Yesterday's Globe and Mail features an excellent piece by Derek DeCloet that examines the stupid, senseless, ideological controversy over AIMCo's investment in Precision Drilling Trust. It's worth a read.

EDIT: Added the missing link. Sorry.

On March 19 Alberta Energy Minister Mel Knight announced that the natural gas rebates will not be renewed past today. This will finally put an end to one of the government's most hypocritical programs.

For a government that espoused the necessity of non-intervention in the economy, the natural gas rebates were a blatant distortion of the market. The government would pick up part of the tab when natural gas became expensive. When somebody else is footing the bill, concerns about efficiency and consumption go out the window (sometimes literally). This defenestration distorts the market's demand for natural gas, a non-renewable resource.

Every time that the government claimed that its hands were tied with respect to rental housing or the pace of development, I'd just point to these rebates as a perfect counterexample. It was awful that the government would pick and choose when to interfere with the economy and yet preach laissez-faire at the same time. If you're going to try to be ideological, at least be consistent. These guys pander to the voters when it's convenient.

On March 18 an article entitled "Alberta comes back to earth" ran on the website for The Globe and Mail. The article itself was discussing the economic slowdown in Alberta following the insanity of the past few years -- nothing new.

One thing that did catch my eye when reading that article was one of the reader comments:

I blame Trudeau and the NEP...

I thought that the comment was very succinct, in a tongue-in-cheek sort of way. I don't know if that was written by an Albertan or not, but I agree with what the comment's author is trying to say. There is a point in time when Albertans need to stop blaming external foes from the past for our problems, and start looking at our enemies from within.

Have you ever wondered why it seems like the Government of Alberta is always in infrastructure catch-up mode?

Part of the problem is that their capital budget over the past 15-20 years has been bouncing like a yo-yo. When the economy is hot and the government is running surpluses, they increase capital spending. When the economy is slowing down, they cut the capital budget to avoid posting a deficit.

This leaves us with a problem. When the capital budget is cut, there isn't enough money to build needed infrastructure. When the capital budget is high during a boom, cost escalations make the projects so bloody expensive that, surprise surprise, there still isn't enough money to build needed infrastructure. Clearly something has to change if we intend to be able to afford the capital projects that we absolutely need to get done.

When somebody buys a house, he or she generally takes out a mortgage. That person can't afford to buy the whole house at once, so he or she uses debt to facilitate the purchase. The same thing is needed with governments and capital projects. They can't afford to pay for an entire freeway within one year's budget, so the construction needs to be broken into chunks. If funding isn't consistent the results are these piecemeal, half-assed infrastructure projects that never quite get done. Would you build your house one room at a time, year after year? That's the kind of constraint that the government has been working under.

One thing that the government has done to try to alleviate this problem is to use public-private partnerships (P3s). The government signs a long-term (30 year) contract with a company whose job it is to design, build, and maintain a piece of infrastructure all in one shot. This has worked quite well for the ring roads in Calgary and Edmonton. The roads are built to full freeway specifications immediately, instead of being stuck with substandard roads with "temporary" traffic lights at intersections that need interchanges. This is only possible because the P3 company borrows the money that is necessary to build out the entire project at once. Guess what: it's debt! The P3 projects involve debt -- they are just a clever way of keeping the debt off the government's books.

Imagine my surprise when I read Ed Stelmach's proposal for a second alternative that is being referred to as "Smart Debt."

The name "Smart Debt" is suggesting a couple of things. First, the debt should be dedicated only toward capital projects that produce assets. Second, the premier's musings suggest that the government's AAA credit rating would give the government's capital account a higher interest rate than the locked-in interest rate on any new debt. This means that the government could make enough money from its cash to pay off the debt's interest and still have some left over. Once the economy heats up, that infrastructure will already be in place and the government can use its surplus dollars to further pay down the principal.

Nobody would dispute that it's a bad idea to borrow money for operational expenses. Perhaps it buys time, but in the end you've got nothing to show for it except for more debt. On the other hand, using debt for capital spending leaves you with an asset that has value. A loan on something with high depreciation isn't a good idea because you end up paying principal plus interest on an item whose actual value is plummeting. For "Smart Debt," this means that items like cars and computers need not apply.

