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?

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“THIS PAPER IS RECYCLABLE

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

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~ | 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