‘Good’ politicians and profligate policies — Chrystia Freeland wants to redistribute the wealth

A principled politician would not put his or her stamp of approval on a reckless policy that offers jam today but forwards the bill to the next generation.

Good politicians adapt their most dogmatic beliefs to changing political circumstances.

Justin Trudeau has evolved into a good politician, which is not necessarily a character endorsement.

That’s why when he was asked about throne speech priorities before a Cabinet meeting on Monday, he talked about the pandemic response, rather than last week’s enthusiasm to move his government in an “entirely different direction.”

The rise in the number of COVID cases – a 20 per cent increase in positive results week on week – has elevated anxiety levels across the country and prompted Liberals to dampen their ardour for a transformative and expensive green economic reset.

Trudeau toned down the perception of his government as a bunch of impatient activists, eager to experiment on the Canadian economy like sophomore students trying to make gunpowder from sulphur and charcoal.

“Our focus right now is on the COVID crisis. We need to get through this in order to be able to talk about next steps,” Trudeau said. His environment minister, Jonathan Wilkinson, said he didn’t think the government is backing away from its principles but the priority has to be job creation and economic recovery.

Even Infrastructure Minister Catherine McKenna got the memo. She told the Star that Ottawa needs to demonstrate “returns” on climate-related expenditure.

The message that money has to be spent wisely is emerging from the lips of just about every Liberal.

But the person whose view matters more than anyone has been uncharacteristically quiet. Chrystia Freeland, the finance minister, is said to be getting up to speed with her new job, hence the silence.

Previously, she has said that the restart of the economy needs to be green, equitable and inclusive but we are left to guess what that means in practical terms.

What seems clear is that her predecessor, Bill Morneau, was jettisoned, at least in part, because his views on deficits and debt were too “orthodox”. He was not keen on extending temporary pandemic programs, while Freeland clearly has no such qualms.

We will have to wait until an economic update in November to discover the extent of her fiscal agnosticism but next week’s throne speech will be crafted within the parameters she sets.

What might that framework look like? Her 2012 book about the super-rich, Plutocrats, offers a sense of her world-view, with its admiring use of a quote by former U.S. Treasury Secretary, Larry Summers, that said “focusing on redistribution makes more sense than focusing on growth.”

Her own 2013 TED Talk makes explicit her belief that economic growth does not necessarily result in prosperity. “Since the late 1990s, increases in productivity have been decoupled from increases in wages and employment…To be sure this new economy benefits us all, and not just the plutocrats, we need to embark on an era of comparably ambitious social and political change. We need a new New Deal,” she said.

Freeland has coveted the finance minister’s job since entering politics – at times nakedly, according to colleagues.

It is a reasonable assumption that she has wanted the job for a reason – namely, to implement policies aimed at the redistribution of wealth to reduce income inequality, even if Canada’s most pressing problems revolve around lack of productivity and innovation, according to most economists. (A chart in a presentation last week by Bank of Canada governor, Tiff Macklem, showed that income inequality in this country is below the OECD average and considerably lower than in the U.K. and U.S.).

Freeland and Trudeau are also said to be united in their belief that the Liberals are on the side of the angels, so incentivizing the electorate to vote for them using the public purse is legitimate, even if the perquisites are paid for with borrowed money.

This has the added bonus of forcing the opposition parties to vote against perks that people want.

The concern among many people I’ve spoken to in Ottawa in recent weeks – bureaucrats, economists, business people, Liberal MPs – is that low interest rates will prove too tempting and that tens of billions of additional dollars will be spent on projects that don’t make the economy more productive down the line.

Paul Jenkins, former senior deputy governor at the Bank of Canada, wrote a paper for the CD Howe Institute late last week that pointed out the most durable source of funding is sustained economic growth, not a reliance on low interest rates.

He noted a consensus emerging around the equality of opportunity and sustainable economic growth. He’s right – there does seem to be broad bi-partisan support for policies like improved broad-band access, more support for child care and housing retrofits.

But that accord is about equality of opportunity, not equality of outcome.

Jenkins advocated pro-growth policies that promote investment, over consumption.

“Budget constraints remain a fundamental principle of economics,” he wrote. “In other words, managing the debt level matters.”

It is a reasonable assumption that she has wanted the job for a reason

CBC’s David Cochrane said last week that the government is talking about an overhaul of employment insurance to include gig economy workers and the self-employed. The Canadian Press’ Joan Bryden has since reported that a guaranteed basic income for all Canadians has emerged as the top policy choice for Liberals MPs at the upcoming party convention.

A basic income policy, something the Liberals rejected as too expensive before the 2015 election, remains the Holy Grail for some progressives, perhaps including Freeland.

The $22 billion Canada Recovery Benefit offers a universal basic income to those who don’t qualify for EI. Government ministers have refused to rule out the new policy becoming permanent. The CRB guarantees recipients an income of more than $20,000 a year – not far short of the $27,300 a minimum wage earner can make in Ontario. CRB benefits are not clawed back until the recipient earns $38,000 and not cancelled until earnings reach $58,800. Under such rules, a minimum wage worker could simply top up his or her earnings with another $10,000 of CRB benefits.

Freeland and Trudeau are said to understand the potential for a generous universal basic income to dis-incentivize low paid workers and create labour shortages.

A principled politician would not put his or her stamp of approval on a profligate policy that offers jam today but forwards the bill to the next generation.

But a “good” politician just might.

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