Thursday, August 28, 2014

DO LIBERALS ANNOUNCE FIRST, CHECK FACTS LATER?

So, the Liberals' plan to borrow $900million plus interest, for unnamed "infrastructure" projects, isn't going over well among concerned citizens and, really, anyone.  Two days after the growing chorus of worry about the fitness for office of the Liberal team, one worthy foot soldier, the bright and loyal John Case, has stepped up to try to defend the Gallant borrowing plan.


Let's take these two points that the Liberals now say were tragically "left out" of my original blog post.

LIBERAL POINT #1: WE NEED TO BORROW $900MILLION BECAUSE BRIDGES

Even though the Liberal release notes that not a single actual infrastructure project will be specified now, they now tell us "Bridges! We meant bridges! Won't somebody think of the bridges?!".  And they urge us to read the 2013 Auditor General's Report, where her warnings state that 293 bridges are in poor condition.

That is, of course, an important issue of public policy. Is that the $900million problem?

You see a bridge. Liberals see a $900million problem.

You know me....I'd like to do the math.

If you read the same report, the Auditor-general tells you the size of our overall bridge fleet.  We have 2,608 bridges worth a total of $895million.  She also notes at area graph 3.4 that the 293 bridges the Liberals now cite are "not unsafe, but will require maintenance in the near future". 

So, fair enough, we have bridge maintenance to do. But is that $900million of borrowing accounted for?  Well, no.  

If you have 293 bridges that need work, and you have 2,608 bridges, or 11.2% of your bridges. If the TOTAL VALUE of your bridges is $895million, the total value of those bridges is just over $100millilon.  

(And that would be assuming the bridges are all near the average of value of the fleet, which is likely generous to the Liberals.  After all, the biggest, most expensive bridges get the most regular maintenance, and there have been major projects on bridges such as the Harbour or Princess Margaret bridges. The bridges in question would be smaller and cheaper and used less often.)

So if we spent 25% of the value of those bridges on maintenance, that's a $25million problem even under the most generous assumptions.  And it is worth remembering that that the existing annual capital budget is $555million.  Even if the Liberals just use existing budget plans, they would have $3billion of repair budget in which to find room for $25million worth of bridge repair if that's a priority.

So, why would they need to borrow ANOTHER $900million? Well, maybe the Auditor-General tells us when she suggests at the end of the section in bridges that someone should borrow $900million and fix this problem.  Except that she doesn't suggest anything like this.  She suggests a non-political monitoring and reporting problem.  Because if anyone had read the prologue to her report, with the warnings about critical debt and falling credit ratings, they'd know that's crazy.

LIBERAL ARGUMENT #2: BUT THE GDP GOES UP!

Well, of course it does.  If you borrow money and spend it, the GDP goes up.  And their consultant's report tells them that if they spend $150 million more per year, you get $113 more in GDP. Of course, the report doesn't say that's a good idea, because the Liberals didn't ask him that question.

But we can do the math.

Generally, stimulus spending is designed to attract more private money into the economy to get things working. This is common sense.  If the only people spending money are the government, and they're borrowing that, an economy will crater.  So a good stimulus program will spur enough private investment that the GDP goes up even more than what government spends.

You already see the problem, right?  If you're spending $150million and the GDP only goes up by $113million, you're actually getting less than you paid for. 

To compare normal interaction between government spending and GDP, look at the status quo. New Brunswick's GDP is now about $32billion, or about four times higher than what government spends each year on programs and capital.  And our economy, as Liberals correctly note, is one of the more fragile ones.

So if we have a GDP at 400% of government spending now, and that's not good, what serious party would borrow millions to get a 75% return on GDP?  Only a party that sees the patronage and short-term political benefits of roadwork as more urgent than health or education spending.

As for the claim that "New Brunswickers will have $80million more to spend"?  Let's all use our brains on this, folks. Here's a benchmark. If you borrowed $150million and threw it off one of those $900million Liberal bridges to be caught by passersby, then New Brunswickers would have $150million more to spend. Except they wouldn't, because it eventually has to be paid back.  If it spurs private investment, then maybe that helps --but again, their own numbers show that doesn't happen.

Put another way, you could increase labour market income by $150million if you said "we are going to borrow $150million and hire 3000 teachers. As great as that would be, no one would seriously think you could justify that borrowing. So why borrow it for road work that you can't even specify now?

