The case for and against a deficit

Few people can outright buy a house or a car, which is why they take out a mortgage or a loan. The beauty of a house is that it usually increases in price so in a sense the mortgage is you paying yourself and increase in value is above the interest you pay to the lender. Owning a home is a good investment as it becomes the most significant part of your assets which you can also use to lien against later on in a reverse-mortgage for retirement, renovations, or what-have-you. Not only do you own the house, but the property as well, which alone, has value.

A car, however, usually depreciates. Cars are not a good investment, unless it's for business purposes. With fuel, insurance, repairs, maintenance, it's a burden. But soooo worth it at times. When fuel was above $1.40/L, it was cheaper to fly than drive.

Anyway, my point here is that there's good debt and bad debt. Sometimes it's good to buy something now while it's cheaper than later.

In the case of government, the sooner we spend on infrastructure, roads, and transit now, even by going into debt, it's actually much cheaper. I could give you numerous examples, especially in Edmonton where if they spent now, the project would be done and the city would have saved money in the long run. But they don't and construction and labour costs go up and up costing much more later on.

So with the current federal budget reported to have a $40 billion deficit (!), a lot of this is supposed to be economic stimulus in the form of targeted tax cuts, bailouts (loans?) to specific industries, and massive infrastructure spending.

I am all for the infrastructure spending as I mentioned. This will actually save us cash in the long run because the longer we wait, the way more expensive it gets and this country needs a big injection. It appears that there are a lot of project where the federal government is involved and this is a good thing.

The other reason why there's going to be a big deficit is that tax revenues are decreasing. While unemployment is between 6 and 7 percent, it's not near how it was in the early-mid 90's or early 80's, between 10 and 12 percent. It could be. But the point is that if someone isn't working, the gov't can't collect payroll, EI, or income taxes. Plus the person isn't spending as much, so there's no GST collected.

And it's this reason why the gov't doesn't want to see so many autoworkers without a job right now, so that's why they're helping GM and Chrysler.

But I will say this again, and I keep hearing intelligent economists saying that what we need to do is be spending more on higher level training and education and get our economy not so dependent on manufacturing, such as auto. Basically, invest in people. There's still lots of job shortages in key areas of I.T., health, accounting, and other areas. There's a reason for that. Our economy is demanding it.

What's appearing obvious to me now is that the government, whether Conservative or Liberal, Bush or Obama, are seeing where the free-market system works and where it doesn't work as well. They see that jobs are the key component and having credit and money flowing through is important.

In the end though, I don't see how a $40 billion change in Canada or a $825 billion change in the U.S. is actually going to make a huge impact on the economy in the long run.

What it's going to do is make us all dependent on the gov't when things go awry rather than take our own personal responsibility for it.

And it's amazing how we didn't learn that 75 years ago.

Let's just hope this deficit is temporary and the way out of it is for the gov't to cut its own useless spending, sell off useless assets, just like the rest of us regular folk have done.