Canadians reject austerity talk, vote for Justin Trudeau's Keynesian economics

This election may have been about many things, but as an economist, I believe Oct. 19 will go down in history as the day John Maynard Keynes was welcomed back to Canada, Louis-Philippe Rochon writes.

Liberal Party wins with promise to run deficits to help flagging economy

This election may have been about many things, but as an economist, I believe Oct. 19 will go down in history as the day John Maynard Keynes was welcomed back to Canada.  

The Liberal Party campaigned on the promise to run deficits to help the flagging economy, and Canadians embraced the idea in spectacular fashion. It was, in the words of Keynes biographer Robert Skidelsky, the Return of the Master.

One of the cornerstones of the Keynesian legacy is a fundamental understanding of how our contemporary economies work. When the economy is failing, the state has both a moral and economic obligation to step in. Fiscal spending must be functional and must adapt to the needs of the economy. This is a far cry from "austerity hysteria," where balanced budgets become the single objective of policy regardless of the state of the economy.

It was a gambit for Trudeau to come out in favour of deficits at a time when both the Conservative Party and the New Democratic Party were advocating the supremacy of balanced budgets. Both parties were telling Canadians that deficits are a burden on our children and grandchildren, and both were saying that the way toward prosperity is through belt-tightening. Many pundits and pollsters believed Canadians accepted this view.

Of course, none of this is true, and the economic logic is as faulty as it is nonsensical. Canadians agreed that at a time when our economy is barely out of recession, balanced budgets are a ridiculous idea.  

Our economies grow on demand, and the more we demand goods and services, the more firms respond by producing them, and then hire additional workers to meet that demand.

But when demand is crumbling, as it is now, asking government to depress its spending only contributes to greater weakness in the economy. After all, despite the claims made by Stephen Harper, the Canadian economy is not doing well, and a majority of sectors are underperforming. Unemployment is on the rise and labour force participation remains low, while manufacturing is suffering despite a low Canadian dollar, and the oil sector performed as poorly as it could, dragging much of the economy with it.

Austerity boogeyman

When done properly, such as spending on much-needed infrastructure, deficits are an investment in our future, not a burden. Deficits can be used to modernize our transit, sewers or electrical grids, or to improve the poor state of our roads and bridges. And Canadians understood this and were not easily scared by the austerity boogeyman.

There's also this awkward thing called the recession. Harper never admitted the recession existed, calling it instead a few bad months. Recessions are accompanied by higher unemployment, and Harper's failure to admit Canada was even in a recession was a tad insensitive and came across as unsympathetic to the problems of working Canadians who certainly felt the recession. Across the country, Canadians knew someone — a neighbour or a family member — who was out of a job, and turned to their government for guidance. Yet Harper offered no guidance.

Finally, something else happened on Oct. 19. Canadians have said quite dramatically that their progressive voice is still very much alive. And in that sense, the result was even more meaningful.

NDP move opportunistic

I have argued for years now that you cannot be a progressive in Canada (or elsewhere really) while advocating for balanced budgets. When unemployment is this high, austerity is the purview of the right, not the left. The NDP's support of such policies was both bizarre and opportunistic, and a horrible misreading of the Canadian progressive voice. It was a deep betrayal of progressive values. In the end, Canadians saw through the lack of intellectual honesty and voted for the Liberals.

Of course, the remarkable thing about Monday's result was the sheer size of Justin Trudeau's victory. He promised to put Canada back to work, invest in infrastructure and dismantle some of the Conservatives' worse economic policies. That includes raising taxes on the wealthy, lowering taxes on the middle class and putting an end to income-splitting. Canadians gave him an impressive mandate to do so.

The challenge for Trudeau now is to deliver the goods and not to disappoint Canadians. They have turned toward him for solutions, and he must now act. This part should be easy.  

Louis-Philippe Rochon is an associate professor at Laurentian University and co-editor of the Review of Keynesian Economics.


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