Trudeau win signals return of Keynesianism to Canada

Trudeau. Keynes. A match made in political heaven? Justin Trudeau’s stunning majority win on Monday is a sign that the ideas of British economist John Maynard Keynes are alive and well, says one economist.

Louis-Philippe Rochon, an associate professor of economics at Laurentian University and co-editor of the Review of Keynesian Economics, says the fact that the Liberals were clear about the fact that they would run deficits to stimulate the Canadian economy was, in fact, a red carpet reception for Keynesianism.

“October 19 will certainly go down in the Canadian history books as the day Keynes was welcomed back to Canada. Indeed, the Liberal Party campaigned on the promise to run deficits to help the flagging economy, and Canadians embraced the idea in a spectacular fashion, ” wrote Rochon for the website Rabble.ca.

Keynesian economists believe that governments must be prepared to spend -and sometimes run deficits- to cushion tough economic times.

“I have argued for years now that you cannot be a progressive in Canada (or elsewhere really) while advocating balanced budgets,” says Rochon. “When unemployment is this high, austerity is the purview of the right, not the left…in the end, Canadians saw through the lack of intellectual honesty and voted for the Liberals.”

But is Trudeau’s election a return of Keyne’s ideas or merely a continuation? Steven Harper was a notable disciple of Keyne’s own version of Lex Luthor, Friedrich von Hayek. Hayek was a free market advocate who believed that bigger governments and more spending were a slippery slope to all sorts of bad things, including tyrannical regimes.

Harper’s 1991 dissertation (THE POLITICAL BUSINESS CYCLE AND FISCAL POLICY IN CANADA) was a shot fired directly at the Keynesian school.

“There have been growing questions across academic disciplines and schools of thought about the ability of governments to manage fiscal policy,” wrote a 32 year-old Harper. “These are not mere theoretical developments, but reflect the economic fluctuations and public policy dilemmas that have been the nature of things since the 1960’s.”

Harper wrote that one of the many dangers of governments inserting themselves into the “political business cycle” is that they may be tempted to manipulate the economy not to tend it, but to align it with their electoral goals.

But a funny thing happened on the way to a Canada that survived the “Great Recession” of 2008/2009 better than almost any other nation in the world. Harper, wrote the National Post’s Hugh MacIntyre in 2010, flip-flopped.

“Almost two years ago a remarkable thing happened. Stephen Harper, the Prime Minister who once wrote a dissertation describing why deficit spending couldn’t possibly help the economy, declared himself a Keynesian,” said MacIntyre, who said the about face left no real defenders of Hayek in the country.

“Instead of presenting a conservative position in the tradition of intellectual thinkers such as… well such as Stephen Harper, and negotiating a compromise with the Liberal party, the Conservatives skipped the negotiations,” continued MacIntyre. “They simply presented the position of welfare liberalism and faith in the government’s ability to fix all problems to win Liberal support. In the process the Conservatives abandoned any defence of conservatism.”

Flash forward to early 2015 and Justin Trudeau’s comment a year prior to CPAC’s Peter Van Dusen that “budget will balance itself” became a hot-button election issue courtesy of the Conservatives, who brought it up repeatedly. The late Jim Flaherty invoked his own heritage in mocking Trudeau.

“Being of Irish heritage, I know that what he must be thinking is that there’s a pot of gold at the end of the rainbow and over St. Patrick’s Day I’m sure he’ll search out a leprechaun to lead him to that pot of gold so that he can balance the budget,” he said. “So I’m just trying to aim him in the right direction.”

Meanwhile, the Harper government, points out The Canadian Press’s Andy Blatchford, delivered six straight deficits between 2008-09 and 2013-14.

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