This policy would help the economy in several ways. First, it would provide jobs during a recession. Second, the government would avoid the pain of any cost escalations that occur during a boom. Finally, completing projects during a recession frees up labour to work in the private sector during a boom, helping to alleviate those cost escalations. In summary, if the government's numbers are correct and they only borrow for capital projects resulting in assets that depreciate slowly, I think that this policy is a slam dunk.

Many ideologues abhor deficits under any conditions. The question that I ask is this: Who is more fiscally conservative, the premier who borrows money, locks it in while it's cheap and builds a project while costs are stable, or the premier who only builds during booms and ends up with the project doubling or tripling in cost?

One of those scenarios would help pay off our infrastructure debt without being detrimental to Alberta's fiscal health. The other scenario maintains zero debt, but it wastes money and leaves us playing catch-up in perpetuity.

Some days I feel like I'm in the Twilight Zone. Only recently I was ripping into Stelmach for some stupid remarks that he made about the Heritage Fund. Now I'm lauding him for the economic foresight that this "Smart Debt" plan reveals. Wow. Speaking of yo-yos...

I'm glad that Ed Stelmach isn't a financial advisor. Today I was reading Don Braid's latest column in the Calgary Herald, where Braid writes:

When Liberal Leader David Swann scolded the premier Thursday for not saving more, Stelmach said the government was right not to, because the money would just have been lost on the markets.

Swann looked like he'd been socked by a rhetorical Whoopee cushion.

I wanted to read the actual text of the exchange in the legislature, so I looked it up in Hansard:

Dr. Swann: Thank you, Mr. Speaker. Today the finance minister gave a news conference that repeated previously announced economic initiatives to cloud the fact that this government has mismanaged the Alberta economy. For years this government has ignored the advice of experts to save during times of plenty, and now, once again, Alberta is in trouble. A former Premier admitted there was no plan for the boom. Will this Premier admit there is no plan for the bust?

Mr. Stelmach: Mr. Speaker, the hon. Treasurer today delivered a report that shows that our savings fund, the heritage savings trust fund, has taken a loss, but I would submit that if we would have listened to the advice of the member across, we would have lost even more money through this unbelievable economic turmoil...

Doesn't the Premier understand that a loss isn't locked in unless the securities are sold? Nobody's disputing that the value of the Heritage Fund is down on paper, but if that money is invested for the long term in accordance with the intentions of the fund, there will always be gains in the long term. To hear Stelmach tell it, I'd be better off had I not saved a dime over the past few years because the markets have since tanked. What kind of financial literacy is that?

The opposition should have been gnashing their teeth over such an ignorant response, but these are the Alberta Liberals, so they just say, "Oh," and sit back down.

Tonight was the leaders' debate for the 2008 general election. I saw another ad for Elections Alberta tonight - I think it's the second time I've seen it. While I applaud their efforts to encourage people to vote, I can't help but notice that there are more ads for the Junos Fan's Choice Award (sponsored by Doritos!) than there are for the provincial election. Just watch, the Junos will probably get better voter turnout. Anyway, this is just another cynical digression from your trusty blogger.

The real meat of this post is a discussion of the debate. I didn't see any real zingers get tossed out there tonight, but I couldn't help but notice that Ed Stelmach used every tactic in the Tory playbook this evening:

Call your opponents socialists

In Alberta, "socialist" and "liberal" are derogatory terms. Stelmach was quick on the trigger for these ones; I think he unloaded the s-word at Mason and Taft during the first open debating session.

Play the experience card

Some might call 37 years of one party rule stagnant; the PCs call it experience (which one it truly is I'll leave as an exercise for the reader). In nearly every statement and nearly every rebuttal, he was emphasizing that he is the premier now, and (presumably in his opinion) is better suited for the job because he's already there.

Don't answer the question

Throughout this writ period, Stelmach has been responding to environmental protesters with a threat that Alberta would shed some 335,000 jobs if aggressive environmental measures were put in place. When asked where that number came from, he completely sidestepped the question and went on about some fuzzy commitment to the environment. The other leaders were no better - in their rebuttals they didn't even call him on it. Talk about toothless!

