Wednesday, July 14, 2004

Coyne Vs. Klein

Coyne goes off on Klein's announcement of slaying the debt:

Economists, on the other hand, are more concerned with trends, and proportions, comparing where we were last year with this, and how our debts stack up against our ability to pay. The absolute value of the debt at any given time is less relevant: certainly no particular importance should be attached to the number zero, any more than it is significant whether the books are exactly balanced in any particular year, or whether they are sixpence one way or the other.

I can't believe I would ever hear someone say that there is no value to having zero on the books. Does the government need to be leveraged for expansion into new markets? Should the government, if it has a choice otherwise, spend the money on more government services? Alberta already has a rapidly expanding government, and Coyne later states that he thinks that Alberta (rightly) should get out of investments.

I guess the question is what (if not used to pay down debt, investment or spend) should the government do with the money? Alberta could be doing a lot worse things, and I do not think debt slaying is that bad.

Coyne misses a key point while trying to say that the Alberta government should wait and pay the remaining debt (3.7B) over several years:

Interest rates are now low and Alberta's debt rating has never been better. If the inevitable happens and Alberta eventually slides back to deficit because of oil prices (they are not as diversified as I thought) Alberta's credit rating will tumble and the price of debt will go up. This position will be further hurt by the fact that Alberta will still have debt on its books. And since interest rates can only go up, the price of not paying off the debt now goes up exponentially.

Alberta is flush with cash and can eliminate a huge drag on any provincial economy. The time to pay off the debt is now. Even if there are some minor penalties for paying the whole thing off early.

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