Prime Minister Harper now says the $4 billion the Canadian and Ontario governments have offered GM and Chrysler is probably just the beginning of the ill-considered dumping of public money into companies with bleak long-term prospects. If you've been enjoying the scintillating level of debate on this proposal you'll also enjoy this video: In The Know: Should The Government Stop Dumping Money Into.............. A Giant Hole?

So George Bush has decided to go ahead and dump a preliminary $17.4 billion in public money into the two least successful "Big 3" North American auto makers. It's not obvious where that is in the Constitution but the President explained that "These are not ordinary circumstances." So apparently the idea is that something that would be unaffordable folly if you had money is indispensibly prudent conduct if you don't. I somehow missed that in economic class too.

As the global mental meltdown continues, the wisdom of decades has disappeared in weeks. We are left poorer for it. Take deficits... please. How long did it take us to learn, or say we'd learned, that they were bad? How many politicians swore while campaigning not to run them? And now look.

From the 1960s through the early 1980s, a lot of smart people really believed deficits stimulated the economy. But we ran them and things got worse, then we got rid of them and things got better. In some ways, I realize, governments of every stripe are now running deficits because they're helpless before the dynamics of a modern budget. But their insouciance leaves little doubt that the agonizing experiences of stagflation and runaway interest payments gave them only campaign slogans, not understanding.

What the rest of us learned over 30 years is that "government spending" does not stimulate the economy. When used for legitimate public purposes, like infrastructure or defence, it leaves us better off if done reasonably well. But whenever government spends, it spends real wealth that it must take from the private sector. That's you and me. In hard times, we're less able to bear any given burden. Hence increased government spending is especially bad in a slump.

Clearly politicians believe the opposite with instinctive rather than reasoned passion. Consider this brief story from Monday's Citizen: "U.S. stock index futures slipped, while the dollar and the yen rose yesterday, after world leaders pledged rapid action to combat the financial crisis, but fell short of announcing concrete measures or major regulatory breakthroughs."

In short, politicians announced yet again that they will definitely spend huge sums of money they don't have on things they don't want for reasons they can't specify in ways they haven't figured out. Oddly, confidence wasn't restored.

When they give details, things get worse. Last Tuesday, U.S. Treasury Secretary Henry M. Paulson Jr. announced that the $700 billion "rescue" plan approved by Congress would not, as originally declared, focus on buying bad mortgage debt, but would instead involve purchasing bank shares. But he didn't know if the government would also throw more billions at failing car companies on top of the $25 billion loan program they bagged in September. Or give money to other financial institutions as well. Or also buy bad mortgage debt after all. "Mr Paulson's comments", the BBC observed tartly, "did little to ease continuing investor jitters..." The next day, Mr. Paulson mused about $50 billion maybe going to companies that issue credit cards and make car and student loans. Or not.

As Terence Corcoran wrote in last Thursday's National Post, when governments are in full panic mode, determined to hurl very many billions of dollars in some direction but can't figure out which and keep changing their story, any sane person will get or stay out of the markets until they figure out where the harm, or good, is going to be done. But there's more.

In the 1980s and 1990s, it became a familiar critique of government industrial strategy that the state couldn't tell who the winners were and the market didn't need to be told. And the policy elite all learned to mouth the words that "picking winners and losers" was a bad idea. But evidently they never believed or understood it. All these bailout plans seem to involve giving money to companies governments have identified as key to economic vitality on the basis that they're about to go bust. So politicians are cluelessly unteachable here too. And they have our wallets.

The Globe and Mail recently editorialized that "While there are ample reasons for Ottawa to tell car makers they don't deserve taxpayer bailouts, there are also compelling reasons to provide help for weathering the current storm. The trick will be to provide the right help to keep these critical companies afloat without getting stuck in a corporate welfare quagmire." Strangely, this argument drops any pretence that GM, Ford and Chrysler are winners but urges backing them anyway, which is hard to portray as an intellectual advance on older ill-advised industrial strategies. Especially as no one has a word to say about why policies that were universally deplored as unaffordable folly in booms have become reputable wisdom in hard times. Instead this week's Throne Speech blithely promised "further support" for the "manufacturing sector, particularly the automotive and aerospace industries."

