Archive for the ‘Economic Fundamentalism’ Category

“Dear Chief Secretary…

June 24th, 2013
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I’m afraid there is no money


I don’t know what bothers me most, the flippancy of the admission, or the fact the Chief Secretary to the Treasury the latter was left for, David Laws, “… didn’t regard[sic] as a big thing.” Of course Laws is a Lib Democrat – think NDP – who lasted on the job all of 17-days before being forced to resign in an expense scandal.

One wonders if Charles Sousa will leave such a note in his wake? At a guess, I’d say that’s just a bit to honest for these Daltonites.

Economic Fundamentalism, Silly Politicians, spend

In Dalton McGuinty’s Ontario…

August 3rd, 2012
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The economic disaster that is California is a powerhouse compared to Ontario


Both jurisdictions face deficits of about $16 billion… Ontario has approximately a third of California’s population and a third of it’s GDP…

Last word on this post to PC MPP Lisa McLeod: “He’s not been a responsible manager of our economy, and now we’re paying for it.”

Fair Pensions for All here.

Economic Fundamentalism, In Dalton McGuinty’s Ontario…

Thomas Muclair and the Fine Art of Economic Idiocy

June 5th, 2012
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NDP leader Thomas Muclair hit the oil patch last week, finding himself amazed at the size of the thing and spouting nonsense economics.

As Jen Gersen points out in the National Post, his arguments are full of holes. One part of his argument in particular was stunning in how little economic knowledge was required to make it:

The second argument Mr. Mulcair made was that the profits of oil companies were being falsely inflated by the federal government’s refusal to enforce existing environmental legislation. Mr. Mulcair believes that if we started to crack down on oil sands environmental offenders, those costs would be internalized, profits would come down, and that would balance out the currency and thus, the economy

Is this what these guys think, currency fluctuates up and down based on profit margins? No wonder the envy-class yearn for the days of a weak dollar. Sadly, a weak dollar just means a fundamentally weak economy.

The currency’s value is a product of how much comes into the country and how much of it leaves the country – supply and demand. The reason the currency is high now, Mr. Muclair’s Dutch disease, is, in part, because the oil patch is selling so much of it’s oil internationally.

Increasing the fines paid for ignoring environmental law – and if Mr. Muclair has evidence that the laws of the land are being ignored without consequence he should bring it forward – cuts into the profits of those being fined, yes. But it doesn’t decrease one penny the amount of money coming into the country (unless, of course, companies decide to not invest in Canada lest they get on the radar of an envious governing class).

The NDP leader proves with his talk about devaluing the currency to make us stronger (NDP slogan, “strength through weakness”) that he has little grasp of macroeconomics. His solutions to the “problem” show he has even less of a grasp on microeconomics. Good thing there’s all those other branches of economics for him to get a handle on.

Economic Fundamentalism ,

Thank God for that Recession

May 16th, 2012
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Dalton McGuinty blames Alberta for Ontario being broke, in debt and trying to recover from the “worst recession since the great depression,” as our superiors so smugly called it then.

New NDP leader Thomas Mulcair thinks Ontario and Quebec may never get on track, Stephen Harper being so desperate to deflect that he is using the three western premiers as messengers to fool the rest of us. Canada is broken, and it’s Alberta’s fault.

If your unemployed, can’t make your bills and worried about losing your house in Cambridge, however, the news is good. The recession, it turns out, saved us all:

If Ontarians want to continue to flip a switch and have the lights go on, then some tough decisions have to be made about the future of electricity, said Sean Conway… a public policy advisor who served in the Ontario legislature for 28 years…

“We have to ask ourselves what constitutes the public good,” he said.

In areas like Waterloo Region, demand for electricity is growing, but the infrastructure to supply it is lagging behind.

Cambridge Hydro president and CEO John Grotheer agreed.

The recession saved Ontario,” said Grotheer.

There you go, saved by that eve Stephen Harper and his western messengers. And the news gets better, it turns out your electricity prices are going up again in the fall:

Meanwhile, the utility will be introducing Time-of-Use billing between August and October across Cambridge and North Dumfries.

Watch for it, I’ve yet to meet anybody, regardless of what time they wash their clothes and do the dishes, that have seen their electricity prices do anything but skyrocket with this system.

Economic Fundamentalism

Bankrupting Markham

April 27th, 2012
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There’s been talk about Markham’s GTA Centre, the new 20,000 seat arena being built by W. Graeme Roustan and Rudy Bratty in the 250,000 person Toronto suburb. Today, Markham council voted to borrow half the cost of the arena, $162.5-million over 20-years.

