The Same Old Song

For decades, conservatives have advocated for austerity. They are now planning to dish out more of it. Jim Stanford writes that during the pandemic,

governments around the world racked up eye-watering deficits as they opened the fiscal taps to support personal incomes, subsidize businesses, and finance public health responses. Canada was no exception. The federal deficit exceeded $350 billion for 2020-21, or around 15 per cent of national GDP -- the biggest (in relative terms) since World War II, and unimaginable in conventional economic discourse.

Canada's deficit was among the largest of OECD countries, indicating a relatively ambitious response to the pandemic. But most industrial countries also incurred very large deficits: across the whole OECD, they averaged around 12 per cent of GDP.

Meanwhile, provincial governments also incurred record-breaking deficits due to reduced revenues and increased health and other program costs. Every province except New Brunswick (whose COVID-insulated economy traversed the pandemic better than any other) incurred large deficits; Alberta's (at close to 7 per cent of GDP) was by far the biggest.

In monetary policy, too, the conventional obsession with inflation control and monetary rectitude -- already shaken by the global financial crisis (GFC) 12 years earlier -- was abandoned in most countries, in favour of extraordinary interventions to support spending.

Those are big numbers. However,

the combination of these two dramatic shifts in macroeconomic policy exposed the lie of austerity upon which neoliberal economic and social policies have been based for decades. Harsh government cutbacks were always explained on grounds that government just "can't afford" to spend more. This lie was critical to the formulation and legitimation of austerity. Why would populations accept endless belt-tightening, cuts in public services, and privatization of public assets, without this spectre of a binding budget constraint tying the hands of even progressive governments?

The pandemic proved something progressives argued for years: there is virtually no financial constraint to the ability of governments (especially national governments, which possess independent currencies and financial regulatory powers) to mobilize resources in the interests of social and environmental well-being -- if they choose to do so.

The Conservatives are hell-bent on reversing that choice:

For months during the pandemic, Pierre Poilievre -- then the party's finance critic, still a prominent spokesperson, and likely front-runner for party leader in the event O'Toole falters -- was the most outspoken critic of fiscal and monetary supports.

He lambasted both the government's large deficits and the Bank of Canada's money creation. In the Bank's case, Poilievre's attacks were extraordinary and aggressive: accusing the Bank of becoming an ideological tool, serving as "an ATM" for the Trudeau government's rampant spending. Given the accepted mainstream consensus for the last generation in Canada that the Bank should be politically independent from the government, this attack was like throwing a grenade into the polite company of Canada's political and economic elite.

Erin O'Toole got rid of Poilievre as finance critic. But the message is still the same -- only O'Toole himself is advocating more spending while attacking Trudeau's spending:

O'Toole has attacked the federal deficit (without saying what programs he would have eliminated to reduce it), blamed Trudeau for the increase in inflation that has accompanied the re-opening of the economy, and pledged to balance the budget within a decade if elected. That pledge would require years of deep austerity in federal spending, and would almost certainly throw ice water on the economy's rebound from the COVID recession. The experience of Europe after the GFC is painful evidence of the self-inflicted harm caused by fiscal restraint during periods of macroeconomic crisis.

It's the same old song. Stanford writes that some of us have not learned the lessons of the 1930s. But, for Canada's Conservatives, that's not surprising.

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