Monday, January 09, 2006

Before the bubble bursts

One unintended consequence, like a side-ache from dancing the Twist, is that the largesse simply enervates our body politic and delays inevitable reforms. In a relatively slow-growing economy where government spending accounts for about half the total, more cash for old models prolongs the mediocrity of Mills’s “perfect calm.”
Three themes dominate the dated dance music:
Governments can produce cheaper services. The reality of vibrant markets demolishes this, the mouldiest of the tenets. Almost no one believes that governments should run supermarkets to provide cheaper food, or that politicians and bureaucrats can outperform Wal-Mart. Only primitive government accounting systems, which fail to measure real costs, preserve the illusion. Can Manitoba Health deliver cheaper MRIs than the Maples clinic? Only when you treat equipment purchases as a free good, underpay their operators and make the public wait for needed scans. Ditto for many services now delivered by our sprawling public sector, including liquor, car insurance, social services and education.
Government price controls can outguess markets. Two examples, from many. The latest statistics on Manitoba’s rent-control tragedy show higher rents in Winnipeg than in Regina or Saskatoon—both decontrolled in 1992—and a lower quality and quantity of apartments. The collateral damage: little or no residential construction in Winnipeg’s downtown, a huge missed opportunity. For more stupidity, consider the Doer government’s shenanigans with energy pricing, where clean, renewable hydro-electricity subsidizes the consumption of non-renewable natural gas. Massive equalization payments allow us to charge below-market rates for electricity and cross-subsidize energy consumption. The result: one of the world’s most energy-inefficient economies.
Governments can plan for the future. Politicians tend to look backwards, protecting old methods and catering to favoured interests. Consider, for instance, the tiresome debate about transit. More people now “telecommute” by working from their homes than ride transit. Yet the establishment still seeks to pump hundreds of millions of dollars into a system that moves people downtown to fewer and fewer jobs. Ten years ago, few had heard of the Internet, which has revolutionized work, play and shopping. Yet we use yesterday’s assumptions to project ridership decades from now and waste money on outmoded forms.
A “perfect storm” is about to sweep away the “perfect calm” and obliterate such myths. Even the dimmest of politicians are slowly understanding that unreformed healthcare is unsustainable. The main paymasters, Alberta and Ontario, are losing patience with a dysfunctional equalization system. The latter, Canada’s manufacturing heartland, is caught between the pincer of huge competitive pressures from China and rising energy costs. The Institute for Competitiveness and Prosperity, a think–tank funded by the Ontario government, recently criticized equalization’s focus on increased consumption in low-productivity provinces. To boost Canada’s investment and economic performance, it proposes tax cuts instead of “no-strings-attached” subsidies to have-not provinces

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