Maybe I should simply be happy no one's yet suggesting we rekindle inflation and see if it helps. But I'm not, because it's going to be a long, dumb winter. And just months ago we were all so smart.

[First published in the Ottawa Citizen]

Gas prices are down, and so am I. No, I'm not some sort of environmental nut. It's just that I know exactly what Susan Sontag meant when she said "I envy paranoids; they actually feel people are paying attention to them." And only last month I, as a consumer, was the victim of a vast international conspiracy. Those were the days. Back then I even had major politicians feeding my delusion. In September, Jack Layton called for a commissioner to review high gas prices; Stephen Harper told reporters it sure looked like gouging; and Stéphane Dion wanted more Competition Bureau powers to investigate price-fixing. Now prices are down, my political friends have gone silent and I'm a nobody.

Yeah, yeah, I've heard that gas prices both rise and fall in tandem because of the highly competitive nature of the industry, not the reverse, and are driven by actual or anticipated changes in the price of crude oil. But how lonely, how terribly lonely, to feel that it's all market forces, that I'm just a dust speck on the face of global trade. Of course politicians would rather be fearless crusaders against illicit plundering on an international scale than boring hacks mumbling populist clichés. And I'd rather be the target of such a conspiracy than just a guy struggling to make ends meet.

For the same reason -- to compensate for creeping feelings of insignificance, or insignificant feelings of creepiness -- I have frequently observed over many years that my investments invariably do what I wish my weight was doing and vice versa. Moreover, my mutual funds periodically jump up dramatically only to resume their steady painful day-by-day descent.

Just life in the market? Don't you believe it. Here's my theory: My holdings can't actually fall every day or they'd become worthless and the torment would stop. So once in a while the gnomes of Zurich engineer a sharp increase, over before I can enjoy it, then resume the long dreary decline. And while the "logical" explanation is that lots of people have the same problem, I don't open their financial statements. I'd rather sit alone brooding about a giant conspiracy pointed right at me. It makes me feel that I must really be somebody, when trillion-dollar international financial markets are rigged and jiggled daily just to make me feel bad. It sure beats sitting alone brooding that I'm sitting alone brooding.

So I'm not falling for any suggestion that I track the price fluctuations of my mutual funds to see if this fiendish pattern of occasional sharp rises and an overwhelming succession of small depressing declines even exists. No sir. They're not catching me with that one. I like feeling badly done to on a cosmic scale.

On the same basis I firmly refuse to track the long-term trend in gas prices adjusted for inflation. It risks revealing not only a fairly random pattern in the short to medium term, but also that gasoline is not more expensive now than in Henry Ford's day. Especially when you consider how much better it is. (Does anyone out there remember Johnny Cash's song about the guy whose filling station was put out of business by "high-test gasoline" that let cars whiz by on the freeway without constantly refuelling? If the name "Cisco Clifton" popped into your mind you may not be paranoid but you're certainly weird.) I say the tendency of prices to fall as well as rise just proves how clever they are.

Still, on a damp chilly October morning I can't shake the nagging suspicion that I am, at best, the victim of a third-rate failed conspiracy. Not for me fiendishness on the level of Ernst Stavro Blofeld or Fu Manchu or, to avoid the charge of making things up, the Masonic plot to take over the world and force us all to wear aprons or whatever it is they want.

It might be objected that the Masons have been so busy conspiring and hiding every single imaginable scrap of evidence except, um, that disquieting pyramid with the eye on the U.S. dollar that they've never really gotten around to doing all the sinister things their long-standing domination of everything permits. But I say that's a conspiracy where you get your money's worth: deep, patient, convoluted. The same way UFOs wouldn't be fun if the aliens crashed a spaceship on the West Block lawn in bright sunlight and a map and a medical manual fell out.

