Cayman should resolve to end deficit finance

James Miller is disappointed with the lack of progress on the recommendations made by the Miller-Shaw Commission for the Cayman Islands government under his chairmanship three years ago. Miller spoke before a group of Cayman business people and government officials, including the Financial Secretary, on 9 April at the Westin hotel. Richard W. Rahn, editorial board member of the Cayman Financial Review, which hosted the talk, summarises the key messages of Miller’s presentation.  

 

James Miller has held a number of high-level positions in the US government, including serving as a member of President Reagan’s cabinet and the National Security Council when he was director of the Office of Management and Budget. He has also advised a number of foreign governments, hence he is no stranger to the political world with all of its failures and frustrations. He explained that many of the problems Cayman is having are similar to the problems that the US, the Europeans, and others are having but only in miniature. 

Miller presented a number of suggestions for Cayman, including: “I hope that candidates media, and other opinion leaders will address not so much personalities and controversial issues, but the proper role of the Islands’ government, both now and in the future.” 

He went on to recommend that the Legislative Assembly settle on “a target size of government as a proportion of GDP” and put in place procedures to confine spending and the costs of regulation to those numbers. Miller also recommended that in each year’s budget the government incorporate “the cost of future liabilities, including those of civil servants’ retirement and health care”. He noted that businesses do this all the time; in fact, public companies are required to do so as part of their financial statements and hence there is no reason governments should not do the same. 

Miller expressed concern that the Cayman government had not still completed audits of all its departments and operations. He emphasised the importance of keeping the books current and accurate and quickly dealing with all deficiencies. 

Miller had worked closely with President Reagan and had a very high regard for both him and Lady Thatcher. He appropriately gave a moving tribute to Lady Thatcher and spoke about the close bonds that she had with President Reagan. 

Much of Miller’s address was devoted to what he had learned – from both successes and failures – during his many years of public service, and how much of it was applicable to the problems that Cayman has been having. He pointed out that in the report that he and David Shaw delivered to the government three years ago: “The evidence is pretty clear that property rights, enforcement of contracts, and general laissez-faire policies toward a market economy lead to, promote, and enable economic growth, whereas the reverse policies discourage, or stifle, economic growth. And, very importantly, everything else equal, the overall portion of a nation’s output claimed by the government – at least past some point – diminishes economic growth”. 

The unfortunate thing is that most governments, including the US and even Cayman, have grown beyond the optimum size. Miller went on to explain the political forces that drive excessive government spending and how these forces can be restrained. The problem is that in a democracy the politicians resist restraints, and that is why all too many democracies fail at least in fiscal terms. 

The fiscal problems that Cayman faces, while serious, are not yet at the critical level as they are in Greece, Cyprus, or Stockton, California. To avoid Cayman ever reaching that critical point, Miller advised privatising non-core government operations, which are revenue losers, such as the turtle farm and Cayman Airways.  

Finally he recommended that the Cayman government develop a firm plan to pay off the existing debt and resolve never to run deficits again. 

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