After the boom – what?

The following is written by my father. I post it, in part, for my sons.

It has been a while since David Foot introduced us to the boom babies (Canadians born 1946 to 1964) and the sociological, economic and other significant implications of this cohort. They are still significant.

Only relatively recently have they exercised control over the biggest governments in Canada – the Federal Government, British Columbia, Alberta, Ontario and Quebec. At the turn of the millennium all of these governments were headed by people born prior to the boom. During this millennium, four of the five jurisdictions have had governments led by boom babies.

How have the boom babies been doing? It’s difficult to say but one measure would be the change in the ratio of debt to gross domestic product during their administrations.

In 2000 – 01, the Canadian Government was led by Jean Chretien. That year Canada ran a surplus of almost $20 billion and the debt to GDP ratio was 47.4%. Chretien was succeeded by Paul Martin and by 2004 -5 the ratio was reduced to 37.3%. Stephen Harper, a boom baby formed a government and continued to reduce the ratio until 2009 – 10 when a deficit of $55 billion was incurred. In subsequent years, the ratio continued to decline to 31% in 2014 – 15. By this criteria, the boom baby, Harper, continued to reduce the fiscal vulnerability of the Federal government continuing the trend established by his old guard predecessors.

In 2000 – 1, the government of British Columbia was led by Ujjal Dosanjh and he was succeeded the next year by Gordon Campbell, both born prior to the boom. The millennium started with a debt to GDP ratio of 17.3% and after some fluctuation was down to 15.7% in 2010 – 11. Christy Clark who was born after the boom succeeded Campbell in 2010 – 11 and, holding to near balanced budgets, she reduced the ratio to 16.3% in 2014 – 15. BC has not had any baby boom premiers and has enjoyed comparative fiscal stability for the last decade and a half.

At the start of the millennium, the Alberta Government was led by Ralph Klein a member of the old guard. Alberta didn’t have a debt. They had a surplus of 6.2% and this increased to 14.7 % in 2006 – 7, Klein’s last year. Klein was succeeded by Ed Stelmach, Alison Redford, Dave Hancock and Jim Prentice. Redford was born just after the baby boom. The other three were boom babies. By 2014 – 15, the Alberta ratio was reduced to 3.6%. At least in a fiscal context, Alberta has been going downhill fast since Klein and the trend was in evidence before the oil price crash.

Mike Harris, born just before the baby boom, led the Ontario government at the start of the millennium. In 2001 -2 the debt to GDP radio was 28.4% The next year under Ernie Eaves, the ratio dropped to 27.1%. Eaves was succeeded after one year by Dalton McGuinty and then Kathleen Wynne, both boom babies. By 2014 – 15 the Ontario ratio had escalated to 39.5%. Ontario’s fiscal vulnerability has been steadily increasing under the boom baby premiers.

Quebec started the century with a Lucien Bouchard Government and a debt to GDP radio of 38.2%. The next year Bernard Landry succeeded Bouchard and with near balanced budgets, the ratio changed but little to 38.4% Both Bouchard and Landry were old guard. Jean Charest, a boom baby, succeeded Landry and maintained reasonable fiscal prudence for a couple of years but by 2011 -12 the Charest government had driven the ratio up to 48.3%. Pauline Marois, also born prior to the baby boom, succeeded Charest and ran the ratio to 50% by 2013 – 14. Charest, the boom baby, significantly increased the fiscal vulnerability of Quebec and Marois did nothing to improve the situation.

Rachel Notley has since succeeded Jim Prentice in Alberta and Philippe Couillard has succeeded Pauline Marois in Quebec. Both are boom babies.
On balance, in these five jurisdictions, the old guard maintained a reasonable amount of control over fiscal affairs. The boom babies have been less prudent. For fiscal conservatives, Christy Clark provides some hope for better things to come as the next cohort assumes the reins of political power.

Justin Trudeau is the first Prime Minister who was born after the baby boom. What will be his influence on the fiscal affairs of state? His platform suggests increasing the federal debt on the assumption that such spending will be more than compensated by an increasing GDP in the future. Where has that happened? Quebec and Ontario have embraced this premise for years. Where is there any indication that the spending has achieved the anticipated results?

Similarly what was achieved by Stephen Harper’s $55 billion deficit in 2009 – 10? What was expected and what was achieved?

Unprecedented amounts were spent on the education of the boom babies with great optimism about the future economic benefits which would be realized. The boom babies are now in their fifties and sixties. Where are these benefits? GDP growth is virtually non-existent. Unemployment is high and chronic. Productivity is not improving. What went wrong? What assumptions are false?

Trade agreements are continually being negotiated in anticipation of economic benefits. Where are these benefits? Export opportunities are being created but there is no commensurate interest in Canada to take advantage of them. Import opportunities are being created with a resultant displacement of jobs.

The boom babies are coming to the end of their economic life leaving little on which succeeding generations may build. Huge fiscal imbalances resulting in continuing increases in government debt continue to be incurred. All of this government debt is somebody’s assets. In large part, directly or indirectly, these are the assets of the boom babies. Wouldn’t it be ironic if future generations reneged on the redemption of these assets?

What would the Canadian banks be worth if their holdings of government debt were valued at zero?
C. R. (Ray) Luft

 

Fiscal data obtained from http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/prov_fiscal.pdf
Washington Post article Baby boomers are what’s wrong with America’s economy: They chewed up resources, ran up the debt and escaped responsibility
Globe & Mail article Morneau may be suffering from millennial blindness
Toronto Star article Ontario at bottom for good jobs, social spending: Report

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