That's why I'm so disappointed with the gas price conspiracy. It turns out I'm the target of plotters on five continents and all I get is a lousy 90 cent per litre fill-up. What am I, chopped liver?

[First published in the Ottawa Citizen]

To get ready for Halloween our politicians are dressing as the ghosts of deficits past. I admit it's scary. But it's also in very bad taste. It's scary because spending money you ain't got is unwise in good times and catastrophic in bad and, as Adam Smith warned, accumulating public debt "has gradually enfeebled every state which has adopted it." And if Smith is too "right-wing" for you, how about that mad Jacobin Thomas Jefferson, who said "The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

Such was the dusty wisdom of the ancients, blithely discarded in the 1960s and then painfully reacquired in the 1970s, 1980s and 1990s. Strange that it should so promptly go out the window in the 2000s. Frightening, too.

These costumes bring back queasy memories of tragicomic finance ministers in the late 1970s and 1980s assuring us the deficit was finally tamed, and proving it with lovely charts showing it shooting up for a couple more years then suddenly coming down as though we had elected fiscal Uri Gellers who could bend curves with their minds. Of course the end result was that interest on the debt started crowding out program spending and after the electorate pummelled governments that relied on the paranormal to restore order, we actually got quasi-cutters who, in good times, managed to sort things out within reason.

I say within reason because the Chrétien Liberals balanced the budget largely by cutting transfers to the provinces, which meant cutting other people's spending, not their own. Which is more than the Mulroney Tories ever did. But they never learned how to curtail the tendency of governments year after year to do less with more -- nor did the provinces, who responded by delaying vital spending on health care and infrastructure, thus swindling futurity in a different way rather than treating it with honest respect.

Given that in many ways we are already that futurity, the trick looks less impressive now than it once did. Hence the new Fraser Institute report saying that, having blown the locks back off the treasury door in the good times just ended, six provinces will spend more than half their revenue on health care by 2036. Underinvestment followed by panicky overspending isn't prudence and it isn't frugality. It certainly isn't leadership.

Our political masters have the rhetoric down pat for their disguises. Stephen Harper, whose Tories inherited annual spending of $210 billion and have already sent it past $240 billion in a budget titled "Responsible Leadership," just declared it "premature" to say whether he'll run a deficit. (Though it wasn't premature to say he wouldn't during the campaign.)

However, Mr. Harper gravely assured us, his government would definitely maintain "responsible fiscal policies." Exactly the right tone: Solemn guff about responsible policies was the invariable accompaniment of irresponsible ones in the past, and will be again.

Then there's Ontario's Dalton McGuinty, uniting with his fellow premiers in demanding that Ottawa maintain transfers even if it means a federal deficit but unlike them admitting that, even if he contributes to financial catastrophe at the federal level, he'll inflict it provincially as well.

"I've got 200,000 people who have lost their jobs, so now I'm going to shut down their hospitals? It just doesn't make any sense," was his excuse for possibly going into a deficit so he wouldn't have to make program cuts or raise taxes.

"I think Canadians are ahead of us," he blithered. "I think they understand these are very challenging economic times, they understand that our revenues are going to go down, that we have to make some difficult choices."

It's exactly the appropriate tone of brazen double-speak, because drifting into disaster to avoid changing his spending or revenue plans is neither difficult nor a choice. And it was delivered with such sanctimonious solemnity you'd think Don Mazankowski was back, wrapped in the tatters of his budgets, especially once you remember that Mr. McGuinty inherited spending of around $74 billion, and within four years had cranked it up to $96 billion with further large increases planned.

Hard choices? It is to laugh. (And in case you're thinking about Ralph Klein, his Tories doubled program spending between 1996/97 and 2005-06. Yes. Doubled.)

