Tommy Douglas was a “macroeconomist”, not a “provincialist”!
A guest blog post from Mario Seccareccia, Professor of Economics, University of Ottawa
The NDP went through a roller coaster ride in 2015. It would seem that the party still hasn’t fully recovered from the outcome of that election, and it will probably remain so until it elects a new leader and gets its “policy house” in order. At the time, some of us were arguing that the NDP did not have a macroeconomic policy perspective, and we were deeply disappointed that it stuck to a tight script with its commitment to federal balanced budgets. Tom Mulcair, together with his predecessor, Jack Layton, had been explicitly committed to the principle of “sound finance” and to balancing the federal budget, despite the many progressive economists who have been arguing, especially since the global financial crisis of 2008, in favour of functional finance and the need for fiscal deficits to stimulate the Canadian economy. Ironically, it was the Liberals who had come out in favour of fiscal expansion during the elections last year, which was a contributing factor in their victory. In fact, during the campaign, we were being told by Mulcair’s team that the route to prosperity was through balanced budgets. After all, we were told, this economic thinking was supported by Tommy Douglas during his many years as the premier of the province of Saskatchewan and we must remain committed to his views.
This approach, which can be described as a purely “provincialist” perspective to federal public finances, seemed plausible and it suggested to many of us who rejected the Conservative rhetoric of a federal balanced budget “for all seasons” that Tommy Douglas had just never fully grasped the negative macroeconomic consequences of pursuing such an anti-Keynesian policy of budget balance at the federal level. However, recently, thanks to Henri Sader (Parliamentary Assistant to the NDP Member of Parliament, Peter Julian, representing New Westminster-Burnaby in BC), I came across Tommy Douglas’s farewell speech to NDP members in 1971, which actually shows, instead, that he was a highly knowledgeable “macroeconomist” and that he hardly believed in balanced budgets at the federal level to deal with problems of poverty and mass unemployment. Readers could listen to his full speech on the YouTube link provided below. I have edited the text, and provide below an important excerpt from his speech where he does provide us with a clear macroeconomic perspective of the federal public finances, including a supportive role for monetary policy via the accommodating actions of the Bank of Canada. Indeed, you will see from his brilliant and passionate speech that his only real concern was that governments should never rely on foreign borrowing to finance the federal budget deficit, a brutal lesson that many countries have learned, such as Greece since the financial crisis and Argentina before that. At no time, however, did he suggest that we shouldn’t run budget deficits to combat unemployment. It is more important to strengthen the balance sheet of private households in times of recession than to seek an elusive budgetary balance for the public sector.
As the NDP begins its search for a new leader, it is imperative that this issue remains front and centre. Much can be learned from Douglas’s speech that can serve as line of defense against the provincialist leaning that, in part, led to the NDP’s failure in 2015. This provincialist view does not apply to federal budgets. Yet, once we adopt a sound finance approach federally, it leads automatically to austerity policies in times of recession. The electoral mood around the world is telling us that workers are fed up with neoliberal austerity policies, and want governments to be pro-active in their net spending policies, as they had been during the early post-WWII period.
I have pulled some key expressions from his speech to give it what I thought is a more jazzy title, but the whole piece below reproduces the actual transcripts from his famous 1971 farewell speech. I also wish to thank Louis-Philippe Rochon of Laurentian University for his comments and for encouraging me to pull out these transcripts and to post them on the PEF site.
“A Continual War against Poverty, Unemployment, and Social Injustice: Making financially possible what is physically possible”
Excerpts from a farewell speech to the New Democratic Party given by Tommy Douglas (on April 24, 1971):
If I were asked to sum up for the people of Canada and for the New Democratic Party what I have learned from more than a third of a century in public life, I would sum it up by saying to them that it is possible in this country of ours to build a society in which there will be full employment, in which there will be a higher standard of living, in which there will be an improved quality of life, while at the same time maintaining a reasonable stability in the cost of living. ….
We don’t have to choose between unemployment and inflation. … My message to you is that we have in Canada the resources, the technical know-how, and the industrious people who could make this a great land if we were prepared to bring these various factors together in building a planned economy dedicated to meeting human needs and responding to human wants.