It all sounds so familiar.

In Arizona the City of Glendale, a 250,000 person suburb of Phoenix, built a hockey rink for the Phoenix Coyotes. As Stephen Brunt notes in a recent article for Sportsnet Magazine:

A city with a population of approximately a quarter of a million people is carrying a debt in excess of a billion dollars, not including a projected $30-million budget shortfall this year, and is currently contemplating which services its citizenry will be forced to do without in order to pay the bills.

That sad state of affairs relates directly to the magical thinking that directed massive public investment into the team, into the arena, into the shopping centre that was constructed around it…

Glendale’s civic guardians…were buying into the big lie about how professional sports can be an economic engine; about how they create jobs, create wealth, put your town on the map, bring life to moribund neighbourhoods, etc., etc.

There are volumes of academic literature that definitively disprove all of that. Professional sports teams are in fact relatively small businesses that, if anything, leech discretionary spending from other sectors of the economy. They create a modest number of seasonal, low paying jobs, and a very small number of extraordinarily high paying ones — for the athletes, who inevitably leave town the minute the last game is over.

The people who run Markham, The City Council, bought into that big lie by an 11-2 vote. They bought the lie that an arena, a  “20,000-seat, 600,000-square-foot Markham Sports, Entertainment and Cultural Centre,” will be profitable for the City of Markham. In Glendale they’re talking about making cuts. Not close a library here or a pool there. Not the minimal cuts that caused so much turbulence in the City of Toronto this past year, but real cuts to the fire department and police department, real cuts to infrastructure and safety because they are underwater. They can’t begin to pay their debt, and their debt is all about a hockey rink and an NHL team thats about to decamp to Quebec City.

In Markham they voted today to unlearn the lessons that Glendale Arizona has to teach City’s that want to get into the pro sports business. They voted to ignore the evidence while the evidence is still fresh. They rolled the dice that their play for an NHL team, their foray into arena building will not come back to bite them.

As Stephen Brunt notes in his article, “But don’t lie awake fretting about the good citizens of Glendale. They’ll be just fine. Because now, they’re planning on opening a casino.”

Might as well apply to the province for that casino license now.

Economic Fundamentalism, Hockey , , , ,

Politicians Are Economically Illiterate

November 30th, 2011
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Do you ever wonder how we got ourselves into this mess? How western countries, rich beyond all human experience, are so broke. How countries, any country, can owe so much money, and it’s leaders can seem so blasé about the fact.

Maybe, probably even, the problem is the politicians are all economically illiterate.

Oh sure, they all know about interest rates, monetary policy, the value of the dollar and the difficulty in budget projections. But they also live in an information bubble, being fed ideas and figures from self interested sources all day, every day. Then they go to the office and make decisions to spend amounts of other peoples money greater than even the richest politician could dream of spending without access to the public purse. Even the most money conscious politician loses touch the what real money is worth.

Case in point: Currently in Toronto, there is a mayor – complete with minions – who believe that spending is out of control. Their goal, “stop the gravy train.” The Budget Chief on this governing body, i.e. the guy who’s good at the math, is Mike Del Grande .

The Toronto Sun’s Sue-Ann Levy has had a bug up her flue recently about Toronto’s public art. How can a city that is $700-million in the hole spend money on art for the park &tc. Last week she ran a story on a piece of public art she calls the Yorkville Rock. Eighteen years ago, the June Rowlands led City of Toronto spent $284,000 buying, shipping and installing a 500-tonne piece of the Canadian shield in Toronto’s uber-trendy Yorkville.

Mike Del Grande , she tells us, says the $284,000 rock would “easily be $800,000 in 2011 dollars.” That’s an increase of a factor of 2.8, or approximately 180%, roughly 10% per year (I know, I know, I haven’t taken the magic of compounding into consideration). Does that seem right?

Back in 1994 we bought our first house, a small bungalow for $120,000. Now granted there’s been a major housing bubble in the last ten years, and Canadian prices, unlike American ones, have not abated. That style of house, in that neighbourhood are currently listed for $219,000, a less that %100 increase.

We can all agree gas prices are crazy – I mean, holy crap we pay a lot for gas than we did back in the 90’s crazy? From the end of the Gulf War until almost Y2K, gasoline stayed stable at 60-cents a litre. Today, according to gas busters, it is a whopping $1.14 to $1.20 a litre, more or less double. If gas had increased $180%, it would be $1.68 a litre. Even when gas was going through the roof, did you pay $1.68 a litre? Nor would you pay $336,000 for a 1,000 square foot bungalow in Hespeler, the cost of that first house if it increased by a factor of 2.8 over the last twenty years.

