Friday, October 14, 2016

Another One Of History's Ironies

There are those who believe that engaging in "what might have been" speculation is wasted energy. But Linda McQuaig does precisely that in today's Toronto Star. Doug Peters -- the former chief economist for the TD Bank and former Liberal cabinet minister -- died last week. Peters grew up in Brandon, Manitoba during the Great Depression. That experience -- and the training he received on the way to getting a PhD in finance from the University of Pennsylvania -- made him a committed Keynesian.

But it was Peters misfortune to be at the the cabinet table when Milton Friedman was all the rage. McQuaig writes:

Despite his Bay St. pedigree and a PhD. in finance from University of Pennsylvania, Peters rejected the business world’s obsession with deficits and smaller government.

From his seat next to [Paul] Martin at top-level budget meetings, the soft-spoken, articulate Peters repeatedly challenged the deficit hysteria that gripped the Finance department and increasingly controlled government policy. To Peters, the key problem was unemployment — which hovered above 10 per cent — not the deficit.

Indeed, the way to solve the deficit problem was to reduce unemployment, Peters argued. As he once told a parliamentary committee: “Unemployed people pay less tax. That is one of the most certain laws of all economics. It should be inscribed on plaques and hung in the offices of prime ministers and premiers across the country.”

There were some who sided with Peters:

He got support from an unlikely source — a Goldman Sachs report in September 1994 identifying unemployment, rather than excessive government spending, as Canada’s key problem, and noting that once full employment was achieved, “the budget gap of Canada vanishes.”

But Friedman had received the Nobel Prize. How could be be wrong?

Time has proved Friedman wrong and Peters right. Another one of history's ironies.

Image: Toronto Star


Steve said...

Economics the dismal science. Three men survive a plane crash on a desert island. An Engineer, a lawyer and a economist. The only food they have is a can of beans but no can opener. Engineer proposes working together to fashion a can opener out of plane scraps. Lawyer wants to decide who gets what portion of the beans. Economist says lets assume a can opener and eat now.

Witch doctors have more credibility and we have created an artifical world based upon phony math. Its going to blow up real good, and soon.

Owen Gray said...

Let's hope not, Steve.

Pamela Mac Neil said...

A lone voice against a sea of Neoliberal conformity. Doug Peters, Owen, sounds like a man of integrity.Paul Martin is too experienced and intelligent a man to have not known that his austerity and Neoliberal policies domestic and global, pretty well only benefit the corporate elite.

Owen Gray said...

Sometimes the answer is right in front of our noses, Pam, and we can't -- or won't -- see it.

Toby said...

Back then I read one of Milton Friedman's books (sorry, I can't remember which). My reaction at the time was the same as my reaction to Ayn Rand and Reagan's economics; all screwballs. These people were making excuses for greed. As you said, Owen, sometimes the answer is right in front of our noses.

The big problem now is that we still have true believers in control. With all the evidence pouring in that Friedman's economics doesn't work the way he predicted one would think that the powers that be would change course. Nope, they just try harder to make stupid trade deals and impose austerities and every other idiocy they can think of so that they can boast about their economic prowess.

Owen Gray said...

The problem with misplaced faith, Toby, is that it refuses to admit error.