What's really scary is that politicians haven't forgotten the lessons of the past. They haven't forgotten how to cut spending; they never learned it. And they haven't forgotten that deficit spending is ruinous. They just don't care.

So yes, the costumes are scary. Now please take them off before we really say Boo. And then boo hoo.

[First published in the Ottawa Citizen]

After the stock market crash of 1929, progressive Republican president Herbert Hoover claimed his long-serving Treasury Secretary Andrew Mellon succinctly advised him to "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He should have listened. Instead Hoover steered huge tax and tariff increases through Congress, flattening his own re-election hopes along with the economy and paving the way for his "pragmatic" successor Franklin Roosevelt to impose an endless bewildering series of ill-advised interventions accompanied by bitterly anti-capitalist rhetoric. It worked so well that 10 years after the crash the United States was still mired in a massive depression.

As Americans ponder whether this is a bad time to panic or the perfect opportunity, it's worth noting that after the earlier catastrophic slump of 1921, Mellon's advice was followed. Instead of kicking the economy when it was down, Republicans let markets sort themselves out, cut taxes, paid down debt and launched a long boom. Some may say the 1920s witnessed false prosperity under laissez-faire. But it's hard to deny that the 1930s witnessed real depression under intervention.

So forget partisan bickering over who's to blame for lack of government oversight of U.S. financial markets. The answer might surprise you, especially John McCain's new ad featuring Bill Clinton blaming the Democrats. But what's the point?

The problem wasn't too little regulation so there's not a lot to be gained by arguing about who wanted more. The root cause of this crisis is the U.S. government massively pumping up mortgage markets ever since the New Deal, piling program upon program to subsidize unsound lending, including Mr. Clinton's own administration putting aggressive political and even legal pressure on Fannie Mae and Freddie Mac to boost subprime markets.

What has now gone wrong is that huge numbers of people have suddenly realized that for decades banks were making loans they should not have approved to people taking out mortgages they could not afford because of guarantees the government should not have given. And no package should pass Congress that doesn't have some rational bearing on this problem.

The right answer is to get rid of those guarantees, not add to them. When you get a "meltdown," panic, recession, correction or whatever name makes you feel better about it, what has happened is not that the economic fundamentals have gotten out of whack but that large numbers of people have noticed they are out of whack. Proposals to "stabilize" financial markets under such circumstances amount to substituting make-believe for honest mistake. Why would you want to do that, and how could you? What you need is to get your financial system back in alignment with people's understanding of what the real assets are worth and the only way to do that is to let the prices of paper assets fall to realistic levels.

Please keep in mind that liquidating the unsound financial structure doesn't destroy real wealth. It doesn't mean going to houses purchased with triply unsound credit and burning them down. They will still be there and, odds are, the same people will still be living in them. Rich people aren't going to move into 10 cheap suburban houses each and put typical American workers into cardboard boxes. The best economic use of modest houses is to house folks of modest means and that's what a tidied-up financial system would do with them.

Panic, by contrast, means throwing good money after bad. All the Bush administration seems to have is the old something-must-be-done, this-is-something, so this-must-be-done argument. Other voices are no more persuasive. For instance a strangely cheery Globe and Mail piece from a British academic proclaimed not only that "the U.S. free-market creed has self-destructed" but that the "era of U.S. global leadership ... is over". Phooey. This bubble had nothing to do with free markets. And left-wing professors have been gloating over the decline of the American empire since at least 1970, when Richard Nixon took the United States off the gold standard amid the Vietnam entanglement, race riots, economic stagnation and a rising Soviet challenge. It's old news and it isn't true.

It also isn't relevant. No amount of government profligacy can make unsound subprime derivatives valuable in any geopolitical context. And Americans seem to know it. Hence the shameless loading of expensive unrelated goodies to the second, Senate, version of the bailout to seduce the surprising number of Congresspersons who heeded Mellon, and voters, the first time around.

