Canada’s Debt Spiral: Does Justin Trudeau Live In An Alternative Reality?

Authored by Lee Friday via The Mises Institute,

Living beyond our means requires us to borrow money to cover the difference between our income and our spending. Many Canadians now understand the financial consequences of this practice and regret the choices they’ve made. Unfortunately, Prime Minister Trudeau is not one of them, as evidenced by his government’s budget deficits which are further eroding the financial wellbeing of Canadians. He has broken a campaign promise, ignored basic economic principles, and seems hell-bent on setting an ignominious record.  According to the Fraser Institute: “Justin Trudeau is the only prime minister in the last 120 years who has increased the federal per-person debt burden without a world war or recession to justify it.”

The Broken Promise

The Liberals had won the 2015 federal election with a pledge to run annual shortfalls of no more than $10 billion over the first three years of their mandate, and to eliminate the deficit by 2019-20.

The deficit for 2016-17, Trudeau’s first full fiscal year, was $17.8 Billion. The forecast for 2017-18 is $19.9 Billion, and for 2018-19, the forecast is $18.1 Billion.

And now, from the government’s 2018 budget, we read this:

While austerity can come from fiscal necessity, it should not turn into a rigid ideology about deficits that sees any investment as bad spending.

The government says deficits are economically beneficial, and compares deficits to loans taken out by entrepreneurs and business owners. But here’s the rub: in order to spend, the government must first raise money by taxing or borrowing (deficits). This deprives the private sector of money which would otherwise be available for businesses to borrow and invest in new production, thereby creating jobs and raising our standard of living.

Moreover, government ‘borrowing and spending’ imposes a financial burden on future taxpayers who must pay pay back both the loan and the interest payments.  In contrast, repayment of private business loans imposes a burden on the entrepreneurs — and because entrepreneurs are held personally liable, they are incentivized to be prudent decision makers. Politicians, on the other hand, lacking personal liability, tend to be fickle, reckless, arbitrary, and wasteful.

Why Government Spending is Bad

When a private business earns a profit by converting various resources (labour, raw materials etc.) into products which consumers voluntarily buy, this means it has made efficient use of the resources. Wealth is created. In contrast, a private business incurs losses when it fails to persuade consumers to voluntarily buy its products, which means it is wasting resources. If the firm cannot improve, it will discontinue operations, thereby conserving resources for entrepreneurs who can use them efficiently. 

Economic progress (wealth creation, rising living standards) comes from efficient allocation of resources through profitable enterprises, where consumers determine what gets produced. These are the basic economic principles which Justin Trudeau ignores.

Politicians can pander to special interest groups because profit/loss calculations do not exist within government. This prevents consumers (taxpayers) from expressing their preferences as they do in the marketplace, where they “vote with their dollars.” The government forces taxpayers to subsidize whatever it supplies, at a price it dictates, whether we want it or not. Thus, the government’s coercive taxing and spending tends to waste resources, which is economically counterproductive. And, as noted earlier, government spending reduces private investment.

As Charles Lammam and Hugh MacIntyre wrote in the Financial Post (emphasis added):

business investment in Canada has declined by a staggering 18 per cent (after accounting for inflation) since the end of the third quarter of 2014.”

Crucial to any plan to improve our country’s long-term economic prospects is encouraging private-sector investment, innovation and entrepreneurship … on this front, federal policy choices have been counterproductive.

And Morneau’s fiscal update makes clear that the government will continue to run persistent deficits and rack up more debt, which signals potentially higher taxes in the future (since debt is simply deferred taxation), creating yet more uncertainty today among investors and entrepreneurs.

… 64 per cent of CEOs said Canada’s investment climate had worsened in the last five years, noting growth in the tax and regulatory burden.

Does Justin Trudeau Live in an Alternate Reality?

That is the economic reality to which the Prime Minister seems oblivious. Private business investment is limited by government spending and regulations, but Trudeau’s government thinks everything is fine. From their 2018 budget, we read this:

… Canadians are feeling more optimistic about the future. Everyday dreams — whether it’s paying down debt, saving for a first home or going back to school to train for a new job — are closer to reality.

I’m not sure what reality Justin is living in, but here is the reality on Earth:

One third of Canadians have stretched themselves so thin that they can no longer cover monthly bills and debt payments, according to a survey …

Thirty-three per cent of respondents … admitted to being stretched beyond their means on a monthly basis, marking an eight-point increase since MNP’s last survey in September …

… almost four in 10 respondents … admitted they regret the amount of debt they’ve taken out in their lifetime.

… Forty-two per cent of respondents … said they’ll be in financial trouble if rates rise much higher. Moreover, nearly one-third said they could be forced into bankruptcy because of rising interest rates.

