Liberal economic policy agenda becomes less amorphous

Trudeau's video offers a few clues, but raises even more questions

(Adrian Wyld, The Canadian Press)

(Adrian Wyld, The Canadian Press)

There’s not been a lot to say about the Liberal Party of Canada’s policy proposals, because, to a rough approximation, there aren’t any. The policy front had has to make do with some inchoate talking points while the party’s energies were directed on choosing a leader and getting ready for the next election. This weekend’s conference is supposed to be the next step towards an election-ready platform.

The release of Justin Trudeau’s video on the economy is an interesting exercise. Even though its focus is on presenting context and not policy, it does offer some insight into what the Liberal leadership is thinking going into the conference.

For example, the video offers a definition for what means to be middle class in all those Liberal talking points:

the people who live off their incomes, not their assets

This is a bit of a head-scratcher: everyone lives off their incomes. The people who live off their assets have incomes – it’s just that their incomes are generated by their investments and not by working. If Trudeau is referring to people who depend on their earned income, then he’s including most of the one-percenters: the surge in income at the top has been driven by earned income, not their asset holdings. He’s also excluding retirees: their incomes are generated by their asset holdings. (Raising this point gives me an excuse to point people to the CBC Radio series The Invisible Hand, and especially the “Your Grandmother is a Capitalist” episode.) Trudeau probably does not want to include one-percenters in the middle class and almost certainly doesn’t want to ignore retirees, but his definition appears to do just that.

As I said, it’s a head-scratcher.

Later on, Trudeau brings up a compelling point, one that has been raised by many others (including myself):

I worry that at some point, Canadians will say: “Why should we support a growth agenda if it doesn’t help my family?”

I don’t know how the Liberals intend to answer this challenge, but this is a good and constructive way of framing the problem. It is far more likely to generate a useful answer than putting it in terms of terms of class warfare.

Trudeau offers some statistics about how the middle class has fared. I’ve gone over why I think these data trends are being misinterpreted several times, so I’ll just point to here and move on.

After going through some debt numbers, Trudeau concludes that

while the middle class is tapped out, the federal government has room to invest

This is not a promising train of thought. In terms of short- and medium-term business cycle analysis, it looks a bit like the Bank of Canada’s outlook: consumer spending cannot be counted on to drive the recovery any longer. But the Bank also identifies investment spending and exports as growth drivers. There is a case to be made for fiscal stimulus in the depths of a recession, but we’re nowhere near that situation now.

The most puzzling bit is the part about ‘fiscal responsibility’. After what looks like a case for increased federal spending, how is this new spending to be financed?

The answer is growth

This isn’t an answer; it’s wishful thinking. New measures to increase spending without new measures to increase revenues are how we got ourselves into the deficit-debt spiral in the 1970s and 1980s. Faster growth will increase government revenues, but they will also increase the costs of running the programs that are already in place. (See here for more on this point.) The case for new spending has to be matched with a case for new taxes. If you’re going to keep Stephen Harper’s tax structure in place, you’re pretty much obliged to live with Stephen Harper’s level of spending.