Structural Economics - General
Deficit spending by governments occurs when revenue intake from all sources is exceeded by expenditures. Governments often make up the revenue shortfall by borrowing but ultimately they must balance expenditures with revenues.
Canadian governments at all levels offer a wide range of services to Canadians and these services are supported by the tax revenues in all forms generated by businesses, workers and consumers. In order for the government to receive a sufficient level of tax revenue from an individual to cover the government services each individual enjoys, their annual income should be at least $25,000.
At any level below that, the government spends more in services for that individual than it receives back through the tax system. Over the past 40 years Canada has created a large number of:
- Part-time, service sector jobs
- Low paying jobs
Over the past 20 years, the proportion of minimum wage jobs has quintupled in Ontario.
These jobs fall far short of the minimum income level necessary for a tax base to support a sustainable social safety net. As well, over the last 20 years, we have been losing a large number of high-paying jobs through both offshoring and free trade agreements with countries with manipulated exchange rates and exploitive labour practices.
This is basically the definition of a structural deficit. The economy as we have structured it - super high growth driven by an influx of cheap labour - is generating a high number of service jobs but not of a sufficient quality to support our current level of social services. In fact, the more jobs that we create of this type, the higher deficits will climb. In the long term, cuts will have to be made to social programs to match the level of tax revenue as government borrowing can't continue indefinitely.
Studies have shown that our immigrant stream of the past 40 years has expanded the lower income ranks. In 2016, this is creating a net loss of tax dollars of close to $30 billion annually. As the policies of mass immigration and globalization continue, that $30 billion will grow to ever more unmanageable levels.
It is not possible to support a comprehensive social safety net on the backs of a growing pool of working poor. In order to achieve sustainable progress, the economy must be structured to invest in upgrading Canadian skills and productivity while protecting our natural assets.
The policy of mass immigration has created record high growth for Canada but no consideration has been given to its structural effects on government deficits and ultimately on our social programs.
This policy must be overhauled to support sustainable progress and by reducing the massive inflow of deficit-inducing cheap labour.
Boom and bust economic cycles based on reckless short-term resource exploitation also add to debt, deficit spending and infrastructure shortages and misallocation.
Shipping high paying jobs overseas and allowing low-cost off-shore producers with minimal labour and environmental standards in countries with artificially low currencies to wipe out entire sectors of domestic manufacturing essentially assures intractable deficits and program cuts.
A sustainable society can only be established if the goal is a race to the top and not a race to the bottom.
Structural Economics - Advanced
Structural deficits come in many forms but they have several common causes. Among these, over-promising benefits, building your fiscal house on shifting sands and placing short term interests ahead of long term realities are probably the most prevalent.
- Creating many low paying jobs in a society with a high level of social services.
- An increasing proportion of low wage jobs assures a continuous reduction in tax revenue. At the same time a low wage earner requires the same services as a high wage earner meaning that tax expenditure will not go down. In fact, low wage earners typically place greater loads on the social safety net due to higher rates of unemployment and poorer health. A strong social safety net cannot be maintained on the back of a growing pool of working poor.
- Creating more overhead jobs than production jobs
- Real wealth creation jobs have been declining relative to government, finance and other non-productive jobs. The shift has been masked by increasing debt accumulation being represented as income. Only so much overhead can be carried by any given production mechanism before the system becomes unsustainable.
- Allowing early retirement in an era of declining output
- When real output per capita is declining, allowing early retirement simply shifts an increasing burden onto fewer shoulders with a diminishing production base.
- Allowing the growth of unproductive and counter-productive sectors
- Interest group advocacy and corruption can allow resources to be funneled into unproductive sectors of the economy which place a drag on the real product sectors. Historically this has been church and military and is currently various government sectors, housing, legal and finance. Clearly, in the USA, the military is still a prime sink for resources.
- Building a large and complex infrastructure to service a resource with a short life span
- Long term planning eliminates the losses associated with building massive overhead to service short-lived requirements. Think mining town with a huge infrastructure. When the ore plays out, the revenue stops but the cost of maintaining the overhead does not.
- Allowing a level of extraction too high for a resource to sustain
- Applying the mining boom town mentality to renewable resources produces the same result. Allowing unsustainably high extraction rates increases the need for a larger overhead service infrastructure. When the resource crashes or dramatic reductions in output are unavoidable, revenue falls but the costs of overhead continue.
