Last Monday, for the first time in a decade, our neighbors to the north elected a new head of government. Justin Trudeau and the Liberal Party of Canada won Canada’s federal election by a surprising margin, crossing the finish line with 184 of a possible 338 electoral districts and 39.5% of the popular vote. In a country with three strong political parties and a number of smaller players, this was a decisive victory: the incumbent Conservative Party won a disappointingly meager 99 seats. Stephen Harper, its leader, will transfer power to Mr. Trudeau in early November.
In the days following the election, international media quickly latched on to the story. Well-coiffed and with an affinity for shirtless photos, Mr. Trudeau gained global online celebrity overnight. And at home, progressives breathed a long sigh of relief. Wearied by 10 years of conservative rule, Mr. Trudeau and the Liberals signal a new direction for Canada.
This new direction, however, has significance beyond the good looks of its leader. The economic implications of Canada’s new government merit examination. In an op-ed published by the Financial Times following the election, Lawrence Summers declared the Liberal Party’s victory to be proof that “an anti-austerity message is a winning one”. Indeed, while Mr. Trudeau’s opponents on both the left and right had proposed a balanced budget, the Liberals adopted a dramatically different course, pledging three years of budget deficits designed to increase infrastructure spending and stimulate a stagnating economy. “More infrastructure investment is not just good economics”, Summers explained, “it is [also] good politics”.
One cannot contest the second half of Mr. Summers’s statement. While certainly not the only factor in this year’s election, infrastructure investment and public spending have repeatedly proven popular with electorates in Canada and abroad. In good times, spending cuts are hard to swallow. But when the economy slows, as it is doing in commodity-dependent Canada, the suggestion of austerity can become downright unpalatable.
More contestable, perhaps, is Mr. Summers’s assertion that infrastructure investment is good economics. While Canadian voters appear to have agreed, the academic community is far from a consensus. Former Fed chairman Ben Bernanke famously pushed back against Mr. Summers’s “secular stagnation” theory in back in April of this year. Mr. Bernanke suggested that developed countries were already well on their way towards full employment, and argued that even if they weren’t, “government debt is very high by historical standards…and public investment too will eventually exhibit diminishing returns”. Bernanke has not commented on Canada, where general government gross debt-to-gdp sits around 85%. In the US, gross debt-to-gdp is roughly 107%.
Thus begins, therefore, a new chapter not only in Canadian politics, but also in the debate over secular stagnation and economic growth. Should Mr. Trudeau deliver on his campaign promises, head the advice of Mr. Summers, and increase public spending, Canada will embark on a rather high-stakes economic experiment. But should he renege, and continue Mr. Harper’s legacy of austerity, Mr. Trudeau and his luscious locks might soon lose their luster.