Trudeau’s government is either out of touch with reality or they simply don’t care about economic growth and the financial plight of Canadians. Either way, the lack of personal accountability among politicians is a concern.

Accountability

If I break my neighbour’s window, accident or not, I pay for the replacement. The compensation comes out of my own pocket. I am accountable for my actions.

If the Liberals lose the federal election next year, there are many who will say they have been held accountable for various mistakes. In fact, this is what we are always told, “If you don’t like the government, then don’t forget to vote, because this is your opportunity to hold them accountable.”

Really? That’s how we define accountability in politics? Does our anger disappear simply because we kicked the bums out of office? Is it enough to see teary-eyed politicians deliver concession speeches on election night?

If I walk around the neighbourhood and break all the windows in all the houses, then lose my job, do my neighbours forgive and forget? I think not.

What about the financial hardship that government spending inflicts on Canadians? The private investments not made. The wealth and jobs not created. The products not manufactured. The debt incurred. These are real financial consequences which individual Canadians are forced to absorb. Who will compensate them?

If politicians knew they would be held personally accountable for the damage they inflict — they would inflict far less damage.

Conclusion

Many ‘experts’ have encouraged the government to balance the budget, but the size of the budget is the real problem. Government spending, and taxes, must be slashed. How much? The sky is the limit. There is nothing the government does that the private sector can’t do better, at far less cost.

A drastic reduction in the size and scope of government would trigger massive private investment and economic growth. But until voters learn some basic economic principles, they will continue to get the government they deserve, whether it be the Trudeau regime, or a different party of con artists.

Contaminated Fukushima Water Storage Tanks “Close To Capacity”, TEPCO Admits

The Tokyo Electric Power Company is running out of container space to store water contaminated by tritium outside the Fukushima No. 1 nuclear power plant, and it’s also running out of room for building more tanks, according to Yomiuri Shimbum, a Japanese newspaper, which is creating an intractable problem for the utility, which has been tasked with supervising the cleanup of Fukushima.

The Japanese government has been desperately trying to accelerate the cleanup ahead of the upcoming 2020 Olympic Games in Tokyo – and it’s a miracle it hasn’t run into this issue sooner. TEPCO is still struggling with how to dispose of the tritium-tainted water. Options discussed have included dumping it into the ocean, but that proposal has angered local fishing communities.

Fukushima

At some point, TEPCO and the government will need to make a difficult decision. Until then, ground water will continue to seep into the ruined reactor, where it becomes contaminated. Afterward, TEPCO can treat the contaminated water to purify it, but they can’t remove the tritium, which is why the supply of water contaminated with tritium continues to grow.

As one government official pointed out, Japan can’t simply store the radioactive water forever. As of now, the company should be able to store water until 2020.

Efforts have been made to increase storage capacity by constructing bigger tanks when the time comes for replacing the current ones. But a senior official of the Economy, Trade and Industry Ministry said, “Operation of tanks is close to its capacity.”

TEPCO plans to secure 1.37 million tons of storage capacity by the end of 2020, but it has not yet decided on a plan for after 2021. Akira Ono, chief decommissioning officer of TEPCO, said, “It is impossible to continue to store [treated water] forever.”

But after that, Tepco is either going to need to start releasing the tritium water into the ocean (something that has been done by many power plants, but is politically popular in Japan) or find another solution. In fact, an average of 380 trillion becquerels had been annually released into the sea across Japan during the five years before the accident. If the water from Fukushima is diluted to the point that tritium content is only 1 million becquerels per liter, which is more than 10 times higher than the national average for sea release. But if it’s diluted, it can eventually be released. However, an industry report has determined that sea release would be the safest and most efficient option.

Regarding disposal methods for the treated water, the industry ministry’s working group compiled a report in June 2016 that said that the method of release into the sea is the cheapest and quickest among five ideas it examined. The ideas were (1) release into the sea, (2) release by evaporation, (3) release after electrolysis, (4) burial underground and (5) injection into geological layers.

After that, the industry ministry also established an expert committee to look into measures against harmful misinformation. Although a year and a half has passed since the first meeting of the committee, it has not yet reached a conclusion.

At the eighth meeting of the committee held on Friday, various opinions were expressed. One expert said, “While the fishery industry [in Fukushima and other prefectures] is in the process of revival, should we dispose of [the treated water] now?” The other said, “In order to advance the decommissioning, the number of tanks should be decreased at an early date.”

The working group is planning to hold a public hearing to consider other methods of disposal. But if none can be found, Japan will have no choice but to dump the contaminated water into the ocean.