by Shahrokh Shahabi-Azad
Timothy Lewis’s In the Long Run We’re All Dead is a look at the history of Canadian fiscal policy and the changing position of successive governments on fiscal restraint. Lewis suggests that the shift away from deficit financing has been a direct result of the victory of neoliberal ideas about these issues in Ottawa, and the waning influence of Keynesian macroeconomic analysis.
Lewis puts in historical perspective an alleged shift in Canadian fiscal policy from one of direct involvement in economic activity and “smoothing of business cycles” to a more conservative approach. This shift is coincident – and in Lewis’s account intimately linked -– with what he regards as Canadians’ tragic loss of faith in Keynesianism which, though not entirely discarded, lost its preeminence by the late 1970s. Lewis further suggests that Canada’s liberalization of trade policy, along with the global economic change from protectionist policies toward greater integration, further served to reduce the role of Keynesianism and deficit finance in the tool kit of Canadian governments.
Although the book is an interesting read, I have mixed feelings about it. Lewis obviously has a bias and makes no attempt to hide it. He reminisces about Keynesianism and seems to long for a return to deficit finance in the name of social justice and equity.
We are all allowed our ideological conclusions. However, Lewis seems to lack an understanding of the interplay of economic and political cycles, and this lack of understanding has led to dubious conclusions about government fiscal policy. He should know better than to suggest that all pursuit of discretionary policy is an attempt to return to the golden days of Keynesian economics. Granted, there was a period in Canadian economic policy when deficit finance and government discretionary policy were the norm. It was the common wisdom of the post–World War II era that government had not only a role but also a responsibility in smoothing out the business cycle. This policy worked during the period for which it was designed. However, rising inflation and the concurrent high unemployment rates of the 1970s required a change in direction.