A Diehard Keynesian View of the World
Shahabi-Azad, Shahrokh, Inroads
A diehard Keynesian view of the world
Timothy Lewis, In the Long Run We're All Dead:
The Canadian Turn to Fiscal Restraint. Vancouver:
University of British Columbia Press, 2003. 288 pages.
TIMOTHY LEWIS'S In the Long Run We're All Dead IS A LOOK AT THE history of Canadian fiscal policy and the changing position of successive governments on fiscal restraint. Lewis suggests that the shift away from deficit financing has been a direct result of the victory of neoliberal ideas about these issues in Ottawa, and the waning influence of Keynesian macroeconomic analysis.
Lewis puts in historical perspective an alleged shift in Canadian fiscal policy from one of direct involvement in economic activity and "smoothing of business cycles" to a more conservative approach. This shift is coincident - and in Lewis's account intimately linked - with what he regards as Canadians' tragic loss of faith in Keynesianism which, though not entirely discarded, lost its preeminence by the late 1970s. Lewis further suggests that Canada's liberalization of trade policy, along with the global economic change from protectionist policies toward greater integration, further served to reduce the role of Keynesianism and deficit finance in the tool kit of Canadian governments.
Although the book is an interesting read, I have mixed feelings about it. Lewis obviously has a bias and makes no attempt to hide it. He reminisces about Keynesianism and seems to long for a return to deficit finance in the name of social justice and equity.
We are all allowed our ideological conclusions. However, Lewis seems to lack an understanding of the interplay of economic and political cycles, and this lack of understanding has led to dubious conclusions about government fiscal policy. He should know better than to suggest that all pursuit of discretionary policy is an attempt to return to the golden days of Keynesian economics. Granted, there was a period in Canadian economic policy when deficit finance and government discretionary policy were the norm. It was the common wisdom of the post-World War II era that government had not only a role but also a responsibility in smoothing out the business cycle. This policy worked during the period for which it was designed. However, rising inflation and the concurrent high unemployment rates of the 1970s required a change in direction.
Lewis talks of the shut in public opinion, and growing opposition in the 1980s to undisciplined fiscal behaviour, with an element of surprise. He seems unable to comprehend that the change in public opinion toward deficit financing was not some purely ideological shift of the Zeitgeist. It came amid a rising debt/GDP ratio, rising costs of servicing the public debt and ominous warnings from financial markets about a Canadian public debt selloff. Lewis implies there is nothing wrong with continued deticit finance, that a growing national debt is not a concern and that, even if there were high levels of inflation concurrent with high levels of unemployment, there is no proof thai Keynesian policies were to blame.
The tone of Lewis's argument at times leads me to believe that he is convinced that Keynesian economics - and with it deficit financing - should return. His motivations become clear when he suggests that Brian Mulroney's victory over John Turner in 1984 was an "indication that the economics of the 'just society' were increasingly out of fashion and the economies of Bay Street rather more in vogue." To Lewis, it is Keynesian economics or nothing at all. To deviate from government tax-and-spend policies (or just spend policies) is to abandon the just society. At this point, Lewis lets his biases and preferences get in the way of objective analysis of the implications of Canada's pursuit of deficits without end. …