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The Progressive Economics Forum

Election 2015: The Political Economy of Balanced Budgets

First, disclosure.  I wear several hats.  In addition to being a progressive economist, I am  a member of the NDP.  I have been since 1988.  I will be voting for the NDP candidate in my riding and I just donated $100 to the party,with more to follow.

The recent promise of four years of balanced budgets by the Mulcair-led NDP has irked several progressive economists  (see Marc Lavoie  and Louis-Philippe Rochon), who are puzzled over why Canada’s social democratic party would eschew running deficits during a period of cyclical slow-down and probable stagnation. The quick answer is that the Mulcair team is not trying to convince  mainstream economists (a relatively small, spread-out segment of the Canadian electorate) of the wisdom of post-Keynesian economic policy, but rather is trying to persuade the median Canadian voter (a problematic concept, for sure) that they would not be the Ontario Bob Rae government of the early 1990s.

Progressive economists sometimes refer to themselves as political economists.  However, I fear we sometimes don’t given enough attention to the political.  To implement your economic policy platform, you need to win the electoral competition game.  Our game is a majoritarian one, meaning winning 50% plus one seat to form the government.  In this federal election, that involves winning at least 170 of the 338 seats of the House.

Let’s check the political arithmetik:  at dissolution of the 41st Parliament in August, the NDP held 95 of 308 (versus the Conservative 159 and the Liberal 36).  Note the increase of 20 seats from 308 at dissolution to the 338 up for grabs in the October election due to the 2012 electoral redistribution.  Let’s look at the distribution of NDP incumbent seats across the regions: Atlantic 6 of 32; Quebec 54 of 75; Ontario 19 of 106; Prairies 3 of 56; British Columbia 12 of 36, the North 1 of 3.

To form the government, the NDP have to win an additional 75 seats as well as retain their 95 incumbent seats to bring their number to 170.  Let’s assume they retain their seats in Atlantic, Quebec and BC/North, but make no further gains in those regions; that’s 73 seats.  To form the government, the Mulcair NDP will need to not only hold onto their 22 seats in Ontario and the Prairies (19 and 3 respectively), but will need to win an additional 75 in those regions.  An additional 75!  This is quite an electoral challenge, and this I feel explains why the NDP have chosen a platform centred on balance budgets: to win the confidence of the dissatisfied moderate of Ontario and the West.  Assuming the mantle of Tommy Douglas (and Roy Romanov) and not Bob Rae (and Glen Clarke and Darrell Dexter) positions themselves as such.

The Trudeau Liberals, needing to distinguish themselves from the Mulcair NDP, have taken the courageous stance and promised three  years of deficit spending, investing in infrastructure.  Will it persuade Canadian voters?  With only 36 seats at dissolution, they have even more ground to gain, an additional 134 seats, to form the government!  That would be quite the red tide, compared to the orange wave.

Political scientist Peter Hall once remarked: “Much of what goes on in the political arena is, in fact, a struggle among political entrepreneurs to define the way in which the electorate or potential followers within it interpret their interests.”  In the days leading up to October 19, it will be interesting to see how Mulcair and Trudeau teams perform in defining the interests of Ontario and Western voters.

 

Enjoy and share:

Comments

Comment from Jeff White
Time: September 19, 2015, 1:40 pm

Nice theory, except that the NDP was already at 36% in the polls when Mulcair made his no-deficit pledge in August. The party’s polling numbers have gone down, not up, since then. If this was part of a strategy to attract Conservative voters, it hasn’t worked.

Comment from Larry Kazdan
Time: September 19, 2015, 6:54 pm

As Shakespeare put it, the NDP will be “hoist by their own petard”. First, as Jeff White indicates above, will aspirational austerity really win votes? But second what will happen to the economy if the NDP actually does gets to govern? Sadly, the NDP leadership seem to believe their own neo-liberal rhetoric. Mulcair (full disclosure – I voted for him as leader) prides himself that his family lived within its means. But he does not mention whether or not his family owned a central bank. My guess is that the economy and the NDP will both take hard blows.

The existential crisis of Labour-type political parties
http://bilbo.economicoutlook.net/blog/?p=30896

“These parties have lost their meaning and purpose of existence and everyone knows it. The reasons are relatively straightforward. They have bought into the free-market myths and demeaned the role of the State. They now only argue about how much fairer their version of fiscal austerity will be relative to the conservatives, never challenging the underlying lies that drives the austerity agenda in the first place.”