I know, I know, your sitting there saying to yourself, so he cherry picked a couple of items to prove some point or another. But according to the Bank for Canada, inflation has run at 41% between 1993 and 2011. My examples are both high, not low. A $284,000 rock in 1993 should cost $400,000, half of what Mike Del Grande suggests it would cost.

Don’t get me wrong, I like what these guys are trying to do, get control over spending in the City of Toronto. But how do you do that when your fiscal hawk budget chief has no basis in financial reality? Getting your financial house in order is not just about deciding what’s wasteful and what’s not, it’s also about knowing the value of something when you decide to spend on it.

If everybody in government thinks inflation has been running at 10% a year, is it any wonder the worlds in such a financial mess?

Economic Fundamentalism , , ,

In Dalton McGuinty’s Ontario…

October 26th, 2011
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daltons-ontarioThe Premier’s word is as good as his economy

Dalton Dalton Dalton, Economic Fundamentalism

The True Cost of the CBC

October 24th, 2011
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So you’re the CBC and your under pressure to justify the $1.1-bilion taxpayer subsidy you receive. How to ease the pressure? How about, you turn the tables, and re-invent accounting for the people putting the pressure on.

Thus, Quebecor media, who is trying to hold the publicly funded CBC to account through legal access to information requests, actually received a $333-million subsidy themselves, according to the CBC. As Brian Lilley reports:

…when Quebecor bid on and won the right to set up a cellphone network in Quebec and Eastern Ontario, it received a $333-million subsidy…

CBC President arrived at this amount by claiming that we would have had to pay that much more to the government had Bell, Rogers and Telus been allowed to bid.

Leaving aside Lilley’s argument that paying $555-million is a strange definition of subsidy, what the CBC are talking about is opportunity cost, and it can apply both ways.

What is the opportunity cost of the CBC?

Well, that $1.1-billion is after tax money, what the CBC keeps. Forgone taxes, at 28% tax rate (Federal corporate tax = 16.5%, Ontario tax = 11.5%.) is $308-million – approximately what the CBC claims Quebecor got as a subsidy – turning their total subsidy to $1.4-billion.

But wait, that 1.4-billion has it’s own opportunity cost. What if the Government of Canada paid down debt with that $1.4-billion? At 3% prime interest rate, they would save 42-million, compounded yearly on interest payments. Just five years of paying debt, instead of the CBC, we would save $210-million on interest alone, assuming the interest rate doesn’t rise. And since we are borrowing the money to give CBC, therefore increasing our future interest payments by the same amount, we can actually double that money, meaning in five years, with compounding, we can easily add half-a-billion dollars to the CBC bill.

The above doesn’t take into account the effect of removing $1.4-billion from the productive economy to give to the CBC. Some estimates are that leaving the money in the economy, through not taxing it, could have a multiplier effect of as high as 1.5, meaning the cost to productive activity of subsidizing the CBC could be as high as $2.1-billion a year.

So yes, Brian Lilley, the CBC’s comparison of Quebecor to itself is “a load of bull.” However, spreading the load of bull across the whole field, and thing are much worse for the CBC than they at first appeared.

CBC, Economic Fundamentalism , ,

Doubting the Experts

August 15th, 2011
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Listening to the radio last week and the finance “expert,” suggested laying off public servants would not help the US debt: “you just put those laid off people on unemployment,” he explained. “And lower your tax revenues. It would increase the deficit.”

Well, yes, when you lay off a public servant you add that person to unemployment, and yes they pay less tax. However, as their pay comes from the same government, and as they get less on unemployment than they do when they work, each public servant would be less of a net loss to the treasury on unemployment than working. So no, they wouldn’t increase the deficit, they would slow the growth of the deficit.

Submitted for your perusal

Submitted for your perusal

Of course, there are good arguments for not laying off public servants, and the above doesn’t take productivity into account. An “expert,” however, should know the difference between net effect on the treasury of public workers vs. unemployment.

I thought of that expert today when I read Nobel Laureate Paul Krugman arguing what the US economy really needs is a war with space aliens:

PAUL KRUGMAN, NEW YORK TIMES: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, “Look, we could use some inflation.” Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what the basic logic says.
It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.
If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better –

ROGOFF: And we need Orson Welles, is what you’re saying.

