Is government borrowing really that bad?

I’m not an economist, and I don’t play one on TV. With that in mind, perhaps somebody out there can tell me why it’s such a crime to borrow money to build schools, or roads, or hospitals?

The big stink over the weekend, one that is sure to hit odiferous heights when the legislature resumes, was the word that the provincial Tories are planning on borrowing money for specific capital projects, which is just a political way of saying ‘things that last’. Put simply, instead of waiting until they have the cash on hand, or using existing savings, the province will borrow or finance the projects in other ways.

Is this so bad? According to the Wildrose, it’s just another way of going into debt. And again according to the Wildrose, debt is the Osama Bin Laden of finance. It’s bad, bad, bad.

Is borrowing to build something that will be around for 30, 40, 50 or more years really all that bad? Seriously… I’m not an economist. Didn’t you read the first paragraph?

The government can borrow money at ridiculously low rates right now, the kind of rates that we saw in the 1950s. We all know this is true; my son has a mortgage rate that is so low, it would have been criminal financial misconduct not to borrow the money. When my wife and I first got into the house buying game, the rates were so high I went with a mortgage that changed its rates every six months in the hopes it would go lower. Those days are gone, at least for now. Money is crazy cheap, and it looks like it will be crazy cheap for a while yet.

The PCs say they are making more money on their investments than they would be paying for debt servicing. Makes sense to me.

Say you had a nest egg of $500,000. Go ahead, say it. Sounds nice, doesn’t it? Now let’s say you wanted to buy a house. You had a choice of borrowing the money for the house, or paying cash. If you were making 4% on your investments, but you could borrow money at 2%, why would you pay cash? You’re up 2% by borrowing, and you still have all that cool cash on hand.

Simplified? Perhaps, or probably. But boiled down to its essentials, that’s the argument.

The Wildrose seems to believe that borrowing is something governments should never, ever do. But business borrows all the time. Do you think all those multi-billion dollar oil sand projects up north are built with cash? Of course not. Since it takes years to build and years to recoup the investment, even the largest corporations borrow money for capital projects.  

Perhaps the Wildrose critics should look at their personal bank accounts. I wonder how many of them waited until they had the cash to buy their homes, or their cars. And yes, I know a lowly MLA is not in the same league with a multi-billion dollar organization like an oil rich government, but the idea is the same.

Another question: why should today’s generation pay the freight for something future generations will enjoy? If the borrowed money is used for a new highway, Albertans far into the future will be using the road. Shouldn’t they pay for its construction and use as well?

Again, the Wildrose says the Klein legacy of a debt free Alberta is being erased by the Redford government.

Ah yes, the Klein legacy. Those were the days. Decaying roads, shuttered hospitals, schools filled to overflowing. Sure, we got out of debt, but we’ve been paying the cost of Klein’s bloody-minded determination to wipe out the debt ever since.

Done properly, it makes sense to borrow for select projects. Of course, this depends on whether the government can do this correctly, which remains to be seen.

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