Tuesday, 15 December 2015

Keynes is Back!

On Monday I tuned in to the CBC to listen to the first public speech by Bill Morneau, the new Minister of Finance in Justin Trudeau’s Liberal government. The speech was given to the Toronto Region Board of Trade for the benefit of the Bay Street crowd. I have to admit, that I was favourably impressed.
Bill Morneau and Justin Trudeau

Morneau is a very successful Toronto businessman with a very good academic background in economics. Of all Trudeau’s cabinet appointments, this was the one which concerned me the most. Morneau had also been chairman of the C. D. Howe Institute, a right wing pro-business “think tank” that is firmly committed to the agenda of free trade and the free market economy.

Morneau remarked that at his first meeting with a group of government economists he sat alone across a long table facing a dozen of them. When he stated that the new Liberal government would not put a high priority on balancing the budget, he reported that smiles broke out among those across the table. They knew full well that the Canadian economy is going through a very rough period, and with the collapse of the markets for oil and minerals, the immediate future was not all that great. As a result, the weakened economy was providing all governments with less revenues.

The Bay Street crowd heard Morneau report that there will be a string of budget deficits, and they were starting with a $3 billion deficit left by the Conservative government of Stephen Harper. But the goals of the new government started with restoring economic growth. The Liberals would proceed with their promise of major government spending on infrastructure, a pledge of $125 billion over a decade. The tax cut for the middle class would also boost spending and help create jobs.

Despite their campaign promise, an annual federal government deficit could possibly exceed $10 billion. The plan was to revive the economy so that the debt-to-gross-domestic-product ratio would be reduced. The hope was to be able to balance the federal government’s budget by 2019, the year of the next election.

There would be no structural adjustment policies. Instead, the economic policies identified with John Maynard Keynes would drive the agenda. The Liberals could see the complete failure of the alternative, the structural adjustment programs pursued by European governments.

To top it off, Morneau’s presentation was outstanding. He was very clear in both English and French. He gave a well organized speech without consulting notes or reading a text. He looked straight at the audience and spoke with conviction.

What happened to the New Democrats?
Thomas Mulcair and the NDP

In contrast, there is the disaster of Thomas Mulcair and the New Democratic Party. What happened? At the beginning of the 2015 election campaign, the polls showed support for the NDP was slightly ahead of the other two parties. An NDP-led government seemed possible.

In his first speech to the Bay Street crowd, given at the Economic Club of Canada on June 16, 2015, Mulcair made it very clear that his social democratic party stands strongly for balanced budgets. This was the tradition of NDP provincial governments in Canada, he argued. Special praise was given to the Saskatchewan NDP  government of Roy Romanow, who came to office in 1991, balanced the budget and paid down the provincial debt. No mention was made of the fact that this was done by slashing health and social programs and raising consumption taxes which fell heaviest on those with low incomes.

Mulcair noted that there was one exception to this tradition: the Ontario NDP government headed by Bob Rae, who, he noted, had turned out to be a Liberal. Bob Rae’s NDP government confronted an economic recession in 1990-1 by cutting taxes on low income earners, raising taxes on those with higher incomes, and expanding a range of social programs designed to assist the weaker members of society. His government and its policies were praised by a long list of Keynesian economists.

Then came the shock from Quebec. In June 2015, in the middle of the election campaign, journalists in Quebec posted a video clip from the Quebec legislature, a speech Thomas Mulcair made in 2001, when he was a member of the provincial Liberal government. Mulcair praised the free market policies of Margaret Thatcher, criticized the Labour governments in Great Britain for “putting their nose in everything” while declaring that “government interventionism is a failure.” He declared: “let the free market thrive and get off the backs of businessmen and women.”  He was also very critical of the trade union federations in Quebec for their politics of the left, backing the Parti Quebecois. Mulcair brushed this off. He refused to say he had been wrong. 

Looking to the Saskatchewan NDP
Mulcair’s NDP was determined on this issue. In August 2015 he chose Andrew Thomson, former NDP finance minister in Saskatchewan, to be a star candidate in the Ontario riding of Eglington-Lawrence. Thomson had been elected to the Saskatchewan legislature in 1995 while Roy Romanow was premier. When Lorne Calvert became NDP premier Thomson joined the cabinet, serving as finance minister in 2006 and 2007.

Thomson is best known for his determination to reduce the province’s royalties on the oil and gas industry. He also cut corporate taxes and corporate capital gains. He took substantial amounts from the Financial Stabilization Fund – a pool of revenues held in the bank by the government, termed “a rainy day fund” – in order to balance the provincial budget. Thomson was used by Mulcair to stress the NDP’s commitment to their primary election promise, to run four straight balanced budgets. They would do what Stephen Harper’s government could not.

Recent public opinion polls show that Canadian support for the Trudeau Liberals stands at 52%. Support for the NDP stands at just 14%. It appears that Mulcair is in full control of the party, as he has announced that he expects to lead the NDP in the next federal election. So far there is no indication that there is any opposition to Mulcair within the federal NDP caucus or party.

It seems to me that the Canadian electorate made the right choice in the recent federal election. The Harper gang is gone, and the large majority of Canadians are happy with that. But it also appears that they made the right decision when they shifted their support from Thomas Mulcair to Justin Trudeau. With the world experiencing economic stagnation, Keynes is the correct road to take, not structural adjustment.

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