Monday, April 25, 2011

The myth of right-wing fiscal responsibility

During this Canadian federal election, I've been utterly dismayed but what seems like the Canadian electorate completely ignoring everything the Conservatives have done so far. Any time I ask Conservative supporters or those leaning in that direction, how they can possibly think of voting for Harper's team, I'm met with an almost universal response: they're the least of 3 evils. One colleague commented thusly: "I don't share the political values of the Conservatives but I just can't vote for anyone else because they'll just raise taxes and spend all our money. The Conservatives, although they've done some questionable things in Parliament, are the only ones I can trust with taxpayer money."

This seems to be a common conception. I set out to determine whether it is valid.

Consider before delving into this discussion what the cost of the accumulated federal debt is to the average taxpayer. It currently stands at $30.66 billion, costing the average Canadian $16383 per year. Public debt charges currently account for 10% of government revenues.

The question: Are Conservative governments better at managing federal finances than Liberals? (Unfortunately we have no precedent to evaluate the fiscal responsibility of further left parties such as the NDP as they have never formed the federal government.)

Hypothesis: The Conservatives are actually considerably worse at managing our nations coffers, despite their fiscally conservative policies. My impression is that although they speak to responsible fiscal management, they are unable to deliver. I also have some empirical evidence on which to base my hypothesis. The article to which I've linked shows, among other things, that right-wing (read: Republican) Presidents of the US have managed federal finances worse than Democratic presidents (although further to the left than the Republicans, one could not call them leftist; they likely sit right of Canadian Liberals). However, the impression in the States was the same. Republicans are fiscally conservative so, by extension, they must manage finances better. The data show quite the opposite. Since the author looked not only at the impact of each government on federal debt (that is did they run a deficit or surplus each year) but also deficit or surplus as a percentage of GDP (governments ruling during times of economic crisis will have a harder time balancing the books so this rules out the effects of broader economic factors) and the impact of each government on the GDP (that is did GDP increase or decrease during their tenure).

Methods: I looked at the fiscal results of all Canadian federal governments since 1922. I chose this date for two reasons. First of all, this is the point at which women received universal suffrage in Canada so the governments were a better representation of the electorates will. As well, most economic data I needed to utilize did not go further back than this point. For the Parliaments prior to 1999 I had to access the archived budget speeches for each year and extract the value of the federal deficit or surplus. I then converted this number to constant 2011 dollars using the Bank of Canada's inflation calculator. For 1999 to present, the Department of Finance has consolidated financial statements online which made it relatively simple. I put all these figures alongside the prime minister and political party in government at that time. I also included the gross domestic product for each year in constant 2011 dollars. This served to determine whether the increases in deficit were either due to economic decline or, conversely, whether the spending was done efficiently enough to induce economic growth. Whatever the case may be, standardizing the deficits or surpluses against the greater economic measure of GDP allows a comparison that comes closer to apples-to-apples. Finally, I also looked at disposable income per capita in 2011 dollars since 1961 (earlier data is difficult to locate). This helped me determine whether, although Conservative governments may run higher deficits, maybe it is better for the voters pocket. That's the reason many people vote Conservative. "They'll cut taxes and the size of government so I'll have more money in my pocket which will in turn help stimulate the economy."

Let me summarize by saying that everything you assume about Conservative management of federal finances is wrong, unless you hold assumptions contrary to the greater public.

First off, let me say that since the 1920s, Canada is a decidedly Liberal nation. Of the 89 years since 1922, Liberals have been in office roughly 70% of the time. However, in the short time they've been in office the Conservatives have done considerable damage to the nations financial situation. 90% of their years in office resulted in deficit compared to 60% for the Liberals. The raw size of the Conservatives average deficit was $22 billion compared to $7 billion for the Liberals. The size of their deficit on average accounted for 3% of GDP compared to roughly 1% for the Liberals (if you take out 4 years of the Second World War where deficit financing accounted for roughly 20% of annual GDP; even if you include those years, Liberals still have smaller deficits at 2.3% of GDP).

As well, even though they've only been in office 30% of the years since 1922, the Conservatives have been responsible for roughly 70% of the accumulated public debt.

Let's finally consider whether all of this has occurred for greater economic growth or increase in personal disposable income for Canadians.

Of their years in office, the Conservatives experienced only 1.1% annual GDP growth versus almost 6% for the Liberals. And the final nail in the coffin: Conservative governments have caused inflation-adjusted increases in disposable income of only 1.6% annually versus 2.6% for Liberal governments.


Based on the data since 1922, it appears that if we want to get our financial house in order, we need to reconsider our perceptions of Conservative fiscal management. This says nothing about which way you should vote. But if you want to vote strictly on an economic or financial basis, you might want to reconsider putting an X next to the Conservative candidate. And in case you think the current manifestation of Conservative deviates from the past, consider this. After Brian Mulroney accumulated the debt to over 70% of GDP, the Liberals under Chretien and Martin slashed it to roughly 35% of GDP. Once Harper took over, it started back on the upswing.





All from StatsCan through CanSim, the paid database of StatsCan. I have access to it through my University library for free.


Sarah said...

Huzaah!Thank You!!

Leoal said...

Hi! I just was recently directed to your blog, and I really like this piece on Conservative fiscal responsibility. I have a question, though, I was wondering if you got your stats from Statistics Canada?

I would like to link to this post as an argument against the Conservatives, and also as an example of a good, fact based analysis, except there are no sources cited. I especially would like to compare it to similar articles that cite things like editorials and blogs as sources.

Part of the problem for a lot of people is the difficulty of looking at all these numbers in a manageable way. You have effectively summed up a lot of confusing things into one concise argument. But without sources, it's hard to know if you just conjured the numbers up from thin air.

Anyways, thanks again for this interesting analysis. I have added your blog to my feed and look forward to more in the future.


Leoal said...