© 1997 Karen Selick
Deficits Begin at Home
An edited version of this article first appeared in the May, 1997 issue of Canadian Lawyer.  If you wish to reproduce this article, click here for copyright info.


 Deficits Begin at Home

By the time you read this, we’ll know how big the federal government’s deficit was for the 1996-97 fiscal year.  As I write it, the year isn’t over yet, but the predictions are pouring in. It looks as though we’ll have overspent by only $19 billion instead of the $24 billion we had planned on.

Incredibly, the news that we are ahead of target on deficit reduction has spawned demands for new spending programs and a general loosening of the federal purse-strings.   A January poll showed that only 35 percent of respondents wanted the government to continue cutting spending.  Fifty-seven percent wanted it to "put money back into programs." 

Note the word "back."  What trick of mental gymnastics would prompt a pollster to ask whether money that the government never had in the first place should be put "back"?   Worse yet, why is more than half the population willing to engage in the same sort of self-delusion? They treat news of a deficit reduction as if it were exactly the same as a surplus.

A flurry of articles has suggested that last year’s results betoken a new trend in which the feds will rack up repeated genuine surpluses in years to come.  This willingness to consider one year’s aberrant figures to be the trend, and 27 years of history to be obsolete, seems to be an extreme case of counting one’s chickens before they hatch.  The predictions themselves contain the seeds of their own destruction, seducing a naïve public into demanding an immediate return to the free-spending habits that created the problem in the first place.

Predictions like this aren’t new.  Pick up the budget documents from any year of this decade and look at the rosy pictures they painted.  In 1992, for example, they forecast that the 1996-97 deficit would be only $5.5 billion.  Oops, just a 245 percent error.

But I really shouldn’t be surprised by these events and attitudes in the macrocosm.  I see the same thing on a microcosmic scale every day. In a dozen years of practising family law, I’ve observed that a shockingly high percentage of the population seems to be utterly inept at managing money. 

The financial statements that quarreling spouses prepare for court almost always show that they are spending not only every penny they can get their hands on, but more.  Only a few rare individuals actually take the time to add up their expenses and present a balanced budget instead of a deficit. 

No longer, it seems, do people save a little money for a rainy day.  Instead, they arrange a line of credit.  Lo and behold, it starts to drizzle.  Then it starts to pour.  Oops, we’ve almost reached the limit on our credit line.  Let’s take a vacation in Florida to relieve the stress.

Cross-examining people on their budget deficits is revealing.  I present them with the only three logical possibilities that can exist:  either they are understating their incomes, or they are overstating their expenses, or they are actually going further and further into debt each month.  Most people are incapable of telling me which statement accurately reflects their situation.  Not only do they not know the answer, many have difficulty grasping the logic of the question.

This phenomenon cuts across all income classes and occupations. Doctors and dentists are often no better at living within their means than store clerks and secretaries.

So which came first, the chicken or the egg? Have Canadians learned that it’s okay to go into debt because they’ve accepted government as a role model?  Or do they elect free-spending politicians because their own perpetual financial crises have made them blasé about the perils of indebtedness?

Of course, divorcing spouses are a skewed sampling of the Canadian public.  One of the most frequent causes of marital discord is financial difficulties.  If these people had been prudent money managers in the first place, many would not now be divorcing. I know there exists a segment of the population (probably the same 35 percent who voted to continue spending cuts) who have both savings and solid marriages.

These microcosmic observations hold a lesson for those running the macrocosm:  debts and deficits inevitably cause much bickering and sorrow.  As Mr. Micawber said to David Copperfield: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.  Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Unfortunately, our leaders think they can afford to ignore this lesson.  The parallel between a household’s deficit and a country’s breaks down at a crucial juncture.  In a household, those who end up paying the bills are the same people who got to enjoy the spending spree.  In a country, those who end up paying the taxes are often a completely different group than those who got the goodies.  So long as the "debtor class" is large enough to outvote the "creditor class", governments will run deficits. 

Debt addicts must learn the errors of their ways, not just for their own sakes, but for everyone’s.  Instead, the government talks about implementing new laws that would rescue debtors from themselves—for example, interest rate caps on credit cards.  Sigh.  When will we ever learn that deficits begin at home?

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June 15, 2000