- Building on a Flood Plain
- Build infrastructure in a location which is inevitably going to suffer high levels of damage and eventually costs will exceed revenues.
- Granting high pensions and early retirement at a time when a small number of people were supported by a large number of people only to have the number of dependent people increase and the number of supporting people decline
- Use a model based on a snapshot of the current situation and assume or don’t bother to consider whether it is ever going to change
- Allow a system to become so complex that no one can understand it and no one can manage or regulate it.
- A critical problem for every sophisticated, stratified society it underwrites every other problem listed here. How is it possible to plan or change effectively if no one understands the entire system? As President Obama said, “I don’t really understand this economic stuff.” This doesn’t bode well for leadership effectiveness. The above statement does not make President Obama an exceptionally poor leader, just an exceptionally honest one.
- Allow the interests of various groups to completely diverge from the national interest to the point where it is impossible to define what the national interest actually is.
- A given problem as the society stratifies. Instead of common understanding and common focus of well-being, different layers of society develop different interests. Typically, the base maintains its interests while the interests of elevated stratums change to making a living off the base rather than with them. Then, more base equals more benefits for upper classes yet fewer benefits for lower classes. Hence the drive by stratified societies for growth.
- Continue to expand consumption when economies of scale have turned negative.
- Call this a combination of failure to adjust, different interests of the different classes and the pox of complexity combined. Applying the hopes and dreams of the 1950s era when access to resources was skyrocketing and real costs were plummeting to the 21 century reality of increasing scarcity and decision making gridlock.
- Cut investment and job possibilities for young people and load them with debt. Watch tax revenue fall over the next 4 decades
- Any society’s hope is in future generations. Cutting down on their skill levels and potential to work and learn critically damages the potential of a society moving forward.
- Ship the manufacturing sector overseas and terminate several million high paying jobs. Tax revenues fall and social serves goes up.
- Like clear cutting a forest or paving over farmland, the loss of economic “soil” and the complex micro-infrastructure of productive capabilities and skills leaves an economy stripped with only the larger blocks remaining and extremely vulnerable to further erosion as the big players inevitably founder. Nortel, GM, Ford, Chrysler, Blackberry.
- Maintain a heavy stream of immigrants into the country who are increasingly tax negative and who freeze productivity improvements and perpetuate low wage jobs.
- The society loses on this process but specific, powerful sectors thrive. It is impossible to lose on individuals and make it up on volume. Complexity, corruption and misleading leading indicators allow this process to continue.
Many of these structural deficits have the same fundamental causes.
- Failure of vision to look down the road.
- Failure of research to understand the process of real wealth creation
- Failure of integrity to clearly define public interest vs that of powerful interest groups
- Failure of experience to understand system and social dynamics
- Failure of character to forego small current sacrifices to avoid large long term problems
Structural Deficits can’t be effectively treated with budget cutting, belt tightening or program re-imagining. They can only be cured with structural changes which require all of the reasons for failures to be recognised and rectified in full measure.
Structural Economics - Reference
Higher immigration means lower servicesRead more
Recent immigrants cost taxpayers $16B a year: Fraser Institute. Impact on government deficits ($20 billion) of mass immigration - doesn't mention connection to cheap labour
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The purpose of this book is to provide a compilation and analysis of government spending both currently and historically.
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Impact on government deficits ($20 billion) of mass immigration - doesn't mention connection to cheap labour
Public Sector Debt Clock
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Submitted without comment or prejudice, we would simply note that the ratio of public sector jobs to factory jobs reached an all-time high of 2.1 in October.
Fiscal Transfers to Immigrants in Canada: Responding to Critics and a Revised Estimate.
Alberta says it can't afford public pensions. Then who can?Read more
As Canadian dollar rose over 10 years, 500,000 factory jobs died
Shift from High to Low Income Jobs Impact
Causes of Canadian government deficits
- Shift from High to Low Income Jobs 35%
- Unemployment and under employment 20%
- Costs of growth 18%
- Immigration costs 15%
- Unsupported program expansion 8%
The causes of Canadian deficits and cuts to the social safety net have deep roots. The loss of high income manufacturing jobs coupled with a shift to lower pay and lower hour jobs including self-employment reduces tax revenue and increases demand for government services. Expansion of infrastructure to accommodate a growing population and the costs of immigrant support vs immigrant generated revenue are also unavoidable revenue drains. Programs committed to in an era where circumstances