Mr. Coldwell and I have seen it happen. In 1937 when the CCF proposed in the House of Commons a $500 million program to put single unemployed to work, the Minister of Finance said where will we get the money? Mr. Benson asked the same question today. My reply at that time was that if we were to go to war, the Minister would find the money. And it turned out to be true.
In 1939, when we declared war against Nazi Germany, for the first time we used the Bank of Canada to make financially possible what was physically possible. We took a million men and women and put them in uniform. We fed and clothed and armed them. The rest of the people of Canada went to work. The government organized over 100 Crown corporations. We manufactured things that had never been manufactured before. We gave our farmers and fishermen guaranteed prices and they produced more food than we had ever produced in peace time. We built the third largest merchant navy in the world and we manned it.
In order to prevent profiteering and inflation, we fixed prices, and we did it all without borrowing a single dollar from outside of Canada. … And my message to the people of Canada is this: that if we could mobilize the financial and the material and the human resources of this country to fight a successful war against Nazi tyranny, we can if we want to mobilize the same resources to fight a continual war against poverty, unemployment, and social injustice.
At long last some sanity on the economics of our dear friend Tommy Douglas. Thank you Mario!!. Just wanted to add that I come from a working class background- that included grandparents, dealy departed now- that would at points in my life – pound the table in defence of Tommy Douglas when somebody spoke badly of him. I would constantly hear his name in conversations when I was a kid- about what a great leader he was- and the spirit of all things that were good- like a trip to the store for ice cream – and Tommy Douglas were spoken in the similar emotive breaths.
When some within the echolons of power last summer started making it out to me that Tommy Douglas was a clear balance budget man and that is why they were pushing it – I seriously wanted to crawl under a rock and tear my hair out. To take a man’s legacy and history and turn it so turn it upside down and ass backwards to achieve their political goals- it was just too much for me. I could feel the skin on my wrinkled dead grandmother crawl as the political leaders and campaign careerists abandon everything working class and promote a balanced budget- in the name of winning! It was like a moth’s continual need to reach the moon- as the NDP leaders crashed their mothy carcass of the badly research and designed campaign on the rocks of a 2000W light bulb. And much like the phoenix – their wings burned off as they approached the sun- blinded by almost everything that made sense from a historical – and actually existing space.
But as I have mentioned on here- now that the phoenix has exploded into a thousand pieces- time to pick a new leader- time to rebuild.
One thing is for sure- with Trump in power- the labour movement who once steered for the safety of the center I am hoping will be a lot more mindful with their support of political efforts.
None more evidently still lurking for another hand out from the union dues as bothersome than lasts week attack by Robin Sears on the public sector workers and his support of P3s. Here is a man who has worked years with Broadbent and company- has filled his best salaried years with cash from workers unions dues- now launching an attack on public sector workers. And bragging that he is still a senior member of the Broadbent Institute.
It is time for the NDP and labour to figure out a new way forward. Time to let people like Ed go into retirement. For sure Labour must cut ties with the likes of Robin Sears- who undoubtedly played a big role in last years balanced budget campaign that so badly hijacked a stalwart of the left.
Thank you Mario for writing this- I know it will make my grandmother quite happy in her peaceful slumber. As always- we live through our culture and I can feel more restful so I know she will be as well.
The days of the left being washed out on what the foundation of a progressive economics look like must be enshrined into the walls of all campaigns. I cannot be open to campign compromises- nothing could be more obvious than the election of Trump. Time to join working class politics with the many other repressed groups and build back an organic link to those in need of a better world. No more can we afford to get that close and lose out because of bad leadership and party politics. We need a new found democracy within a new democratic party.
Many thanks for this informative post. The following may also be of interest:
1. Standing Committee on Banking and Commerce, Minutes of Proceedings and Evidence Respecting the Bank of Canada, 1939.
http://www.michaeljournal.org/appenE.htm
Some of the most frank evidence on banking practices was given by Graham F. Towers, Governor of the Central Bank of Canada (from 1934 to 1955), before the Canadian Government’s Committee on Banking and Commerce, in 1939. Its proceedings cover 850 pages. (Standing Committee on Banking and Commerce, Minutes of Proceedings and Evidence Respecting the Bank of Canada, Ottawa, J.O. Patenaude, I.S.O., Printer to the King’s Most Excellent Majesty, 1939.) Most of the evidence quoted was the result of interrogation by Mr. “Gerry” McGeer, K.C., a former mayor of Vancouver, who clearly understood the essentials of central banking. Here are a few excerpts:
Q. But there is no question about it that banks create the medium of exchange?
Mr. Towers: That is right. That is what they are for… That is the Banking business, just in the same way that a steel plant makes steel. (p. 287)
***
The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book. That is all. (pp. 76 and 238)
***
Q. But if the issue of currency and money is a high prerogative of government, then that high prerogative has been transferred to the extent of 88 per cent from the Government to the merchant banking system?