Comment from Tom Bergbusch
Time: September 19, 2015, 9:01 pm

So the argument is that:
1) The NDP is lying comprehensively and misleading the Canadian public;
2) But that is ok, because… not clear.
3) Mulcair himself is a right-winger, who espouses Thatcher-like retreat from regulation and public involvement in the economy, bulk water exports, an end to any socialism in the NDP, a subversion of national social programming as he is in favour of “asymmetric federalism” (self-contradictory promises about national childcare notwithstanding).

I think Ms. Bradshaw, indeed all NDPers (barring the good ones like Paul Dewar), oughta abandon the party until it has purged itself of the Laytonites and Mulcair.

Comment from Wenonah Bradshaw
Time: September 20, 2015, 10:19 pm

Thanks, Jeff. I see the decline post-Aug 25, although I think the 36% observation was a bit of an outliner. See https://en.wikipedia.org/wiki/Opinion_polling_in_the_Canadian_federal_election,_2015. I do wonder if the Mulcair team sought the first mover advantage, promising a balanced budget in 2016, and thus forced the Trudeau team to react. The choice for Trudeau was to match (and thus be undifferentiated from the NDP) or choose to pledge deficits (and be different yet hold a politically risky campaign promise). As for polling, the recent experiences in BC and the UK underscore the rising uncertainty associated with land-line telephone-based polling as households choose to be exclusive cell users. BTW, did you run for the Ontario Tories in Mississauga-Erindale in 2014? See http://www.mississaugaerindale.ontariopc.com/Homepage .

Comment from Wenonah Bradshaw
Time: September 20, 2015, 10:25 pm

And do what exactly this October 19, stay home and seek solace in modern monetary theory, until both the mainstream economics community and the general Canadian electorate “get it”?

Comment from Murray Reiss
Time: September 21, 2015, 1:02 am

Well, the general Canadian electorate might be closer to “getting it” if the NDP had used all the tools at their disposal as the Official Opposition to hammer away at neo-liberal othodoxy in all things economic. I see this as a huge wasted opportunity that’s helped lead us to where we are.

Comment from Wenonah Bradshaw
Time: September 21, 2015, 3:48 pm

Interesting point, Murray. Please elaborate. Tools beyond holding the government to account in Question Period, media scrums and other appearances, the email messages, flyers in the mail, Twitter tweets, etc?

Comment from circuit
Time: September 21, 2015, 4:20 pm

Wenonah,

You say Marc, Mario and LP forget about the political in “political economy”. Well, let me suggest that your commentary is completely devoid of the economy in “political economy”.

Balancing the budget when monetary policy cannot be expansionary is like walking a tight rope without a safety net. Period. And this is not a post-Keynesian insight, just basic textbook stuff.

Comment from Ken Howe
Time: September 22, 2015, 8:20 am

The tools you mention in your reply to Murray (holding the government to account, etc.) were never to my recollection used to critique balanced budget fetishism or talk seriously about macroeconomics. I have written many letters to the party to suggest ways to do that (without ever getting a reply). I’ve also spoken about it to my MP a few times, and even tried to discuss it with Mulcair himself (he listened and “respectfully disagreed” but didn’t really engage. [I understand, he can’t always get into it with low-level party members he doesn’t know from a hole in the ground]). Perhaps focusing on corruption or where spending was going was a good call, but it has always worried me that the party was painting itself into a corner, not to mention risking its soul and miseducating the public.

Comment from Bob
Time: September 26, 2015, 8:43 am

I agree with Murray. It’s never wise to play into the strengths of the other side and worse still to adopt their lingo. Talking up balanced budgets when you know it is stupid and wrong is the worst kind of pandering and is sure to backfire as the article below implies.

http://www.thestar.com/news/federal-election/2015/09/24/conservatives-swing-into-lead-close-in-on-majority-government-new-poll-suggests.html

“Graves said the NDP’s commitment in the campaign to keep the books in the black may be “adding legitimacy to Harper’s claims that this is an important achievement.””

Comment from janos Nagy
Time: September 27, 2015, 12:54 am

Just a short comment.
Economics has nothing to do with politics.
Economics doesn’t know left or right idology.
Economics are just simple numbers that responds and influence each other.
The elected government needs only uphold economic democracy.
Balanced budget is irrelevant but understanding economics is relevant.
Any fool can balance the budget just tax zero spend zero.
And most importantly taxation is not an economic policy it is a social policy.

Janos Nagy
President
Index co ltd

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