Three weeks ago I wrote a post that argued that the Conservative Party will have trouble resisting the calls for more “stimulus” spending because they have lost the credibility to offer an alternative (i.e. conservative) perspective. It has become the accepted wisdom of Canada’s political class that deficit spending can improve the economy. This is despite the lack of credible evidence proving this wisdom to be right. In fact there is considerable evidence that deficits are harmful in the long run and that government debt can cripple an economy. The Conservative Party can’t make these points, however, because it has publicly declared its faith in Keynes’ folly.
Yesterday Stephen Harper made a speech saying that the federal government will be “flexible” about its financial plan. This, more than any other statement thus far made, has opened the door to the possibility of more spending. Once that door has cracked open the pressure will be enormous for the Conservative Party to commit themselves to more years of deficit.
Lacking any credible intellectual defenses against this inevitable pressure, the Conservative Party will certainly succumb. The Conservatives’ only hope would be if the economy improves before they have to put forth an economic update in the late fall. It is only by arguing that it is not needed, as oppose to arguing that it is not useful, will the Conservatives be able to resist and keep to their already flawed plan to return to surplus.
As I said three weeks ago:
We are screwed.