Daniel Mitchell has an illuminating, albeit ill-informed post, challenging Keynesians to explain how Canada's economy managed to grow in the nineties during the Crétien-Martin era of spending cuts.
Part of the answer is that the nineties were good times in a lot of places thanks to technology boom. But if you specifically want to know about Keynesian macroeconomic stabilization policy, Canada followed the playbook perfectly—which is exactly what you would expect from a center-left government. What Keynesian theory says about the impact of the budget deficit on economic growth is that a country like Canada with a stable inflation rate and relatively high interest rates should cut its deficit. By cutting the deficit, it's possible to reduce interest rates without sparking inflation. That boosts investment, exports, and durable goods purchases.
What's interesting to me is that right-wing types in the United States like to use Canada as their example of expansionary austerity when the United States of America did the exact same thing at the same time. The problem with citing US fiscal policy in the nineties, I suppose, is that it was undertaken by a Democratic administration and it involved tax hikes as well as spending cuts. But guess what? Canada's deficit reduction was undertaken by a Liberal administration and it involved tax hikes as well as spending cuts. It was the same thing on both sides of the border, and in both cases it's in line with Keynesian predictions. The nineties experience should be a challenege to "supply-side" theory and anti-tax dogma, not to Keynesian ideas about fiscal policy.
TODAY IN SLATE
Justice Ginsburg’s Crucial Dissent in the Texas Voter ID Case
The Jarring Experience of Watching White Americans Speak Frankly About Race
How Facebook’s New Feature Could Come in Handy During a Disaster
The Most Ingenious Teaching Device Ever Invented
Sprawl, Decadence, and Environmental Ruin in Nevada
You Should Be Able to Sell Your Kidney
Or at least trade it for something.
- Texas Lab Worker on Cruise Tests Negative for Ebola as Dallas Hospital Apologizes
- Police Use Tear Gas to Break Up College Pumpkin Festival Turned Violent
- Racist Rancher Cliven Bundy Challenges Eric Holder in Bizarre Campaign Ad
- Supreme Court Allows Texas Law That Accepts Handgun Permits but not College IDs to Vote
An All-Female Mission to Mars
As a NASA guinea pig, I verified that women would be cheaper to launch than men.