MUSKRAT TAX IDEA: WHAT WAS JIM FEEHAN THINKING?

I sat in the audience at St. John's Rotary Club, last week, as Memorial Economics Professor, Dr. Jim Feehan, explained how successive years of excessive spending and a precipitous decline in revenues, much of it anticipated, had given rise to the province’s current fiscal mess.  He took time to explain the limited options available to the government, quantified the savings associated with service and program cuts, and suggested possible new revenues, all in pursuit of self-rescue.

Lunch was already over before he launched into the proposal for a new “Muskrat Falls Financing Tax”.  Luckily, the normally thoughtful Professor was empathetic enough not to have subverted decent gastronomy before exposing the audience to the most recent innovation of the ‘dismal science’.

A “Muskrat Falls Financing Tax”, an economic concept? Not really; not in the way of Piketty or the Nobel winning Klugman. It was just an idea; perhaps, like hundreds of others. Except, this one had more implications, an unusual rationale; it was presumptuous, to say the least, even for an economist.

Ostensibly, it would help the government finance project cost overruns at a time when the debt markets, long term financing anyway, are virtually closed to the province. Feehan marketed the doubtful idea as pain, now, for less pain later.

Even though lunch was over, Feehan’s idea of a new tax practically caused me to retch.  Instinctively, my eyes, already exophthalmic, popped even further, each one shifting and exploring, furtively, like scud missiles, though with less control, in search of his colleague, Dr. Wade Locke. Only Wade, I thought, could have put Feehan up to this.

Locke was among the first to assure the whole province that Muskrat was economic. He even appeared on the public media, occasionally, to nod assurance that it was fine if cost overruns continued skyward.

Had he told us he was usually on the tab of the Department of Finance and of Nalcor, we might, at least, have feigned scepticism. But only a handful of “naysayers” refused fealty to his insistence the analysis was right. Anyway, it was plain enough to  the few the discipline and the disciple had become detached.

Could this have been a desperate attempt, by Feehan, to rescue Locke, I wondered? Surely, he must know a “Muskrat Falls Financing Tax”, a “Lockean” face-saver it was not.

There was no ‘social contract’ here, certainly not one devised as might Locke’s namesake. Locke, the liberal philosopher, saw the relationship to the state in the nature of a delegation of individual rights, in return for protection. This idea constituted little more than a licence to confiscate from everyone, including those of limited means.

Those finding this point moot will agree, however, that it did not invoke any sense of shared goals like those inspired, say, by Tommy Douglas.  

Even the political spin of Nalcor CEO Ed Martin was missing. No one, as Locke could tell Feehan, can sell any fanciful idea absent deference to the Pharaoh of the 100 year project, the Ozymandias of "quick clay" and "sunk cost", though one, admittedly, now enjoying a stature more akin to economic terrorist than King. 

Possibly, Feehan was trying to emulate the Auditor General's characteristic sobriety; but did he have to embrace the artlessness of the beancounter, too? 

I waited, anxiously for the economic ‘speak’, some expostulation of a higher purpose, an underlying and unifying social goal, one threatened, perhaps, by Putin, the shenanigans of international oil, or some specious geopolitical agenda, masterminded by the Saudis to undermine Iran. But there was no such theme of joint action, no demand on patriotism, no precondition that Martin's head should roll; not even an insistence on a Review competent enough to confirm the 'sinkhole' had a floor. There was only the unquantified suggestion it might be better to start paying now.

Had Feehan forgotten a “Muskrat Falls Financing Tax” would allow Nalcor to continue to build a megaproject which possesses less legitimacy than a coup d’etat?

Wasn’t Muskrat the very manifestation of simple economics perverted; a speculation dressed up as an investment, incompetent progenitors now hoist on their petard, the project already having crashed and burned; a fact afforded denial only by the Tories by a Liberal leadership long conflicted; one now, enfeebled by indecision and inexperience?

Dr. Feehan had warned Nalcor and his colleague, Locke, too. He had instructed the Economics Department Head on a concept, likely found in the first chapter of Economics 101, on the elasticity of demand. Sensitive to easily bruised egos, he had even cleverly disguised the message in a Paper entitled: “Newfoundland’s Electricity Options: Making the Right Choice Requires an Efficient Pricing Regime“, in 2012.

But Locke wasn’t listening. It was too late, anyway.

Locke had already experienced the good fortune of having been seated within ear shot of the “Oracle of Galway”. Danny Williams was not an economist. But that didn’t matter. The power of bombast, and of wishful thinking, had the same hyper-hypnotic effect as the rationality principle, didn’t it?

Alongside Williams, Locke must have felt as might a maître d’ to Thomas Piketty. The international economist had written a best-seller, counselling governments to redistribute good fortune through a global tax on wealth. Except Feehan was now proposing the very reversal of the same idea. The perversion was obvious; it was a way to allow Dr. Locke to emerge from the shadows unembarrassed. Ed Martin would love it, too.  Reverse wealth redistribution would allow Nalcor’s entire management team to extend the lifespan of a project that had already served as the perfect golden handshake.

The Mayor of St. John’s, no economist to be sure, had already tried Feehan’s…well, possibly Locke’s idea; except his goal was to help only the one; that is one better connected than most. 

The Mayor was a disciple of the “Oracle of Galway”, too, offering, in return for Danny’s eternal gratitude, a one sided deal worth $8.5 million for 20 acres, most of which, as one City Councillor admitted, was mostly to be used for dumping snow. It was forward thinking insisted Doc O’Keefe, even as the citizenry rose against it; but unlike the Mayor, Locke knew all sorts of names for “pickpocket socialism”. The “Muskrat Falls Financing Tax” was ‘easy peasy’.

I thought of the ‘Oracle of Galway’, as Professor Feehan sat back down, his remarkable conclusion still reverberating in my ears. I remembered the lashing of critics, and the unwarranted claims, like this one, which Williams made in 2014.

“There is a group out there…pounding away at us just for the sake of pounding. Well I’m telling you, this was a good project when it was approved, it’s a good project now, it will be a great project in the future.”

It is difficult to square Williams’ version of the prophetic with a project on life-support.

Dr. Feehan deserves applause for his many contributions to public policy; but a “Muskrat Falls Financing Tax” is neither noble nor Nobel. The government has beggared itself. Even if it seems wistful, it should not be allowed to beggar the public, too.