Brace yourself for boredom. Here comes the most petrifying post ever inflicted on the blogosphere. I want to talk about economic and financial literacy.
As a society, we don’t have a common language for money. Our financial industry and schools of economics have become towers of babble [sic]. On a personal level, most people are reluctant to talk much about money. More troublesome, our governments don’t know how to explain the financial or economic options available to us.
This will be disputed by the many people who work with money because they typically feel confident in their financial and economic fluency. I’ll admit from the beginning, that I am not fluent, and that’s a good start. While there are plenty of people with valid perspectives on money, we tend to surround ourselves, professionally and personally, with those who think and talk like us, oblivious to the fact that a majority of people don’t. Fluency isn’t worth much in a language hardly anyone understands.
This is troublesome in government for obvious reasons. Candidates can’t explain their policies during campaigns. Once they’re elected, poll-sensitive public officials can’t implement difficult financial or economic measures because they don’t know how to make policy options intelligible to the public. Consequently the wrong people sometimes get into office for the wrong reasons, and our councils, legislatures, and parliaments sometimes act against a confused public’s interest.
The most recent illustration of this can be found in Rob Ford’s platform for re-election. Take away the usual qualifications for public office – integrity, trustworthiness, wisdom, eloquence – and he’s left with only his experience to campaign on. This is exactly what Ford has done in every public utterance, including the last two debates. His experience, as evinced by his financial record, is the lone, remaining plank in what was an already narrow platform.
How stout does that single plank have to be? It has to bear the immense weight of all Ford’s misdeeds, all his lies, all his narrow and short-sighted ideas, and all his offensive malapropisms. It has to hold him up through seven months of campaigning, with all the other candidates piling on. It has to bend but not break under the weight of public and perhaps judicial opinion. He has nothing else. His success depends on it. As he says, over and over, “I have a proven track record of saving taxpayers’ money.”
How much money does he need to have saved for this claim to support his mayoral bid? He’s pegged it at $1 billion dollars. City Manager and former CFO, Joe Pennachetti, disagrees, and he should know. His estimate of $350 million in savings, little more than a third of Ford’s claim, is a matter of public record. Given Ford’s 2010 promise to achieve $2 billion in savings, the Pennachetti number is only 17.5% of the stated goal, making the Mayor’s 1st term appear to have been a catastrophic failure. Factor in the negative effects that some of Ford’s savings have caused, and even this slight achievement is diminished.
It’s astonishing how big the gap is between fiction and reality, and even more astonishing that there is no plain language, for sorting out the truth. It’s the 21st century. Democratic institutions, including a public education system and a free press, empowered by the web and illuminated by social media, still leave us in the dark about finance and economics.
Again, I should emphasize that there is no lack of perspective on finance and economics. There are plenty of perspectives. Nor is there anything wrong with public disagreement about the choices confronting us. Yet we confound ourselves by having no common language for understanding and debating these choices.
I’m sure this is a frustrating premise for all the experts out there, but experts tend to forget that they acquired their expertise at the expense of the public, and are in the majority employed by and for the public’s benefit. Every time they resist the challenge of sharing their knowledge in a comprehensible way, they’re biting the hand that feeds them.
I think of the pleasure I took in reading from John Kenneth Galbraith’s, The Affluent Society, Henry George’s, Progress and Poverty, or even Adam Smith’s, Wealth of Nations, because these authors didn’t use an invented vocabulary to shield their ideas. Any basically literate and curious person could grasp what they were saying, yet they influenced policy makers at the highest level of government and achieved rock star status in their times. The same goes today for celebrity economists like Edward Glaeser or Paul Krugman, among others. These guys write popular books and perform well on talk shows. Yet both are capable of almost stupefying mathematical analysis of mass human behavior. Glaeser’s model for calculating the economic benefit of living in close proximity to one another, for example, is not to be missed. Although it appears nowhere in his best seller, Triumph of the City, it does essentially explain the triumph of the city as a way of living.
The point is that it’s not impossible to talk about finance and economics in plain language, and if heavyweight economists can do it, politicians, bureaucrats, and journalists can master the art as well. Yet in example after example, our political discourse falls short.
