Thursday, 13 March 2014

WISDOM, WEALTH AND THE LESSONS OF HISTORY

If a society wishes to endure it ought to rely on its wisdom more than on its wealth.   

The idea suggests we have to use our heads, employ intelligence and rely on analysis rather than risk being swept into a whirl-wind of indulgence.   

An essential component of wisdom is discipline, both personal and collective. Discipline speaks to self-control, to living within ones means, to thoughtful planning, and to the ability to make adjustments even when they are painful; discipline suggests a pre-occupation with a larger prize, more than that afforded by immediate gratification.

Following the Budget last year, some asked: how it is possible that financial whiplash could again be suffered so quickly; the music suddenly muted on our celebration of nascent wealth?

Others rightly express bewilderment that we have not taken care to prevent successive deficits of $200 million and $450 million for the past two years and a forecast deficit for the 2014-2015 fiscal year will be higher again.  We have also done little to resolve the accumulated debt of the first five decades of Confederation.    

The question is: are we any more enlightened than our 20th Century forbears?
That is not an unreasonable question; though the mindlessness which has characterized the Budgets of the Williams/Dunderdale Administrations suggests we possess no historical memory nor give any thought to the plethora of countries suffering unbearable debt burdens.

A much older generation still expresses bitterness that NL paid a high price for its insolvency; our national sovereignty having been surrendered in 1934. 

Lord Amulree, The British Parliamentarian, appointed to study Newfoundland’s financial condition, was blunt in his assessment of our lack of fiscal discipline.  Many regarded him unnecessarily harsh because NL shared similar economic challenges as other countries during that time. Still, modern analysis offers only slightly less judgmental repartee. 


In a 2003 Paper entitled, "THE NEWFOUNDLAND LESSON"   by David Hale, Chairman, Prince Street Capital Management of Chicago for International Economy Magazine, the author notes how quickly and easily the problem developed: “The government had borrowed heavily to finance military expenditures…to finance the construction of a railway, and to cover operating deficits…by 1933, there was a public debt of over $100 million compared to a nominal national income of about $30 million”.
Hale reminds us, too, that the politicians of the 20th Century failed to remember the problems suffered in the late 19th century.  Wrote Hale: “The 1933 debt crisis was not Newfoundland’s first brush with economic calamity. There had also been a major financial crisis in 1895; the island’s two largest banks in the country failed. The bank failures destroyed many local businesses and left the government without adequate funds to make a payment on the public debt”.   

Since Amulree, we have not succeeded in moderating public expectations; nor have we installed a set of fiscal brakes to ward off another calamity.  That seems to be too high an expectation for a leadership that believes the public purse bottomless.

We have paid a high price for our forbear’s failure of governance.  Now, it is us, whom history will judge. What is our duty? Just possibly it includes a commitment to not repeat past failures. 

The problems of Greece, Cyprus and Ireland, playing out as a wound upon the Eurozone, will not result in a ‘confederal’ adoption as did our ‘structured default’. 

But loss of sovereignty is no minor consequence. 

Few imagine that 1934 could ever be repeated. Perhaps that is the reason we are still prepared to ignore risk even as we passively watch the Finance Minister rack up huge deficits at a time when historical revenues are at their highest.  

Bad luck is a formidable visitor when a ‘speculation’ is contrived; last time, it was the Newfoundland Railway and other ostensibly legitimate reasons; today, the excuse is infrastructural deficit, ‘investments’ in social development and a plainly uneconomic hydro megaproject.

When is any excuse not legitimate?

Could it be when you can’t afford it? When a large part of the Budget is reliant on volatile commodity prices (oil)? When you have, again, engaged in a high risk speculation (Muskrat Falls)?

The right to accumulate debt does not constitute an obligation to borrow; it is an option, a choice; one to be managed carefully and always with an eye to the future.

Are we capable of relying more on our wisdom than on our wealth?

Perhaps the new Minister of Finance will address those questions when she delivers the next Provincial Budget in a couple of weeks.

2 comments:

  1. This government has no wisdom, are blowing all the wealth, and are too arrogant to learn any lessons from history.

    ReplyDelete
  2. Des, we don't need wisdom. We have pride, strength and determination.

    ReplyDelete