Prime Minister discovers Keynes
TheStar.com – Opinion/editorial – Prime Minister discovers Keynes
November 25, 2008. Theo Moudakis
Having discovered his inner Keynes, Prime Minister Stephen Harper is now saying fiscal stimulus and deficit financing are “essential” to avert economic disaster. He even suggests that Canadians who cling to a belief in balanced budgets are guilty of “simplistic” thinking.
This would be the same Stephen Harper who declared as recently as Oct. 14 (election day) in a front page article in the Star: “We’ll never go back into deficit.”
Harper can’t argue that circumstances have changed since Oct. 14. The financial meltdown was already well under way then, and most mainstream economists – like the legendary John Maynard Keynes in the 1930s – were saying that maintaining a balanced budget in the face of the economic headwinds was utterly wrongheaded.
If Canadians are thinking simplistically, then, it is because politicians like Harper refused to be straight with them during the recent election campaign.
The best that can be said for Harper is that he was not alone. All the opposition leaders also pledged during the campaign to keep the federal budget balanced, including even NDP Leader Jack (“I am not a Keynesian”) Layton.
While we welcome Harper’s post-election conversion to economic reality, it is not at all clear that his finance minister, Jim Flaherty, has gotten the message. Yesterday in Toronto, Flaherty continued to play down the need for stimulus in his upcoming economic statement. “The fact is we have a stimulus of almost 2 per cent of GDP (gross domestic product) already in the Canadian economy,” he said. “Fortunately we acted in advance. A lot of countries have had to play catch-up on that stimulus.”
This could be just a case of Flaherty following the tradition of finance ministers talking down their budgets in advance so as to diminish expectations. Or it could be that Flaherty’s neo-conservative ideology is getting in the way of his judgment.
Fortunately, U.S. president-elect Barack Obama is unfettered by ideology and is already taking steps to stimulate the economy, eight weeks before his wearing-in. His Democratic allies in Congress are talking of a stimulus package, including tax cuts and increased spending, of up to $700 billion.
American stimulus would certainly help to pull Canada out of the recession. But our national government should be taking proportional steps. A good place to start would be the economic statement Flaherty is to unveil on Thursday.