Rob Ford often contrasts himself with his predecessor, David Miller. Despite a massive rewriting of history, in which Miller became despised and discredited because of a garbage strike, the truth is that he was leading in the polls just months before the 2010 election, despite not being on the ballot. The field was so weak that people would have kept him on rather than roll the dice on the likes of Ford.
The Miller folk could be frustrating because they focused so intently on the big picture that critics wondered who was minding the till. In money language, the big picture concerns economics and the long term prosperity of private citizens and corporations across the region. By contrast, the Fordies focus on the small picture, tightening the frame of debate around the tax-based transactions between a municipal government and its citizens. Everyone in this frame is a tax payer or a customer, even if they don’t actually pay tax or buy anything from government, and every issue is reduced to a calculation of quid pro quo.
When did prudent financial management and economic development become opposed interests of government? Obviously a healthy economy makes everything easier for taxpayers and their governments. Likewise, governments that take money out of a weak economy through taxation must invest it wisely in future growth to avoid detrimental effects. It’s a risky proposition.
It’s ironic then that Miller, the accused lefty, made the entrepreneurial investments in large, risky, growth initiatives, while Ford, the self-professed entrepreneur, huddled over the City’s ledger books, divining the future with a sharpened pencil. Miller achieved economically important measures by lowering business taxes, creating affordable housing, improving the environment, solving the landfill crisis, restarting waterfront development, and most importantly, brokering a massive, provincially funded transit expansion. All this was accomplished while leaving Ford a healthy surplus with which to start his reign of error.
Ford has accomplished nothing of comparable significance – not a single thing – although he has sabotaged some projects that were already in the works. Remember Woodbine Live, the supersized entertainment project that was going to be Rexdale’s economic salvation? In the 2010 campaign, Ford claimed to have led that development. It’s now dead as a dodo, like all Ford’s dreamy schemes for financing public projects with corporate money. Like his waterfront ferris wheel and mega-mall proposition, the privately funded Sheppard subway, and the glowing crystal gambling palace for which he shilled so shamelessly. All gone and apparently forgotten.
How does the public see all this? They’ve glazed over. They’ve been inundated with four years of slogans from the Fordies about how badly Miller failed, delivered until lately by an uncritical media. The Star’s, Royson James is still obliged to disparage Miller, despite his growing abhorrence of Ford. Over at the Globe, Marcus Gee has performed painfully slow contortions of logic as his disapproval of Ford became greater than his dissatisfaction with Miller. Even the Toronto Sun, the bottom feeder of Toronto news bureaus, has withdrawn its editorial support of Ford, yet can’t bring itself to recant the many foolish positions taken in support of him over the years.
In the glare of drug and gang revelations, journalists have been able to hide their anti-Miller sentiments in the shadows. They’ve forgotten Ford’s disastrous record in government and forgiven themselves for legitimizing him as a leadership prospect four years ago. So much for a free press and an informed electorate as pillars of democracy.
The published record and the public’s memory can’t be completely erased however. These journalists, like Ford, can disavow their part in a regrettable chapter of Toronto history, but that doesn’t help their credibility any more than it does his. Yet, in the heat of another election campaign, an ever more skeptical public must rely on the same journalists to validate the candidates’ outlandish claims.
Ford is claiming that he fulfilled his 2010 campaign promises, cleaning up the financial disaster left behind by Miller. However what he actually promised was a $2 billion budget cut, without any reduction in services. By the best accounting available, he has failed by a huge margin, his minor bookkeeping gains offset by massive flops on every large-scale, long-term initiative.
The emperor has no clothes, but the media can’t bring itself to say so. They can declare the Mayor unfit for office because of his drug use and crime connections outside City Hall, but they can’t bring themselves to admit their mute complicity in his failure inside City Hall. Like the Councillors who bedded down in the Mayor’s camp after his election, the media, with too few exceptions, was soft in its criticism of Ford’s deficiencies prior to the 2010 election and tolerant of a rogue administration in the years since. Unlike the little boy who points out the emperor’s shortcomings, compliant or complacent journalists can’t say what their eyes plainly see because they’ve waited too long to speak. The longer they wait, the more they fear being held culpable for the damage that’s occurred.