KRUGMAN: No, there was a “Twilight Zone” episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.

Cooking the books

Cooking the books

As the article linked to notes, claims of positive economic effect of WWII are extremely dubious, noting a 10.9% decline in GDP in 1946 the year after Victory in Japan. Huge increases in wartime spending through the 1940’s led to a massive decline in GDP by 1946.
But even if you accept the argument that WWII stimulous improved the economy:

If we discovered that… space aliens were planning to attack and we needed a massive buildup to counter the space alien threat… this slump would be over in 18 months.

My father in law likes to cite various experts to me when we end up discussing economics. I always argue with him, because the experts always seem to just be wrong.

Can’t wait until he starts quoting Pul Krugman to me.

h/t SDA

Economic Fundamentalism ,

At Home in Hespeler: Right on Carbon Taxes

September 16th, 2010
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Who said what again?

Back in 2007 I asked, would you stop driving for 12c a litre?

Elizabeth May thinks you would. I wonder. Hasn’t the price of gas gone up more than 12c a litre this year? What has it stopped you from doing?

I’ve said it before, I’ll say it again. Sixty cents a litre is the starting point for serious reduction. This is just a smooth trick to get carbon taxes in play, they’ll adjust accordingly later. And we all know how hard it is to get governments to adjust down.


That’s right, 60c a litre is the starting point. That’s based on Bill C-288, the report that the John Baird led Environment Ministry produced that was pooh-poohed by a Elizabeth May and Stephane Dion as being over the top. Fifty dollars a tonne would do it, shrieked May. Twenty dollar “deposit” mumbled Dion.
Back in 2008, BC went the $20/tonne route, upping a litre of gas 7c.  The tax would increase to $30/tonne by 2012. Then…
The Pembina Institute says British Columbia should increase its trendsetting carbon tax to $200 per tonne of CO2 emissions, equivalent to a 48-cent surcharge in the price of gasoline, if it’s serious about addressing climate change.
That’s $5 above the Environment Ministry price of $195/tonne, and  brings a litre of gas to 55c more. Still want that tax on on a basic element of life?

Carbon Tax, Economic Fundamentalism, Global Warming, Going... Going... Gone Nuts For The Environment , , , ,

In Dalton McGuinty’s Ontario…

September 1st, 2010

“I don’t know how it happened mother,” says Premier Dad to Elizabeth McGuinty, his Czar in charge of all policy decisions.

“I was trying so hard not to turn into Mike Harris, that I never noticed I had turned into Bob Rae.

Dalton, Economic Fundamentalism , , , ,

Now They Come For Our Food

April 29th, 2010

A few elections ago then Ontario NDP leader Howard Hampton said of the electricity market: It’s too important to be left to the private sector. A few people I knew agreed with this, to which I always answered, just hope Howard Hampton never notices how you buy your food:food the last time some one decided food was too important for the private sector, the Russian people were relegated to 50 years of cabbage soup and black bread. Well don’t look now but…

Michael Ignatieff, who, of course has cake, has proposed a National Food Policy. The Government of Canada would get in the farmers market and local food game. Fourty-million dollars here for a national healthy start (breakfast for brats) program, eighty-million dollars there for a buy local fund and pretty soon your talking real money. Then there’s this:

Reward farmers for environmentally sustainable initiatives such as setting aside land for wildlife habitats or carbon sequestration (emphasis theirs… and mine)

The Liberal government will spend untold millions, hundreds of millions more like, to pay farmers to not grow food. This plan talks of spending $170M, but has hundreds of millions more not factored in. Government food programs in action: more money out the door, less food in.

Then there’s the City of Toronto. I have spent considerable energy on this blog highlighting the folly of the City of Toronto and it’s elected representatives. So it is with some shock I report, they are on to a good idea. Yesterday’s Sun reports the City is considering allowing people to keep chickens in their backyard. Frankly as long as there’s no health hazard – and there isn’t – why it’s the City of anybody’s business if you keep chickens I have no idea. None the less if the chicken lobby gets it’s way, soon you’ll be able to have a couple of chickens producing fresh eggs in a coop on your very own property in Toronto. A few years down the road when the eggs stop coming it’s Ann Boleyn meets Colonel Sanders and dinner has never been so fresh.

Alas, this is the City of Toronto, the people who could screw up letting street vendors sell food. All chickens would have to be registered. That’s right, a chicken registry which, surprisingly, isn’t in Michael Ignatieff’s plan. Presumably the chicken registry is not in case some chicken goes wild and it’s owner needs to be identified, but so that City Hall can tax your free eggs. No doubt you’ll need their permission before putting Betsy in the deep fryer.