Here's hoping they listen again.

[First published in the Ottawa Citizen]

It's right there on the receipt. I just bought an 8 gig memory stick for 29 bucks. Makes you nostalgic for the good new days of unbridled capitalism, doesn't it? It even makes me feel a bit sorry for kids today. What sort of hard-luck stories will they be able to tell when they're old? "When I was a boy a terabyte of memory cost a whole dollar!" "Ah shaddap gramps, I gotta exabyte implanted right in my brain for a nickel last week." Whereas I remember the first time a colleague, whose research involved a significant database, got a one gigabyte hard drive. We literally trooped into her office to gawp at it. This Tuesday on a whim I threw two one-gigabyte USB sticks into the cart for $6.99. OK, $6.99 each, plus tax. Still not 20 bucks total.

Ten years ago I wrote about the technological miracle that every computer I ever bought cost roughly $2,000 despite huge increases in computing power. It turns out those were, in that sense, the bad old days. This week I went on what would once have been an electronics spending spree, helping someone choose both a laptop and a desktop far more powerful than they could ever use, for just $1400. Combined.

As I doddered through the store, boring everyone within hearing --a small group, thanks to earbuds and the pounding music in stores today, which isn't even music but noise -- I realized my parents' first computer, a 1981 Apple IIe with a daisy wheel printer, set them back ten grand, considerably more than a cheap car, whereas the $450 I just paid for a 360-gig-hard-drive desktop is less than a decent bicycle. As for the $29.99 webcam we also threw in, you could spend that on fast food. And while the ability to see my face in all its horrible detail from another continent might not seem the pinnacle of human social evolution, it is technically impressive.

All of which prompts the question: If government is so great, why does it keep getting more expensive? Years ago David Frum made the point that the excuse we often hear for rising health care costs is advancing technology, and yet in every other field but the public sector that same factor keeps lowering costs -- as you'd expect, since technology in the modern sense means an ongoing, even relentless series of improvements in the technique, materials and organization of production.

A modern car, Frum pointed out, costs about as much adjusted for inflation as a Model T. But it offers rather more comfort and performance. Uh, except under communism, where the infamous East German Trabant generated just 18 hp to the Model T's mighty 20.2. Wikipedia says the Model T, produced from 1908 to 1927, boasted a giant 2.9L engine offering a dazzling top speed of 72 km/h, regrettably at some 18.7 litres per 100k (though on the plus side it could burn gasoline or ethanol). All of which I discovered in three minutes online, speaking of technological advances that leave you shaking your head at the government's ongoing incapacity to generate electronic medical records.

In case you want to try the financial comparison at home, the Bank of Canada's online inflation calculator (www.bankofcanada.ca/en/rates/inflation_calc.html) says the 1909 Model T price of $850 would be about $17,000 today and the 1915 price tag of $440 about $8,300. The cheapest new cars I could find in Canada today both list for just under $10,000. Mind you both have 110 hp engines and warm interiors and stuff.

Technology won't get us into heaven, of course. But on its own terms it works. Under capitalism it continually improves everything but morality and taste. Even the lowly sewer.

Earlier this year I got a fascinating explanation, from the good people who manage Ottawa's sewers, about modern techniques including the "trenchless" system that permits relining of sewers through a process not unlike arthroscopic surgery, that sprays a coating so technically fierce that if the old sewer rots away totally the lining will carry on for years. The engineers and tech guys who work for the city know and love their sewers.

But your municipal tax bill just keeps on rising. Wonder why?

While shopping for Canada Day goodies, try comparing the selection in the supermarket with, say, that on display in the latest federal or provincial cabinet shuffle. Because now that I come to think of it, today's gormless youth, in gormless old age, will at least be able to describe life back when George Smitherman's performance as health minister was thought to qualify him to run a super-ministry combining energy and infrastructure.

