Caught Between a Rock and a Hard Place: Is Political Clamoring Helpful or Harmful?

Commentary, Government, Gerard A. Lucyshyn

Caught between a rock and a hard place. This best sums up the position that the UCP government recently found itself in as it announced new, stricter lockdown measures for Christmas across the province of Alberta. The government is attempting to “bend” the rising curve of COVID-19 infections. The premier and his most trusted ministers lined up to deliver the horrible news to Albertans. They reassured Albertans that they did not reach that decision lightly and that they wholeheartedly preferred not to impose such measures, however, they believed it was necessary. This is quite a bold announcement, especially when many Albertans were looking forward to some respite during Christmas following the past shock-and-awe year; not mentioned the UCP’s dwindling poll number placing them behind the NDP

The premier and each minister clearly articulated the enormous effort, debate, and struggle, they each went through in making such a heavy-handed decision. However, one would have thought they would realize, individually or collaboratively, that harsh measures usually have consequences and are not the way to go, regardless of the unrelenting pressure tactics from social and mainstream media.

History has taught many leaders that alarming the population leads to recursive bad public policies and nonsensical rules. Over-zealous government reactionary measures cause confusion, which turns into fear and then into anger. One example of such a lesson surrounds a quickly written book in 1968 by the American biologist, Paul Ehrlich. In his book, The Population Bomb, Ehrlich predicted mass world starvation and resource depletion due to overpopulation. This prediction sent “well-intentioned” politicians clamouring around the world to solve the impending crisis. 

By the end of the 1960s many countries around the world were experiencing large increases in life expectancy and rising fertility rates. Indeed, population growth rates were starkly increasing, feeding into the fear that an imminent population explosion would lead to resource depletion and worldwide starvation. The fear quickly manifested into government action, a global population control program

The mission for governments around the world was to institute measures they “believed” were best to bend the sharp population growth curve and prevent an imminent threat to mankind. Some anti-population-growth included: fines, deductions from salaries, withdrawal of maternity leave, one child per family laws, and sterilization incentives. Not unlike our political elite today, the “well-intentioned” politicians of the past were trying to keep everyone safe. The effort to bend the population growth rates appear to have paid-off and population growth rates have been decreasing year-over-year ever since. Unfortunately, it turns out that such “well-intentioned” public policy measures have played a central role in a new crisis many countries now face and are facing into the future, declining fertility rates.

Declining fertility rates and aging populations now drive the fear that in the near future there will not be enough workers to pay taxes to support governments, pensions, and health care systems. “Well-intentioned” politicians are now adopting population growth incentives such as baby bonuses, child tax incentives, monthly welfare or nutritional allowances; priority housing, education, and medical care; and expanded maternity benefits. Sounds a tad recursive, no?

The response(s) to the COVID-19 pandemic saw all countries engage in similar strategy – massive spending to fight COVID-19 and the closing down of the economy. These measures have drastically reduced economic activity and tax revenues ending 2020 with massive debt levels, record levels of unemployment, and economic systems in shambles. It is expected that advanced (developed) countries will have a median increase of their debt-to-GDP ratio around 17.5% while emerging (developing) countries will increase their debt-to-GDP ratios by approximately 12%, and low-income countries by 8%. These increases in debt levels will push most countries beyond what economists refer to as the tipping point

The tipping point is where a country’s debt-to-GDP ratio is at such a level that it negatively affects annual real growth. The tipping point is estimated at around 77% debt-to-GDP. Every additional percentage point above this level costs 0.017 percentage points of annual real growth. In emerging countries, losses to annual real growth are 0.020 for each percentage point above 64% debt-to-GDP ratio. 

It appears Canada is already past the tipping point with debt-to-GDP expected to rise from the 2019 level of 88.3% to 131.5% by 2022.

 

2019 2020 2022
Debt-to-GDP 88.3% 120% 131.5%
Federal debt 34.8% 59.2% 75.6%
Other government debt, including provincial debt 53.5% 60.9% 55.9%

 

Now consider the Canadian demographic projections between now and 2068. Canadians reaching the age of 65 and older will make up between 21.4% and 29.5% of the population by 2068 (compared to 18% in 2020). The working population, age 15-64, will diminish to around 57.9% to 61.4% (compared to 67% in 2020). With rising debt levels exceeding the tipping point, the future working population drastically dropping this certainly magnifies the “well-intentioned” political elite’s position between the proverbial rock and a hard place. On the bright side, at least the vaccine(s) are on the way.  

While the majority believe, and most will agree, that something had to be done, perhaps as we shelter-in-place alone during this holiday season looking forward to 2023 (the next provincial and federal election) we will take time to seriously reflect, weigh, and judge the political leadership on how they handled this crisis.

 

Gerard A. Lucyshyn is Vice President of Research and a senior research fellow at the Frontier Centre for Public Policy.