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The Hon. Mr. Martin’s Dishonourable Secret William Krehm - COMER July 10, 2006 Madeleine Drohan, one of The Globe and Mail’s outstanding writers, was recently brought home from her European beat to inject some life into that paper’s fusty business section. But to stay in ascension G&M writers must encapsulate themselves in professional ignorance on certain touchy questions. That is why in her column of 22/9 ("Show me the numbers, Mr. Martin") Ms. Drohan embarrasses our former Finance Minister with a question that really puzzles her. "We are all adults here. So why doesn’t Finance Minister Paul Martin treat us as such and tell us how much of a budget surplus he is expecting this year and for the next couple of years?" How could you improve on that noble indignation? Only in one respect. She certainly could refer to something that is most certainly responsible for a good part of Ottawa’s foreseen surplus — the introduction of accrual accountancy (also known as "capital budgeting") into its books. In great part the sudden improvement of our federal finances has been due to the economic boom in the US. But that can be traced to President Clinton sneaking in enough accrual accountancy in 1995 to give him the statistic that he needed on improved government finances, without arousing the unforgiving ideologists of the right. But what is this "accrual accountancy"? "Creative bookkeeping?" Something involving "higher mathematics?" By no means. It is no more complicated than the bookkeeping the government insists on businesses using when they take out a mortgage to buy a building. To offset the debt incurred on their books they must put on the asset side of their ledger its depreciated cost.1 The US government introduced enough accrual accountancy in 1995 to correct the rigged figures that wrote off government investments in a single year. It corrected that by recognizing such depreciated physical investments and carrying back that exercise to 1959. That improved Washington’s balance sheet by well over a trillion dollars! That in turn pricked the panic bubble that had been blown up over the government’s "improvidence" in not meeting the total cost of its physical investments in a single year. That helped bring down interest rates, which contributed to a more active economy that brought in more taxes.2 Clinton was even less forthcoming than our federal government in letting the public know how he had arrived at that statistic. But it was the statistic game alone that counted — it helped keep interest rates down, the stock market soaring and all the other good things without stirring up the sleeping dogs of the right. Our government, belatedly, has in some respects followed a similar course. In some respects it has been more forthcoming: it has actually passed a law bringing in accrual accountancy over a two-year period. But it has done so in an underhand way. There has been no really public announcement and certainly no explanation of the change. Ms. Drohan’s lack of information — astounding in a hotshot investigative journalist — is understandable: she would have searched in vain in the G&M’s files for a reference to this introduction of serious accountancy into Ottawa’s books. For a quarter of a century our federal policy has been driven first by a fictitious statistic of price inflation, and on top of that by a bogus deficit that resulted from omitting from the government’s balance sheet its net investment. If a private person treated her purchase of a house like the purchase of a tin of dog food, the price index would shoot up awfully high. And if you included what you still owed on your house mortgage, but forgot about the asset value of the house that mortgage helped you buy, you could probably qualify yourself as a bankrupt. Now, however, the government is in the embarrassing position of having to confess that all the elections fought for at least a quarter of a century were based on manipulated government books; that all the "zero inflation" campaigns that led to the massive transfer of the nation’s wealth from producers to money-lenders and mega-speculators were based on phony statistics. The facts have been laid before the government not only by COMER on repeated occasions, but by a couple of Royal Commissions and several Auditors-General. Ms. Drohan will find the details in Meltdown, Vol. 1, pages 26 and 224-6). About KDR \| \| Home \| \| Weekly Features Archive	Weekly Weekly Features Archive
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The Hon. Mr. Martin’s Dishonourable Secret

William Krehm - COMER
July 10, 2006

Madeleine Drohan, one of The Globe and Mail’s outstanding writers, was recently brought home from her European beat to inject some life into that paper’s fusty business section. But to stay in ascension G&M writers must encapsulate themselves in professional ignorance on certain touchy questions. That is why in her column of 22/9 ("Show me the numbers, Mr. Martin") Ms. Drohan embarrasses our former Finance Minister with a question that really puzzles her. "We are all adults here. So why doesn’t Finance Minister Paul Martin treat us as such and tell us how much of a budget surplus he is expecting this year and for the next couple of years?"

How could you improve on that noble indignation? Only in one respect. She certainly could refer to something that is most certainly responsible for a good part of Ottawa’s foreseen surplus — the introduction of accrual accountancy (also known as "capital budgeting") into its books. In great part the sudden improvement of our federal finances has been due to the economic boom in the US. But that can be traced to President Clinton sneaking in enough accrual accountancy in 1995 to give him the statistic that he needed on improved government finances, without arousing the unforgiving ideologists of the right.

But what is this "accrual accountancy"? "Creative bookkeeping?" Something involving "higher mathematics?" By no means. It is no more complicated than the bookkeeping the government insists on businesses using when they take out a mortgage to buy a building. To offset the debt incurred on their books they must put on the asset side of their ledger its depreciated cost.1

The US government introduced enough accrual accountancy in 1995 to correct the rigged figures that wrote off government investments in a single year. It corrected that by recognizing such depreciated physical investments and carrying back that exercise to 1959. That improved Washington’s balance sheet by well over a trillion dollars! That in turn pricked the panic bubble that had been blown up over the government’s "improvidence" in not meeting the total cost of its physical investments in a single year. That helped bring down interest rates, which contributed to a more active economy that brought in more taxes.2

Clinton was even less forthcoming than our federal government in letting the public know how he had arrived at that statistic. But it was the statistic game alone that counted — it helped keep interest rates down, the stock market soaring and all the other good things without stirring up the sleeping dogs of the right.

Our government, belatedly, has in some respects followed a similar course. In some respects it has been more forthcoming: it has actually passed a law bringing in accrual accountancy over a two-year period. But it has done so in an underhand way. There has been no really public announcement and certainly no explanation of the change. Ms. Drohan’s lack of information — astounding in a hotshot investigative journalist — is understandable: she would have searched in vain in the G&M’s files for a reference to this introduction of serious accountancy into Ottawa’s books.

For a quarter of a century our federal policy has been driven first by a fictitious statistic of price inflation, and on top of that by a bogus deficit that resulted from omitting from the government’s balance sheet its net investment. If a private person treated her purchase of a house like the purchase of a tin of dog food, the price index would shoot up awfully high. And if you included what you still owed on your house mortgage, but forgot about the asset value of the house that mortgage helped you buy, you could probably qualify yourself as a bankrupt.

Now, however, the government is in the embarrassing position of having to confess that all the elections fought for at least a quarter of a century were based on manipulated government books; that all the "zero inflation" campaigns that led to the massive transfer of the nation’s wealth from producers to money-lenders and mega-speculators were based on phony statistics. The facts have been laid before the government not only by COMER on repeated occasions, but by a couple of Royal Commissions and several Auditors-General. Ms. Drohan will find the details in Meltdown, Vol. 1, pages 26 and 224-6).