Justin Trudeau Did What FDR Could Not: Win With Keynes

By BILL SCHER

The Liberal Party, running on a Keynesian economic platform, shattered expectations and won the prime ministership of Canada with an outright majority in Parliament Oct. 19.

Liberal Party’ leader Justin Trudeau bet on economist John Maynard Keynes in August with a job-creation plan based explicitly on budget deficits. Both the front-running leftist New Democratic Party and the ruling Conservative Party slammed him for rejecting the principle of balanced budgets.

But Canada is in a recession. Not a huge recession, but enough of one that the voters wanted to see action on jobs. Only Trudeau promised action.

Still, for Trudeau to win election on an explicit promise to create budget deficits is highly unusual.

In 1992, Bill Clinton ousted George H.W. Bush over the economy. (The 1991 recession had technically ended, but the number of private sector jobs had declined from when Bush took office.) And Clinton pledged to create jobs through public “investment” in infrastructure. But at the same time, he also promised to cut the budget deficit in half.

Once in office, Clinton took a stab at Keynesianism. But his economic stimulus package stalled. He was able to raise taxes and cut the deficit, and ran on that record to win re-election.

In 2008, Obama was more vague than Clinton. He called the deficits racked up by George W. Bush “irresponsible” and promised to cut “programs that don’t work.” But his campaign also called John McCain’s pledge to balance the budget “preposterous.”

Upon taking office, Obama passed one of the biggest Keynesian packages in history to end the Great Recession. He defended that in the 2012 campaign, while also promising a return to deficit reduction.

Obama’s trajectory was similar to FDR’s. In 1932, Roosevelt slammed President Herbert Hoover’s budgeting, and pledged to put the budget into balance. Then in 1936, he said to have done so in his first term would have been “a crime against the American people” … before pledging again to balance the budget “within a year or two.”

Even Lyndon Johnson in 1964 said that the “all-out war on human poverty … can be done with an actual reduction in Federal expenditures and Federal employment.”

How was Trudeau able to do what FDR, LBJ, Bill Clinton and Barack Obama could not?

A big difference was the fiscal landscape of Canada today.

Not only is Canada in a recession. But Canada is in a recession while the budget was already in balance!

It cannot be argued that a balanced budget will improve the economy if you have a balanced budget while the economy is not improving.

Trudeau also had the advantage of running against Stephen Harper, who had been in power for nine years, making it impossible for Harper to shift blame elsewhere or use past deficits to distort the economic picture.

Clinton, Obama and Roosevelt ran when Republican incumbents had presided over big deficits, giving them a tempting target hard to pass up.

Over in the United Kingdom, Labour’s leader in the 2015 election Ed Miliband was knocked on the left for sticking with deficit reduction. But he was hamstrung by conventional wisdom that blamed deficits that occurred on Labour’s watch for the 2008 economic crash. Miliband tried to walk a fine line, proposing gradual deficit reduction while noting in one of the debates that Labour’s earlier deficits didn’t cause the crash. He was hammered for lacking credibility.

Trudeau’s circumstances were much more fortuitous. Still, he had that courage and foresight, which the NDP lacked, to take advantage.

The recoveries following the 1929 Great Depression and 2008 Great Recession proved the importance of deficit spending to blunt economic crises. Yet the politics of deficit spending has remained dicey. One can hope that Trudeau’s victory will help advance our collective wisdom, and make it easier for politicians in the future to campaign on Economics 101.

Bill Scher is the Online Campaign Manager at Campaign for America’s Future (ourfuture.org). where this appeared, and the executive editor of LiberalOasis.com. He also is host of the LiberalOasis Radio Show weekly podcast.

From The Progressive Populist, November 15, 2015


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