Mr. Towers: Yes. (p. 286)
***
Q. Will you tell me why a government with power to create money, should give that power away to a private monopoly, and then borrow that which parliament can create itself, back at interest, to the point of national bankruptcy?
Mr. Towers: If parliament wants to change the form of operating the banking system, then certainly that is within the power of parliament. (p. 394)
***
Q. So far as war is concerned, to defend the integrity of the nation, there will be no difficulty in raising the means of financing, whatever those requirements may be?
Mr. Towers: The limit of the possibilities depends on men and materials.
***
Q. And where you have an abundance of men and materials, you have no difficulty, under our present banking system, in putting forth the medium of exchange that is necessary to put the men and materials to work in defence of the realm?
Mr. Towers: That is right. (p. 649)
***
Q. Would you admit that anything physically possible and desirable, can be made financially possible?
Mr. Towers: Certainly. (p. 771)
The Liberal’s Infrastructure Bank is a good opportunity to bring these ideas up, again.
Excellent post Mario. Let’s hope it stirs some much needed debate within the NDP
An interesting one-minute video clip of Elizabeth May then Jack Layton on federal funding through the Bank of Canada:
https://www.youtube.com/watch?v=-Aikl8hGn-w
Excerpt from Jack Layton:
“We never should have privatized our debt and turned it over to the private banks. We should have kept it in the hands of the Bank of Canada, at least the major part of it, because then we would have been paying interest back to ourselves…”
Just to add to the discussion, here’s an excerpt from the 2016 Policy Book of the federal NDP.
Thanks to Gerard Fox for bringing this to my attention in fall 2015.
(http://xfer.ndp.ca/2016/documents/2016_PolicyBook_EN_WEB.pdf)
Section 1.6 (Finance and budgetary policies)
New Democrats believe in:
a Balancing budgets and confining short-term
deficits to severe economic downturns and
national security emergencies.
b Building a sustainable economy by reducing
the debt to gross domestic product (GDP) ratio.
c Establishing fiscal reserves during times of
surplus to help create investment opportunities.
d The autonomy of the Parliamentary Budget
Officer.
e Implementing the recommendations of the
2004 Pay Equity Task Force and establish a
pro-active pay equity regime, enshrined in law
Section 1.6 is unmitigated humbug, a betrayal of progressive values, and richly deserving of the scorn it received at the polls. It totally misunderstands what a country with its own currency can and should do to support the public purpose.
1.6.a False. Given the private sector’s saving preferences and our large current account deficits, it will be necessary to run budget deficits effectively indefinitely to counteract the drag of these leakages on economic activity. Balancing the budget as a policy objective guarantees a slow-motion, weak economy.
1.6.b. False. A government with a sovereign currency doesn’t need to issue debt at all to finance spending and can never become insolvent in Canadian dollars. The debt-gdp ratio is meaningless. Government spends by crediting bank accounts.
1.6.c. What the deuce? The federal government issues its own currency and can buy anything for sale in Canadian dollars at any time. It doesn’t need to build hoards of financial reserves in good times to pay for spending in bad times. It spends by crediting bank accounts. It is not financially constrained.
1.6.d. PBO is a joke serving no useful function. It publishes a Fiscal Sustainability Report for a government that cannot become insolvent. The less said, the better.
1.6.e. OK but unfortunately has little to do with the previous parts of this section and could be undermined if the nonsense of parts a-c are implemented.
Where do we go from here when a putative progressive party believes this fatuous tripe?
Thanks Mario!
We need to work together to get this issue into the mindset of the average Canadian and start a grass roots movement.
Who would be the person that the NDP would work with to create policy on this issue? Can I help get the conversation going in any way about what a policy would look like?