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Trudeau's triumph shows Keynesianism is alive and well in Canada

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This election may have been about many things, but as an economist, October 19 will certainly go down in the Canadian history books as the day Keynes was welcomed back to Canada. Indeed, the Liberal Party campaigned on the promise to run deficits to help the flagging economy, and Canadians embraced the idea in a spectacular fashion. It was, in the words of Keynes biographer Robert Skidelsky, the 'Return of the Master."

One of the cornerstones of the Keynesian legacy is a fundamental understanding of how our contemporary economies work: when the economy is failing, the State has both a moral and economic obligation to step in. Fiscal spending must be functional and must adapt to the needs of the economy. This is a far cry from the "austerity hysteria" where balanced budgets become the single objective of policy regardless of the state of the economy. 

It was a gambit for Trudeau to come out in favour of deficits at a time when both the Conservative Party and the New Democratic Party were advocating the supremacy of balanced budgets. Both parties were telling Canadians that deficits were a burden on our children and grandchildren, and both were saying that the way toward prosperity was through belt tightening; and many pundits and pollsters believed Canadians accepted this view.

Of course, none of this is true, and the economic logic is as faulty as it is nonsensical, and Canadians agreed that at a time when our economy is barely out of recession, balanced budgets is a ridiculous idea. 

Our economies grow on demand, and the more we demand goods and services, the more firms respond by producing them, and then hire additional workers to meet that demand.

But when demand is crumbling, as it is now, asking governments to depress its spending only contributes to greater weakness in the economy. After all, despite the claims made by Mr. Harper, the Canadian economy was not doing well, and a majority of sectors were underperforming, unemployment was on the rise, and labour force participation remained low; manufacturing was suffering despite a low Canadian dollar, and the oil sector performed as bad as it could, dragging much of the economy with it.

When done properly, for instance spending on much needed infrastructure, are an investment in our future, not a burden. Deficits can be used to modernize our transit, sewers or our electrical grids, or to improve the poor state of our roads and bridges.  And Canadians understood this and were not easily scared by the austerity boogeyman.

There was also this awkward thing called the recession. Mr. Harper never admitted the recession existed, calling it instead "a few bad months." Recession are accompanied with higher unemployment, and Mr. Harper's failure to admit Canada was even in a recession was a tad insensitive, and came across as unsympathetic to the problems of working Canadians who certainly felt the economy in recession. Across the country, Canadians knew someone, a neighbour or a family member, who was out of a job, and turned to their government for guidance. Yet, Mr. Harper offered no guidance,

Finally, something else happened on October 19.  Canadians have said quite dramatically, that their progressive voice was still very much alive. And in that sense, the result was even more meaningful. I have argued for years now that you cannot be a progressive in Canada (or elsewhere really) while advocating balanced budgets. When unemployment is this high, austerity is the purview of the right, not the left.  The NDP's support of such policies was both bizarre and opportunistic, and a horrible misreading of the Canadian progressive voice: it was a deep betrayal of progressive values.  In the end, Canadians saw through the lack of intellectual honesty and voted for the Liberals.

Of course, the remarkable thing about Monday's results was the sheer size of Mr. Trudeau's victory. He promised to put Canada back to work, invest in infrastructure, dismantle some of the Conservative's worse economic policies, and Canadians gave him an impressive mandate to do so. 

The challenge for Trudeau now is to deliver the goods and not to disappoint Canadians. They have turned toward him for solutions, and he must now act. This part should be easy.

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