nsitive approach is
aed" must be

“trouble with some. of, their. big. Iusiness spon-
‘sors because they’ performed ata peace rally
’ ast month? Shell and Air Canada are all in a
dither over: ‘the fact’ that 89 members per-
‘ formed ‘at'a rally” for nuclear disarmament.
“These’ ‘companies: ‘should | now. publicly state
- that they ‘will -not allow anyone to use their
-Products who. is in favor. of peace. But they
“won "tdo that, will they?

s sunday

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individual citizens. ..

‘deficit. is .

subtracted from the

: de artments that. dispense

unemployment _
collect’ taxes
everything from _Soup to
ships in addition to ‘the
thousands. of. other :transac-
tions. that. occur between
governments, . business and

insurance

‘Without - questi n
bureaucrats are- nee
These. are. the people. who
are. hired to protect our in

~ | By MICHAEL A.WALKER]-

: TODAY J want to talk about

another statistical illusion
which .the fiscal magicians
are about to pawn off on us.
The notion is this, that
while it appears to every
man and dog that Canada
has . inordinately '. large
deficits, in reality the deficits

are non-existent.

Those: who claim that the
non-existent
perceive two problems with
current measurements of the
deficit. The first is that-the
higher interest rates on the
public debt which inflation
has caused, artificially

‘boosts total government ex-

penditure. Interest payments
on the some $100 billion
worth of public debt out-
standing constitute an : in-
creasingly large fraction of
total federal expenditures.
Naw, those who perceive
a certain amount of stat-
istical confusion say that if
we are to include these
payments in the public
deficit then we must subtract
an equal amount correspon-
ding to the reduction in the
value of the public debt
caused by its crosion by in-
flation. In other words, if the
government owes $100
billion this year and the in-

flation rate is 8 per cent,

then by the end of the year
the real burden associated
with that $100 billion debt
has declined to about $92
billion. The $5 billion reduc-
tion, they say, ought to be
total

and buy :

terests, .as well as ‘our,
dollars, _all the while sup:

to.calculate.the true deficit.

The second calculation is ,

the so-called Full Employ-
ment Calculation. Essential-
ly, the point here is that with
the given expenditurés and
tax rates, -a_ significant

Wright

on
vacation

, amount of the current deficit
“will simply be eliminated as
the economy moves back
towards § full employment.
This amount, it is argued,
ought to be subtracted from
the current deficit because
during a period of economic
distress there ought to be
some allowance made for an
increase in the expenditures
of government in order to
provide those who fall out of
the . workplace with. an
economic safety net.

Sounds ‘pretty reasonable
but doesn’t that mean that
concern about the deficit is
‘much ado about nothing?’
Before you. write

gratulatory letter on the fine

amount-of interest payments _

. the:
Minister of Finance a con-.

ing the size of the deficit,
read on.

There are other ‘aspects
which this fiscal legerdemain
does not consider. For ex-
ample, while increasing in-
flation does reduce the value
of the public debt it also in-
creases the unfunded

liabilities “of » the . federal:
“particularly ©
pension. liabilities related to
the civil service pension pro- -
gram and the Canadian Pen- .
sion Plan. Also, rising infla-

government, |

tion has the effect.of increas-.

ing the replacement costs of

the government capital in-
stallations. In other words,
those roads, bridges, and
public buildings, as they
wear out, will cost much
more to replace because of

inflation. If a proper accoun-.

ting were to be made of
public finances, these two
items would have to be add-
ed the current deficit to get a
true measure of itssize.
It is difficult to know ex-

actly the magnitude of these»

adjustments, Estimates
which Fraser Institute
economists have calculated
Suggest that these latter two
effects of inflation complete-
ly offset the deficit reduc-
tions which some analysts
think ought to be made.
Caiculations recently done

for the: United States in-.

dicate. that ‘accounting for
these special factors in their
entirety would actually in-
crease rather than reduce
the net size of the deficit.
When IU ‘encounter
twisted statistical stories of

job he has done in’ restrain-

really begin, to.
understand why it is people
say that, if you laid ‘all the
economists in the world-end
to end, it would probably be
a goad jidea!: Unfortunately,
the matter at hand jis of
critical importance because
if the Minister of Finance in
Ottawa actyally formulated |

his. budget: on, the basis that ~

no’ deficit existed, the out-":

‘ Come could be disastrous for |
. the long-term Prosperity ‘of

the country...

So, boring: as. statistics
may be, Canadians must pay
a good deal more attention |
to this much ado about
deficit nothings because they °
could well lead toa tempest.

(Dr. Watker is Director of
the Fraser fastituie, a

., Vancouver-based economic .
think tank.}° 7