thinking about economic policy. Here we are in 2016, and it seems as if we are all “progressives” now. Indeed, it is now widely accepted, and probably has been for some time, that governments at all levels have a large role to play in the economy.
Among the various forms of government intervention in the economy that accompany these progressive beliefs, the most pernicious is the belief that governments need to spend large amounts of taxpayer money in order to help the economy — often referred to as “stimulus.” The most recent Alberta budget is an example of this. The Notley government plans to spend $34 billion on infrastructure projects over five years. One of the major problems with this plan is that the government has run out of taxpayer dollars to pay for this spending and is therefore forced to financed it through borrowing. When it is all over, if all goes according to the current plan, the Alberta government will accumulate $57.6 billion in debt.
The belief, as stated in the budget, is that this spending will stimulate the Alberta economy. Whether or not it will work is arguable. But it is clear that the new NDP government is falling into the same trap as those that came before it. Even before the current Notley government took power, successive Alberta governments have become extremely progressive in their approach to economic policy. If you look at the history of budgets in Alberta, you can see a clear pattern: during resource booms, government spending increased along with the increased revenue; but when the inevitable bust followed the boom, spending did not decrease.
When former premier Ralph Klein took power, he recognized the spending problem and brought it under control. In the latter years of his administration, however, government spending increased along with the increase in revenue that occurred during the resource boom that started in the early 2000s. The Klein government managed to avoid deficits because non-renewable resource revenue was so large. Yet when the boom ended in 2008, successive governments kept spending, and Alberta has been in a deficit position ever since.
As a result of this government behaviour, Alberta has developed what can only be called a spending problem. Consider this simple thought exercise: start with the year 2004, when spending was under control and there was no deficit, and calculate what total Alberta government spending would have been each year if it was constrained to grow by the rate of population growth plus the rate of inflation. If you compare this to actual government spending over this period, you will see a large, and widening, gap between controlled spending and actual spending.
The sad reality for Alberta is that the recent budget simply carries on the progressive tradition of previous Alberta governments with no consideration of what this spending will do to Alberta’s long-term financial and economic health. This has to stop. The $57.6 billion in planned debt will place a large burden on Albertans when interest rates begin to rise in the not-so-distant future. The answer here is not that we do not need more spending to stimulate the economy, but rather that we need to bring spending under control. We need to stop the Alberta progressive economics tradition, and it needs to happen now.