Sad to say this scheme also falls under a food plan, in this case the “urban food strategy” that Toronto Public Health is putting together.

The politicians have noticed: look for less food, less selection and higher prices in the food market in coming years.

Economic Fundamentalism, Food , , , , , , , , ,

Toronto Sun: We Need to Raise Taxes

April 19th, 2010

Talk about sinking to new lows. The Toronto Sun today goes where they would have mocked ten years ago. In their lead editorial, Paul Berton argues tax increases are necessary and coming:

Whatever the reasons, leaders are afraid to say what they know to be true: Taxes must rise, or services must be cut. Either one — and more likely both — is as inevitable as the setting sun.

Berton, for those who don’t know, argued strenuously that we needed government to save us from the world burning up into fiery ball. He was literally one of those “the earth will be a burnt rock,” guys until six months ago.  It’s been a while since we’ve heard that nonsense from this fool, but apparently economics is still a subject Berton has a yet to prove how little he knows.

Here’s something to digest. One-third of every dollar earned, produced or extorted in this country, one-third of GDP, winds up in government coffers. That means every person, every business for every dollar they earn, they must produce approximately $1.40. That’s too much productivity being spent on non-productive activities.

The time has come for an extreme curtailing of what governments do, not an increase in what they cost. And if the Toronto Sun wants to be The Star lite, then the time has come for one less paper in Toronto.

Economic Fundamentalism, Newspapers , , ,

Demographic Depression

May 5th, 2009

For almost ten years now if you find yourself sitting next to me at a social function, and make some passing comment about being able to afford a cottage when you retire, or what with the prices of houses what kind of house will your kids be able to buy? you would quickly discover I have a theory. It’s not an optimistic theory, it’s not a pleasant thought, but, I lost nothing when the stock market declined last year because I had an idea what was coming (although, it came three years earlier than expected).

The theory? As Mark Steyn says, “lets start with demographics, because everything does.” I argue that the greatest amount of wealth is getting set to retire, that is, the possessors of that wealth will retire.  Which means that instead of investing in stock markets, they will invest in bonds. When wealth leaves the stock market, the market contracts. Contract fast enough and it will crash. Forensic economists will sort through the rubble, but don’t be surprised if that’s partly what happened last year. Furthermore, housing prices will drop, says the theory, as these people get out of all those homes built from the 60’s to now, and move to condos, apartments and those retirement cottages. The single family home: who wants one? and those that do will find two on the market for every buyer.  Especially true of those mammoth McMansions that have predominately been built the last twenty years.

It is with some trepidation that I note, the experts (who always seem to be wrong) are starting to catch up to me. Bloomberg today has an article on just such a demographic depression, and quotes Harry Dent, author of The Great Depression Ahead:

What you can’t see in the most recent housing numbers is the least-visible driver of home prices today: demographics.

Baby Boomers

The baby-boomer generation, the largest in American history, will be buying fewer single-family homes.

The U.S. is experiencing a 40-year generational peak in consumer spending, one that will lead to “the first and last Depression of our lifetimes,” author Harry Dent predicts in his book “The Great Depression Ahead” (Free Press, 2008).

Although we may not be headed for a 1930s-style Depression, there’s plenty of evidence to suggest that boomers are dumping their four- and five-bedroom suburban homes for two- and three- bedroom condominiums.

It’s also unlikely that the “Generation X,” born between 1965 and 1976 (or more derisively called “baby busters”), will bid up home prices. They are only 44 million strong, not as wealthy and even more in debt from college loans.

The baby boomers are reorganizing their finances after a rocky decade in stocks. They aren’t buying as many second homes and vacation properties in warmer climates.

I was further surprised to read a press release for Dent’s book, in which he predicts a decline almost exactly as I have through the years:

Harry Dent forecast the housing slowdown years before it occurred and sees the minor recession of 2008 as
the beginning of a greater stock crash and depression to unfold between 2009 and 2012, with the worst crash
for stocks and housing likely between late 2009 and mid 2011. Home prices will continue to decline into late
2008 and then will likely experience a minor rebound in early to mid 2009. However, rising inflation, interest
rates and a last commodity bubble will bring a final blow to stocks, the economy, housing, and even the greater
emerging market bubble in stocks overseas.

A time frame of 2009-2012, when those boomers start retiring en masse, is exactly what I have been saying. Houses will be sold to pay for retirement, and money that was in stocks will be taken out to safer environs. The followup generations, including mine, have no capacity to fill the void. A decline in stock and housing prices must occur under those circumstances.