In the end, if the only money in your economy is borrowed government money, you'll eventually go broke. The scary part isn't just how weak these two arguments are, or that they still rent doing the math now --it's that the Liberals clearly released this plan without having done the math at all. 

Monday, August 25, 2014

THE LIBERALS MUST HOPE YOU DON'T DO THE MATH. SO I DID IT FOR YOU.

OK, I feel partly responsible.  I've been saying for over a year that Brian Gallant won't tell us what he will do if he wins.  So now that he has brought forward an idea, I have to admit that I pushed him.

But, oh, the humanity.

Here's the announcement. I know, I'm not supposed to link to another party's announcement. But by the time we are done here, you won't believe me if you don't see it yourself. So here it is. Brace yourself.

http://nbliberal.ca/post-news/liberals-would-create-1700-jobs-with-infrastructure-fund/

As you can see, the basic numbers are these: the Liberals will create a $900MILLION infrastructure fund and will, over six years, spend that $900MILLION to create jobs. How many jobs, you may ask?

1,700 jobs.

Here's the math.  It basically speaks for itself. 

If you spend $900,000,000 to create 1,700 jobs, that means you are spending $ 529,411.76 per job. Or, if you like, $ 88,235.29 per year, per job.

So yes, if you give Brian Gallant a little more than half a million bucks, he can create a job. You could also put that money in a bucket, blindfold my 4 year old nephew and have him stumble through town, and he might well be able to employ at least two people, but let's move on.  Math is inconvenient.

You can't make this stuff up.

You may be saying,  "Well, fine, Kelly, but that will put a huge dent in that unemployment rate, won't it?"  If you're saying that, it's a good question and I'm happy to answer it.

No. It won't. 

The workforce, according to Statscan, is 349,000 people.  So adding 1,700 people to that workforce will move the employment rate by 0.49%.  This means that, using Mr. Gallant's approach as a means of employing all able bodied New Brunswickers would take $18BILLION in expenses, or a little more than the entire provincial budget for two years. 

Now, the Liberals do mention that if government spends $88,000 to give you a job, you pay more taxes back, which is true. And they helpfully point out that $13Million more will come back In revenue to the provincial government. 

What they did not think of (and really, should have) is that even at very generous borrowing rates, the interest on $900 million would also have to come out of the yearly budget, to be taken from health and education. If interest were 3% a year, that's actually $27million per year, for a net loss of $14million every year that has to be cut or borrowed. 
                              NO, he didn't borrow that much, Brian.

Further, the Liberals' own commissioned economic analysis suggest that this will only increase the GDP by 0.3%, a highly inefficient return on stimulus packages (by contrast, the Obama stimulus package was held by economists to have had a GDP impact of between 2.5% and 4.5% with its emphasis on getting money in the hands of working families and more defined infrastructure. And even with that much better return on investment, no one ever suggested that the borrowing could be responsibly sustained for six years).  In fact, the Liberals' own analysis states that their expenditure will increase GDP by less than the actual expenditure. 

Not sure we were supposed to actually read that.  Perhaps they figured that we would nod reverentially and move on.

It's also important to note that when government borrows money, they increase demand for capital and drive up interest rates. So if you run a small business (the sector that actually creates jobs that last), then that's a lot of the oxygen the Liberals are taking up.  This could actually hurt access to capital for local businesses.

So, what does this mean for you personally? Well, right now there are 349,000 workers in the provincial economy. That means that, before interest charges, the Gallant Liberals will borrow $2,578.80 that each one of the has to pay back personally, with interest. They will then pool this money and give it to 1,700 lucky people who work on infrastructure projects. 

Um, how are people hired by Liberals to work on construction projects?  . 

Now, you might think that with all that infrastructure money, at least there will be a project that you'll like there, right?

Actually, um, no. They won't release the list until after the election. These are needs so pressing that they can't name any right now. 

So, to sum up.  We will borrow an amount equal to nearly the entire Department of Education, but none of it will go to education.  We will add $2,500 per worker to the debt, add $14Million in cuts to health and education, add $900Million to the debt to move the employment rate less than half a percentage point and build some things no one can name right now.

I challenged Brian Gallant to stop being silent. Shakespeare said something about silence and fools. The question is, will we be fooled?