Finally, we have the granddaddy of them all:

Remind Albertans that the federal Liberals are out to take Alberta's money

I'm no fan of the Liberal Party of Canada, but I find this tactic to be disgusting and yet another example of Alberta's juvenile political culture. It worked for Ralph, and Ed's hoping it will work for him. There's nothing that sends voters running to the PCs faster than raising the spectre of a federal Liberal resource grab (and they're not even the government!). The fact that they share a name with a political opponent at the provincial level doesn't hurt either.

An honourable mention goes to the Wildrose Alliance, who took this one from the PC playbook:

Equalization steals Alberta's resource revenue

We also saw (from Paul Hinman, I believe) another distorted description of the federal equalization program. Alberta politicians (and to be fair, some politicians in other provinces do this too) like to characterize equalization as a transfer from the provincial treasury (or of resource wealth). Say what you want about equalization, but it involves the redistribution of money collected from federal taxes -- the Alberta treasury (and hence resource revenue) are not tapped for the equalization program. As a "have" province, we just don't receive any equalization payments back from the feds like the "have-nots" do.

I love Alberta. I was born here, and have spent four fifths of my life here. Yet when I returned from a five year university jaunt in Ontario I could not help but notice that something in Alberta was making me tremendously uncomfortable. My feelings about it have gotten progressively worse since I returned in August of 2005, until they finally boiled over with the release of the "Our Fair Share" royalty report.

It's the political culture.

To truly understand what I am about to write in the following posts, one must understand what my political stance is. I am a pragmatic conservative. I believe in a cap on health care spending. I believe that levels of government should stick to their jurisdictional knitting. I believe that the innocent should be protected from the guilty, and I eschew the false mythology and the moral superiority that many Canadians exhibit when discussing our place in the world. I believe that Adam Smith and John Maynard Keynes both had something to say, and I dispel any notion that equates Keynes with uncontrolled deficit spending. I believe that debt is acceptable for capital projects but not for operating expenses.

I've always been aware of the general political leanings of Albertans, and I am acutely aware that Alberta's political culture skews to the right. This is not a bad thing. Unfortunately our mainstream provincial opposition parties attempt to align themselves in a similar fashion to political spectra in other Canadian jurisdictions and generally are not considered viable alternatives. They are victims of their own leadership, and to a certain extent their organizational structures are to blame as well. Alberta's right, however, suffers from its own problems, and since Alberta's spectrum is skewed, the right wing's cultural problems become Alberta's cultural problems as a whole.

"Redneck and Proud of It!"

Sometime in the late nineties I received a phone call from a sales representative at the now-defunct Alberta Report magazine. She was doing a sales pitch for magazine subscriptions, and her summary for the magazine was that Alberta Report was so conservative that they were, as she put it, "redneck and proud of it!"

I lived in Ontario through two federal elections filled with Liberals slandering Alberta. I put up with snide remarks made by job interviewers and rude comments from other students. I remember a newspaper columnist in the Kitchener-Waterloo Record that once implied in one of his columns that Alberta is less than civilized¹. For five years I defended Alberta vigorously against the redneck stereotype. I am saddened to see that some organizations on the right actually find this moniker to be appealing.

Redneck is not today's Alberta, but some of the stuff flying around on the rightmost fringe unapologetically is. The Alberta Alliance and the Wild Rose Party are cut from the same cloth as Alberta Report, so for the purpose of my discussions I will refer to them as the rednecks.

In my next post I will discuss the National Energy Program and Equalization. I will also explain why I consider Alberta's political culture to frequently exhibit childish immaturity.

¹ Etherington, F. (2004, March 15). Restaurant gouging turns your wine to sour grapes. Kitchener-Waterloo Record, p.B1.

When discussing a proposed Ontario law allowing restaurant patrons to bring their own wine, Etherington remarks that, "Even Alberta -- not the most civilized province in the country -- allows people to bring their own bottles into licensed restaurants and take home unfinished booze."