I’m not hiding in a bunker, scared of the future, in fact I’m quite optimistic. But a sense of this is what I have been saying has pervaded my reading of much of the economic news the past six or nine months. No need to panic, but be aware, there is likely more bad coming down the pike in the next three years.


Note: comments on this post are closed due to excessive spam.

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To My Daughter…

March 30th, 2009
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It’s difficult to express how proud I am of you. You are a remarkable, pretty, smart and talented young woman. A number of years ago we started you on piano lessons. You decided it wasn’t for you and stopped, but a seed was clearly planted. A couple of years later you began piano again, impressively teaching yourself. As I sit and listen to you play music that is well beyond a difficulty level any reasonable person would expect, and playing it well, I am awed at what you have accomplished.

You are even more impressive as an artist, even though you are loathe to admit it. The award you will soon be awarded by the Hespeler Legion for your Remembrance Day poster will attest to your skill. There are times when you draw something and I am simply speechless. Your ability is stunning: your picture from two years ago, which your Principal kept in his office for the year, and later, a teacher requested to be allowed to keep it for her own home, proves that I speak not just as a parent with an uncritical eye.

You have never been athletic. Your first foray into sports was baseball when you were barely tall enough to hold the bat. You, and your then BFF were adorable to watch and I have rarely enjoyed baseball more. But you weren’t very good – you weren’t really expected to be – and by years end, you were too scared of the ball to have any hope of ever hitting it. It would be years before you lost that fear, and that is why I was so surprised three years ago to learn you were on the volleyball team. Your friends talked you into it, and although you never enjoyed it, you played with a smile. As you always do when your unsure, you listened to the coach, worked hard and took your task seriously. You were never the best player on the team, never got the game winning spike, but as a result of your tenacity and maturity, you never cost your team the game either.

Now you are looking for your first job, and as you look to start your work life, your latest act of generosity truly astounds. You see, you have given your mother and me $1,000, to do with as we please. My choice is to buy a laptop, and get this blog out of the basement, into the light of the kitchen. To be sure, you probably didn’t know you gave us this money, and your brother will share in the costs, but it is still overly generous.

In the next year your mother and I will receive three cheques, signed Dwight Duncan and Dalton McGuinty no doubt, from the Province of Ontario totalling $1,000. While on the surface, it may appear the above mention gentlemen are providing this windfall, let us not kid ourselves where the money is rally coming from. When Mr. Duncan announced this gift, he also announced a budget deficit of $56B over the next 7 years. This means that as I approach my mid-50’s and look to end my productive years, and you begin your career, the bill will come due for that $1,000. It will not be me who pays that bill, and it certainly won’t be Messrs. Duncan and McGuinty, but you.

Of course, in seven years it won’t be $1,000, it will be $1,400. Sometime in the next seven or so years, over the course of your education, somebody is going to teach you about “the magic of compounding,” and they will call it that. They will treat compounding as a good thing, that the pennies your bank gives you to freely use your money will one day turn into dollars, tens of dollars even. Here’s the lesson they won’t give: The Government of Ontario borrows $1,000, and sends it to your dad to buy a new laptop, all the better to blog with, my dear. When the government borrows money, it pays it back at a premium of $57.60 for that $1,000. If they borrow the money this year, and pay it back next year, they pay back $1,057.60. But the government has already said they won’t pay it back for at least seven years. Here’s the part that’s magic: in the second year they don’t pay an extra 57.60 on $1,000, they pay $60.92 on $1,057.60. This way the debt ” magically” grows to the  point where after seven years they are paying $80.00 interest on $1,400. By this magic method, it takes only fourteen years for that $1,000 to become $2,000.

However, you probably shouldn’t worry too much about the $2,000, we’ll just add it on to the $15,000 you already owe, which of course by the time they stop borrowing in seven years will be $21,000, plus any extra they have borrowed. That’s the problem with borrowing money: $1,000 here and $1,000 there and pretty soon your talking real money.

But don’t think about that now. Instead, understand how much I appreciate my new laptop, or your mother her new desk or… who am I kidding: how much we’ll all enjoy beer and popcorn night. The beer will be for me, and the popcorn for you, which is appropriate: as I relax and enjoy my new found money, your debt will be growing like popcorn in hot oil.

Dalton Dalton Dalton, Economic Fundamentalism, pimply minions of bureaucracy , , , , , , , ,