There is a present economic debate between the Conservatives and Liberals on the Keynesian theory in contrast to the Monetarist ideology. Notably, this debate will change the way we pursue economic policy. On one side, we have Keynes who argued that deficit spending, if used in an efficient way, could boost the economy in times of recession. Ultimately, this will decrease the level of unemployment and increase the level of consumer spending, stabilizing the economy once again. On the other hand, we have the Nobel Price Winner, Milton Friedman, who defends his vision of a small government that decreases taxes and spending, making it easier for the market to adjust and escape the recession. After 40 years of domination (1939-1970), the Keynesian school of thought has been replaced by Friedman’s theory. Surprisingly, at the moment when everyone thought that Monetarism policy won the ongoing deliberation, we can now see a return of the Keynesian policy in the current Canadian election through the Liberal party platform. Yet, the question remains: are Canadians ready to replace the Monetarism vision for the Keynesian economics theory, which has been proven efficient when adequately used?
Almost ten years ago, Harper and his party replaced the Liberal reign, which governed for more than ten years. The Conservatives began their majoritarian government concurrently with the big recession of 2008, which obliged them to implement a tight and organized economic plan. Hence, for the sake of the economic situation, Canadians trusted Harper’s plan, which, in all fairness, left Canada in a decent economic state. Nevertheless, since the Conservatives have been in power, they only focused on reducing taxation and reducing their spending, as the Monetarists prefer. However, the problem that we can perceive from the Conservative politics is that after ten years, they are still struggling to procure a balanced budget. In a sense, this is not surprising, considering they do not create any revenue from decreasing taxation. In addition, the Conservative party is constantly reducing their spending, thus the aggregate demand is also decreasing, resulting in a reduction of revenue. Moreover, the Party reduced several social programs that were established to help Canadian families. Taking all these factors into consequence: the reduction of spending, the budget deficit, and the reduction of social programs, the scheduled economic plan of the Liberal Party of Canada, inspired by the Keynesian school, looks very appealing.
The revival of Keynes economic policy through the Liberal party is good news for Canada. By explicitly stating that, if elected, they will run a deficit spending for the first few years, the Liberals are encouraging a real revival of Keynesianism. Due to a higher aggregate demand, this resurgence will generate more revenue. Contrary to the Conservatives, the Liberals are looking to actually produce more revenue to finance different kinds of social programs that are essential to the Canadian population. Contrary to what people may believe, adopting Keynesianism does not necessarily mean embracing a leftist position. When properly used, the result is beneficial for all social classes. Undoubtedly, when more people participate in the economy of the country, the more efficient the economy will be. Encouraging the economy does not automatically lead to “crowding out” private investments, as the Monetarists like to say. On the contrary, economic participation increases the trust in the market and attracts the private sector to invest more, due to the overall expansion in economic stability. The statement from the leader of the Liberal party denoting that they will use small deficit spending to generate revenue and reinvigorate the Canadian economy could certainly seem intimidating, but when analyzing the policy more critically, the long and short-term vision seems promising.
Defenders of the Keynesianism school of thought are more than happy to see its re-emergence in our Canadian society. Although the redemption of the Keynes doctrine in the economic sphere is still yet to be determined, for the first time in decades, on October 19th, the Canadian population could assist in a pertinent decision in regards to the debate about the two different theories. Hoping that the Canadian populace will consider the benefits of the Keynesian economic policy, the Liberals may very well carry the answer to our present economic dilemma.
– Alex Héroux
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