Perspective

WE ARE the Government!


Jean-Luc Gravel

Member of the Blue Bridge investment committee

Few other words have made a more lasting impression on me than these:  Ask not what your country can do for you, ask what you can do for your country. They were spoken not by a right-wing hardliner, but by the late John F. Kennedy, Leader of the Democratic Party, during his 1960 inaugural speech as President of the United States.

We are the Government. The government takes actions and makes decisions on our behalf, hopefully for the better. When we elect a government, we become accountable and responsible for its decisions. Two things concern me. Government is taking up more and more space in our lives. A recent article in The Economist reports that the share taken by governments in the economy of most developed countries has risen from less than 5% in 1870 to over 40% in 2021.

Agree or disagree with the idea that government is taking up increasing space in our lives, there can be no denying that we, members of the voting public, must get more involved not less! Yet the number of voters turning out for elections is consistently dwindling.

If you ask me, the economy is the fundamental matter. In a healthy economy, we have access to all kinds of services, of which the most important are health care, education, and security, including the fight against climate change. All of this, however, requires a sustainable foundation, and I have a few doubts that we’re close yet. Investing in infrastructure that supports economic growth is perfectly reasonable. But we cannot go on borrowing indefinitely to pay our daily expenses.

When the government borrows, debt rises, and who exactly is borrowing and getting into debt? It’s you and me. Every debt has its flip side: future repayment. We are told that the debt is manageable if it drops over time as a percentage of the GDP. While this theory might work like a charm when the economy is strong and thriving, the problem is more stubborn in situations like the one brought about by the pandemic. Debt as a percentage of the GDP has risen dramatically. It will catch up with us in the end. Like so often in the past, sacrifices will have to be made, which we all too easily seem to forget.

We either have to cut our constantly burgeoning expenses or increase revenues by raising taxes while allowing inflation to continue to surge like it is now. Both options hold little appeal for the taxpayer. For those convinced that the wealthy and large corporations will foot the bill, expect to be disappointed. Talk to the French or, more recently, the Americans or the Germans. All three governments had to back down because of the realized (France) or anticipated ineffectiveness of the proposed measures. As for Canada, the increase in the marginal rate from 29% to 33% for incomes over $200,000, which was supposed to raise about $3 billion, would have generated less than 2 billion, a fraction of 1% of the 2020 deficit of over $350 billion. Presumably, another 4% increase would yield even less.  The large corporations should be asked to pay more, but the level of global cooperation it would take seems almost impossible. Not to mention that the tax increases imposed on these companies will ultimately be passed on to consumers in the form of higher prices.

In conclusion, everyone will have to pay. The Prime Minister recently said that government is borrowing so that ordinary citizens can avoid debt. But when the government borrows, we borrow. We are the government. Naturally, the government gets a better rate than we would on our own. But the outcome is the same. And if we fail to deal with the consequences, the task will fall to our children. Is this really the inheritance we want to leave behind?

More disciplined and effective government, and more involved and realistic citizens, would be a step in the right direction.

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By Jean-Luc Gravel, CFA

07/12/2021

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