I'm pretty sure it has something to do with not getting a money-back receipt for Premier McGuinty.

[First published in the Ottawa Citizen]

The new Ontario budget is a highly instructive document. And I don't mean that in a good way. The first thing it illustrated was the risible level of contemporary partisan shrillness. Let me single out provincial Conservative leader John Tory accusing the McGuinty Liberals of being "addicted to spending," as if he'd be any different, and federal Tory MP Pierre Poilievre following his finance minister's undignified pre-emptive criticism with an instant response that plumbed new depths of brazen implausibility by saying "We came today in a spirit of partnership to ask (Premier Dalton McGuinty) to reduce the job-killing taxes he's imposed on Ontarians".

The second thing the provincial budget illustrated is that contemporary budgets aren't accounting documents at all and no one seems to expect them to be. I was 12 pages into my third newspaper Wednesday morning before anyone bothered mentioning total projected spending for the coming year (a surely noteworthy $96.2 billion). Meanwhile, the top "News" item on the Ontario government website that day was "McGuinty government invests in skills" which sounds like good news until you realize it's ours, not theirs, they're talking about.

Despite the demise some years ago of Keynesian economics, finance ministers and their critics spar over budgets as if their main purpose were to secure prosperity, not safeguard the public purse. Even when forced to admit that the economy has recently performed in ways as disappointing as they were unexpected, finance ministers routinely insist that this year they know all and see all when it comes to stimulating the economy.

The subtitle of Ontario Finance Minister Dwight Duncan's 2008 budget speech was "Growing a Stronger Ontario," not "What we're spending and where we hope to get it" or words to that effect. And in the speech, I found only one instance of the word "spend" (on page 11) but 29 of "invest" or some variant (referring to the government; there were also seven references to private investment which gives you a pretty clear idea of the relative importance they attach to the two). As for the government's plan to raise $96.9 billion and spend $96.2 billion, it appears nowhere in the budget speech.

Indeed, you have to reach page 93 of the quasi-detailed Budget Papers for the first figure and page 107 for the second. Even there they don't commit the ugly word "spend" to paper. Instead "Total expense over the medium term is projected to increase from $96.2 billion in 2008-09 to $102.6 billion in 2010-11, reflecting investments to promote economic growth and job creation through the government's five-point economic plan."

At least it sounds like a moderate increase. But wait. In its 2005 Budget Papers this government projected both revenue and expense three years out (that is, for this fiscal year, 2007/08) at $88.5 billion and they were actually $96.6 and 96.0. Should the Liberals be equally wrong this time, the real 2010-11 expense figure will be $111.3 billion. Exactly the sort of thing that, if this were an accounting document, would attract sustained attention. As would health spending hitting $40 billion. If we were doing "value for money" audits we might ask what we were getting for all these billions, and even on purely actuarial grounds there's room for sober discussion of trend lines.

Instead we get a weird mix of vaguely defensive economic projections and vainglorious political rhetoric about vital improvements to key social programs and the spending restraint that is to come, without any mention of why the 64 percent surge in program spending since 2001 underlined by Terence Corcoran in the National Post didn't do the trick but this time for sure it will work.

Imagine if, in 2003, Ontario's finance minister had told us we're raising health spending to $28.1 billion and education spending to $14.1 billion but these figures are so pitifully insufficient that by 2008/09 they'll be $40.4 billion and $19.3 billion and it still won't be nearly enough, so trust us, we know what we're doing.

No, I don't think they're withholding information. I fear that what you see is what you get when it comes to politicians' understanding and attention spans. That's why budget documents are primarily campaign boasts about how much more money your wise and prudent government is pouring into key programs because the incredible sums they already spent didn't work.

Considered as an accounting statement, that's pretty scary. From a policy perspective it's not much better. On the bright side, you can download the government's budget "Highlights brochure" from the finance ministry website in 16 different languages.

As I said, most instructive.

[First published in the Ottawa Citizen]