Sunday, August 30, 2015

The NDP and budget deficits: Not the Tommy Douglas vision

By Fraser Needham

The 2015 Canadian federal election took another strange turn this week.

NDP Leader Thomas Mulcair committed that his first budget as prime minister would be a balanced one. This seems somewhat strange as Canada appears to be headed into a recession and if the current Conservative government has struggled to maintain services in recent years without running deficits, in what have been stronger economic times, the only way a new government could balance the budget in a weaker economy would be through substantial cuts. The minor revenues gained by an NDP government canceling income splitting for high-income earners and a modest corporate tax increase would not be enough to maintain current spending levels in an economic downturn, let alone meet other campaign commitments such as a national childcare plan.

For their part, Justin Trudeau and the Liberals have committed to a modest plan of running $10 billion deficits for three years before balancing the budget in 2019-2020. Deficit spending would be used to address the infrastructure deficit and create jobs and economic stimulus. The Liberals quite rightly point out that with interest rates being at historic lows, now is a particularly good time for a government to borrow as a means of stabilizing a slumping economy.

With the NDP committed to balancing the next budget, regardless of the consequences, and the Liberals open to running deficits, a number of media analysts have accurately characterized the Mulcair NDP of trying to outflank the Liberals on the right. However, “not so” scream a number of diehard NDP supporters. Balanced budgets are not a right wing mantra and have long been in the tradition of the CCF/NDP governments, they contend. As examples, they cite the Saskatchewan CCF/NDP governments of Tommy Douglas and Allan Blakeney who governed under successive balanced budgets.

To put it politely, this is a highly creative and selective version of the truth. Here are the facts.

When Tommy Douglas and the CCF were first elected in 1944, it was on the heels of a number of Liberal deficit budgets. However, it is not surprising the Liberals were running deficits after Saskatchewan had been one of the provinces worst hit by the Great Depression followed by a wartime economy. In fact, it was the inability of the Liberals to use government as a positive force to prevent farm foreclosures and maintain grain prices that marked the end of 34 years of Liberal rule and the beginning of the CCF era.

The post-war CCFers were committed Keynesians. This means they believed government could be used as a positive force to stabilize the economy. Thus, in good economic times government should save surplus revenues and in bad times a government may need to run a deficit in order to stimulate the economy. Budgets need not be balanced every year but over a period of years according to the economic cycle.

Therefore, the Saskatchewan CCF came to power promising increased social programs for all people, greater economic stability and a more progressive tax system. Part of bringing greater stability to the economy meant a commitment to nationalization of parts of the economy including auto insurance, electricity and some resource industries. Nationalization of electricity and auto insurance not only allowed the government to provide affordable levels of service to all people in a small and largely rural province, it also allowed the government to take in revenues that could be used to pay for other social programs.

So, the CCF governments of Tommy Douglas and Woodrow Lloyd were good fiscal managers but they also benefited from the post-war boom of the late 1940’s and 1950’s as well as increased revenues from progressive taxation and nationalization. As such, they were able to balance every single budget from 1944 to 1964.

Saskatchewan did not see deficits again until the late 1960’s and early 1970’s under the Ross Thatcher Liberals. The deficits were not so much due to Liberal mismanagement but more the result of a downturn in the farm economy coupled with a reduction in production by American-owned potash companies to maintain prices.

Allan Blakeney and the NDP were elected in 1971 on a platform of bringing greater stabilization to the economy through further nationalization of resource industries. After the newly elected government was unable to reach an agreement with the potash industry in terms of production levels, they nationalized this industry. They also proceeded to nationalize the uranium, oil and gas industries.

As a result of the massive increase in revenues due to nationalization of these key resource industries, the NDP had more than enough money to balance every single budget from 1971 to 1982 and finance a number of social programs. Further, the government was able to put about $1 billion away in savings.

The point of all of this is to demonstrate that the Mulcair NDP is not similar to the Douglas CCF and Blakeney NDP in any way, shape or form. To try to equate the two is intellectually dishonest. Douglas and Blakeney sought to make transformative changes to the capitalistic economy in order to level the playing field, bring stability to the Saskatchewan economy and finance social programs. Balanced budgets happened to be part of the process but were not the main goal in and of themselves. Neither Douglas nor Blakeney would ever have advocated balancing a budget regardless of the economic circumstances.

Balancing a budget regardless of the economic fallout is a more recent and right wing mantra. It falls into the belief that government should never intervene in the economy and government finances should be operated like an accounting ledger – surpluses should always be spent and deficits never incurred.

The Mulcair NDP is not committing to transforming the capitalist economy at all through either progressive taxation or nationalization. However, without even knowing the true state of government finances or how severe the economic downturn may be, they have committed to balancing the budget. This is completely irresponsible and is only in the legacy of the Mulcair NDP and no one else.