Poor old Joe Pennachetti tries to clarify the Ford record by distinguishing between “budget savings,” and “tax savings,” but that doesn’t lead anywhere helpful. When he refersto “budget savings,” he’s speaking as the book keeper for the corporation of the City of Toronto. When he’s talking about “tax savings,” he’s referring to the cost of government for the average householder. In neither case has he pulled his head out of the transaction between the City and the taxpayer, which is the small frame into which Ford has tried to squeeze the role of government.
Pennachetti and those he serves, are looking through the wrong end of the telescope, making the Ford calamity look small while and ignoring the big picture. For a city’s government to plan and invest for it citizens’ prosperity, while at the same time balancing its books, it’s necessary to enlarge the frame of reference and consider the needs of a regional economy, across jurisdictional boundaries, many years into the future. In plain language, it’s impossible to make sense of City finances without fully grasping the economic context upon which the prosperity of a city and all its residents depend.
Miller understood this and was pilloried for it. Ford flunked this elementary lesson, yet still got a pass from the media. Go figure.
This confusion between finance and economics was made utterly clear during the casino debate in Toronto. Queen’s Park badly needed to replenish cash in its empty vaults, so the provincial government pursued its casino expansion plan with unconscionable aggression. Despite an invalid economic rationale and some shady private sector participation, Rob Ford piled on, comprehending only the promise of financial gain for the corporation of the City of Toronto.
It’s not clear that he understood or cared about the price Torontonians would pay for the City’s cut. Like mega-casinos in metropolitan areas elsewhere in North America, businesses around the Toronto mega-casino would have cratered. Also, casinos in metropolitan areas take most of their revenue from the local population, inflicting devastation on personal and household finances, raising the cost of social services, while over the long term shrinking the tax base.
A financially literate Mayor, media, and electorate would not have come so close to hurting the economy to improve the government’s balance sheet. That would be contrary to the very purpose of government, which is to enhance the prosperity and wellbeing of its citizens.
Again, in plain language, we’ve been fretting about City finances so long that we’ve lost sight of the big picture. Yet there’s no surer way to perpetuate financial crises than to ignore the need for strategic investments in our economy. The jobs of tomorrow won’t be created by cuts to government services today.
Government does nothing without money. Every decision has a financial consequence and an economic consequence. Yet we can’t talk about the big economic picture in an intelligible way because public discourse has been hijacked by ignorant or oblivious candidates and their media enablers. We short-change ourselves, over and over again, by indulging in such small and lazy minded discourse. If we do nothing else, agreement on a distinction between “financial” and “economic,” would foster a more reasonable debate and lead to more rational decisions about how to make the people of Toronto more prosperous and how to balance the City’s books. But judging from the language of the candidates and their timidity in debate, it’s evident that no one’s ready to engage in substantive discussion about our economic future.
The mainstream media has a lot to answer for here. In its filtering of language and ideas between candidates and voters, and between governments and taxpayers, it has helped create the conditions for a credible Ford campaign in 2010 and again in 2014. It has unaccountably contrasted the performance of Ford and Miller without ever distinguishing between the financial and economic consequences of their policies.
Fairness to Ford and Miller is less important than fairness to voters, who are being asked to choose between visions for the future. The public knows that these visions are meaningless without money, but the majority of voters can’t make sense of the money-talk they’re hearing. Unsurprisingly, this majority doesn’t vote.
This profoundly important problem was crystallized for me in this political vignette: Ontario Finance Minister, Charles Sousa, had responded to a couple of my questions at a breakfast forum a few months ago, so he stopped to shake hands on his way out the door. His parting question back to me was, “How do you explain ‘net present value’ in 30 seconds, with the opposition shouting in the background?”
I’ve been thinking about the answer ever since. A shared vocabulary between the politicians and the public would be a good start. An accountable media would be helpful too. A clear and consistent distinction between “financial” and “economic” would be a good point of departure.