Whenever we hold a talk about balanced budgets on campus, there’s always one person in the audience to ask “But won’t this help the rich / hurt the poor?” While I always enjoy taking the time to answer this question during talks, after all, a large part of what we do at Generation Screwed is educating the public about the importance of fiscal responsibility, I thought I should share my answer here as well, to help respond to the occasional online criticism we get, or simply provide you with some additional tools in your toolbox when talking about such a subject. And if anything, it is deficits that hurt the poor the most.
Balanced budgets, as a concept, are not all that complicated: it’s just about making sure your revenues are at least equal to your expenditures. It’s not rocket science. Balancing them, on the other hand, is much trickier. To do so, politicians have to make choices, which inevitably lead to a group being satisfied, while another is dissatisfied, each for their own independent reasons. If anything, politicians are bad at making choices as they realize they stand to lose some support anytime they do. These choices are what leads some that balanced budgets hurt the poor, as some choices can imply a loss of services.
In itself, a loss of services is not always a bad thing. The key is to look at the effectiveness of the service being delivered: is it reaching its goals? If not, can we change it so that it reaches its goals? If it is, is there any way we can reach those same goals with much smaller expenditures? There are numerous examples of government programs being modified so they can reach the same goals more efficiently. Sometimes, it is about streamlining processes when there are unnecessary steps. Other times, it is about finding innovative ways to provide the same services, at lower costs. A National Bureau of Economic Research working paper looked at the potential savings from the privatization of bus services in the US, and estimated cities could save US$5.7Bn (30% of US bus transit spending), just by tendering the operations of their bus transit services to private operators, all without any reductions in either service or quality (Thanks to a wonderful Forbes article for this find!).
With regards to helping the rich, no balanced budget has ever helped the rich. Balanced budgets are not about changing the tax structure, or creating a new supercluster, but about making sure expenditures are at least equal to revenues, nothing more. As there is no new spending being done, or no diminution in tax rates implied in the very concept of balancing a budget, it doesn’t target any group, therefore it can’t “help the rich.”
Now, of course, all this being said, we always have the argument that we should be doing more for our country’s poorest, and that running deficits is but one way to achieve it. As much as this argument might seem appealing, it doesn’t help anyone on net. There is a saying that you shouldn’t rob Peter to pay Paul. The same would apply with regards to deficits. Running deficits is expensive. Very expensive. Federally, it is $24Bn that we pay every single year, just to cover the interest payments for our past borrowing binges. This is money that doesn’t go to help everyday Canadians. It doesn’t help reduce the wait-list at your local hospital, it doesn’t fix our schools, and it doesn’t help create new jobs. Instead, it is being sent to investors who lent us some money years and years ago, and have been collecting interest on it ever since, until the day when we finally start repaying the principal. All of this borrowing we’ve done for decades has hurt our ability to help Canadians today, and the borrowings we are making today hurt our capacity to help Canadians in need tomorrow. This makes me ask the following question: helping one Canadian today is worth letting down how many Canadians tomorrow?
Ultimately, this is what balancing budgets is about. It is not about “helping the rich” or “hurting the poor” as some would say. It is about making sure we have the ability to provide a similar level of services to future generations, instead of having them pay for the services we enjoyed, and they might not be able to get.