The statement is a vain attempt to appear fiscally responsible to the right wing press and at the same time hope that this same press attacks the Liberals for actually admitting a deficit(s) may be likely. Faced with a cut to services and running a deficit, it is likely an NDP government would choose the latter so why be so dishonest in an election campaign?

It is clear that the NDP wants to cash in on the anti-Harper vote in this campaign as a means of forming government. However, making ridiculous policy statements such as balancing the budget in the midst of a recession only makes anti-Harper voters not take the NDP seriously and look elsewhere. If the NDP wants to replace the Conservatives, it is not just enough to be anti-Harper, they have to be credible.

Fraser Needham is a freelance journalist living in Saskatoon, Saskatchewan. He has been working and writing in Saskatchewan for the past 15 years. Aside from the Saskatchewan CCF/NDP, he follows Aboriginal issues and politics closely.

See also: Deficit spending and the very odd week in Canadian social democracy

See also: Mulcair doubles-down on the NDP's right shift by defending Thatcherism


  1. Rubbish Michael. There is no guarantee Mulcair would go this way but there is a choice.

  2. To try and nutshell it in case you are not familiar:

    MMT essentially states that sovereign currency issuers are nothing like households. They issue the currency!!! They cannot run out. Solvency is not the issue. They, and their grandchildren, can pay any debt denominated in the currency THEY ISSUE!! The debt really is an accounting entry. It could easily be labelled “non-government savings”. The Canadian Federal Government is the only entity that can issue the Canadian currency! Who else can? The term for anyone else attempting to issue the currency is counterfeiting. Sorry for the punctuation but once you give it five minutes of serious thought it is just plain obvious. Provinces, cities, private companies and households (and Greece under the Euro) are currency users, not currency issuers. They can over borrow and go broke (unless they get bailed out by the currency issuer as happened for banks and GM in 2008, but not Detroit; hmmm). These statements about credit cards and debt for grandchildren are just plain wrong and idiotic but unfortunately they still seem to have political capital (see the current incarnation of the lurch to the right NDP). Perhaps it would be political suicide to attempt to educate the electorate about these matters so close to an election? Maybe a new left party or the NDP shifted back from the right abyss can bring this issue to the fore in the next election???

    I am not a fan of MMT's policies as a final destination, only reforms en-route to revolution, and I believe we will get "socialism (of some form) or barbarism (a lot of which we already have of course)", but I do think it properly describes the modern money system as it currently exists, and actually pretty much as it has always existed. It also addresses the issue of inflation if a currency issuer overspends which really only occurs if overspending during full employment, which we will never experience under capitalism unless MMT's other policy of the job guarantee is adopted. MMT also addresses the difference between financial and real assets and the importance of how we use and allocate real resources. There of course are other issues to consider under global capitalism and geopolitics and I have not even scratched the surface in attempting to explain MMT.

  3. Herb

    Since the second half of my comment eventually got posted above I will attempt to post the 1st half again.

    Rubbish... I think not.

    First let me say I mean no personal offence and I in no way speak for Michael Laxer although I do hope he comments.

    Unfortunately there is an incredible amount of mis-information about monetary operations on the internet. A lot comes from right wing charlatans trying to dupe people, but there is also right wingers who are just mistaken and even more unfortunately people on the left or progressives who appear to have good intentions, like COMER and Ellen Brown and yourself perhaps, but have incorrect information on board. Correct understanding of how money works in the current rendition of capitalism is crucial to using it to better people's lives today and hopefully (for me) on the road to eventual systemic change. IMHO the best source of information on how the money system works is coming out of the University of Missouri Kansas City (UMKC) and their Modern Money Theory, or MMT, and their writings at www. . Other sources include the Levy Economics Institute , economists James Galbraith (son of the well known Canadian economist John Kenneth Galbraith), Steve Keen, Bill Mitchell (billy blog), and Warren Mosler. They have evolved from Georg Friedrich Knapp's chartalism with other influences being Keynes, Marx, Veblen and more recently Minsky (Sources from my knowledge, sorry if I have missed anyone). I would be curious to know if you are familiar with any of these sources.

    I cannot hope to address the errors in your, and the others cited, understandings of monetary operations on a blog comment (limited to 4096 characters) and I am guessing you will initially vigorously object. I understand you have a lot of time invested. I am also not a trained economist so would encourage you to take up your objections with the sources I have cited anyway for completeness (not that I am not willing to try). I understand the difficulty in the suggestion leading back to all the information available. For instance If I was a US libertarian or Austrian economist I may be suggesting you read the entire site or Ayn Rand or Hyek etc. and telling you that is the correct view. I can only say that I went through many paths, including COMER and Ellen Brown and and Hyek and mainstream economics (neoclassical or the more pejorative theoclassical) before coming across MMT (so called heterodox economics). A long and often painful journey at times.

    The other evidence I will give for you to invest time in this is the predictive power that has been demonstrated by the people using these economic models.

    Euro Crisis predicted;

    Dot com bubble predicted:

    2008 financial crisis predicted:

    See second post (above) due to character count run over: