The early days of 2009 were crucial in Canadian financial, economic, and political history. Most people will remember the attempt by the opposition parties to form a coalition government at the end of 2008, but really it was the decision to return to deficit spending that is and will have a longer lasting effect. We can see the ripples of that decision not just in the fact that we are still in deficit but in the way that government spending is currently being debated.
As you may recall, the Conservatives ran in the 2008 election promising to continue a balanced budget. Shortly after the election, even while the world was in a global economic meltdown, the Conservatives still rightly and bravely refused to return to deficit. The economic update that Jim Flaherty brought in a month or so after the election confirmed the government’s commitment to a balanced budget.
Included with that economic update was a change to the party subsidy system that opposition MPs perceived would disadvantage them. They rebelled not so much against the idea of balanced budgets but to save their party coffers.
What happened next was fantastic for the Conservatives.
The public by in large despised the new coalition. Partly it was because of the inclusion of the separatists in a supporting role and partly it was the erroneous idea that Mr. Dion wanted to steal the election. For whatever the reason, the public were not behind the coalition and the Conservatives were enjoying polling numbers that they have never seen since. Mr. Dion was shortly thrown out and the coalition collapsed.
Before the coalition collapsed though, they had scrambled for an excuse to take the reigns of government that didn’t look completely self serving. They came up with the idea that the “real issue” was the government’s lack of action on the economy. Not many people really bought this, but once the coalition crisis was over the opposition parties held on to their assertion that “stimulus” was required.
It was at this point that the Conservatives had a choice. Really they had three choices:
1. They could have refused to go back into deficit and possibly fight an election (although I personally think the disorganized Liberals would have backed down).
2. They could have made the case for a balanced budget but be willing to compromise and bring in a small deficit.
3. They could have taken ownership of the “stimulus” concept and outspend the opposition’s wildest dreams.
The key difference between the third option and the other two is that it concedes that deficit spending is beneficial to the economy. Stephan Harper would not have had to look far to find arguments against this; he could have referenced his own Master’s thesis. Yet he decided to ignore his own intellectual history and embrace ideas that he would have once spat at.
We can speculate on why he did this. My personal feeling is that the coalition crisis scared the hell out of him. He simply did not want to lose power. But such speculation is beside the point. The result was that there were no federal politicians in Canada arguing against the failed Keynesian theory of “stimulating” the economy.
Flash forward to this week.
Once again Canada’s economic outlook is not so good. It isn’t nearly as bad as 2008 or 2009 but it is bad enough that Jim Flaherty is under pressure to introduce more stimulus spending. Now that they are secure with a majority government it looks as if the Conservatives are preparing to resist that pressure, but they lack any real strong arguments against the opposition.
Mr. Flaherty has said that it is more important to balance the budget and really the economy isn’t all that bad anyway. So the natural response is, “well how bad does it have to get before you stimulate?” The Conservatives want to say never, but they can’t. They have already conceded that there are times that “stimulation” is needed.
So instead of being able to debate with conservative ideas, the Conservative Party is stuck pussy footing around the issue and vaguely assuring that maybe they would stimulate if things were very bad, but well maybe not, it depends, you see, on conditions and we don’t really know what is going on, so we have to wait and see, and really we don’t want to leave the deficit for our children to pay for so we need to be very careful about more spending and…so on.
This is how the Conservatives have screwed the conservative movement and themselves. They have made it impossible for them to put forth a genuinely conservative response to the likely coming recession. They may be able to resist the pressure to spend more but they have to do so while at least pretending that it is a viable option. Thus fiscal conservatism is completely thrown out the window.
This problem will persist for years if not for decades. Every time there is an economic downturn there will be pressure to spend money trying to “stimulate.” Every time, whether in opposition or government, it will be impossible for the Conservatives to convincingly argue against it without renouncing the actions of Stephan Harper and Jim Flaherty.
So thanks to the Conservative Party of Canada, Keynes and his big spending admirers now have a death grip on Canadian fiscal policy.
We are screwed.