Parliament buildings on a sunny day

Andrew Scheer can’t seem to get a break lately. Bad enough that the once-popular Ontario Premier Doug Ford invited himself into the federal Conservative leader’s campaign for this fall’s election. Then Scheer’s long-awaited climate-change strategy didn’t capture enough attention to last much more than a full news cycle. As a result, the Liberals now own the climate-change issue and stand to gain in the polls every time there is a wild fire or other climate calamity before election day.

The sizable leads in public opinion polls that the Conservatives enjoyed since the SNC-Lavalin scandal this past winter are narrowing. (The Nanos poll of July 2 actually gives the Liberals a three-point lead over the Conservatives.)

But perhaps the most damaging development to the Conservatives is that Scheer has had to walk back a key election policy: balancing the federal budget in two years after being elected. He now promises to balance the budget in five years.

A year ago, you would have thought Canada’s deficit would have been an ideal issue for the Conservatives to build a campaign on. After all, the Liberals promised in the 2015 campaign to balance the budget by the time voters go to the polls next October, just as they promised we would be using a different electoral system this fall. Both turned out to be hollow promises.

In addition, the Liberals have long been stereotyped as the “deficit, schmeficit” party, even though their fiscal record is actually better than the Conservatives’. Perception almost always trumps reality in politics.

Nobody seems to care about deficits anymore. Not governments. Not financial markets. Not voters.

Modern monetary theory (MMT) is likely responsible for the indifference. Although its roots go back to the 1940s, MMT began gaining influence just a few months ago in the U.S., where federal deficits now are being measured in trillions instead of billions. What is winning capital markets over is that interest rates have continued to stay low while deficits have been rising.

The rationale of MMT is this: governments able to borrow in their own currency face no financial budget constraints because they can just keep printing. That includes Canada.

Think Keynes on steroids, or the opposite of traditional thinking on deficits.

Not surprisingly, MMT has its detractors. Jerome Powell, chair of the U.S. Federal Reserve Board, told a congressional committee recently: “The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong.” Bill Gates goes further, calling MMT “crazy talk.”

But MMT has many fans, including Richard C. Koo, chief economist at the Nomura Research Institute in Tokyo. He says there has been too much groupthink about fiscal policy in the past.

“Let me assure you that MMT thrashes neoclassical economics, hands down,” says strategist James Montier on the website of Grantham Mayo Van Otterloo & Co., a Boston-based investment-management firm.

If support for MMT holds in capital markets, we are likely to see continuing tolerance of high government deficits in major world markets. Even if the Fed is able to defy President Trump and raise interest rates, markets would not support higher rates for long.

Hence, Scheer’s climbdown on a balanced budget. With financial markets not caring about government deficits, voters aren’t likely to, either.

As the October election campaign gears up, Scheer finds himself without much in issues to campaign on except SNC-Lavalin, which is fading from voter memory. The Liberals have been able to straddle the climate and pipeline issues nicely.

Elections are won on meta or inferred messages. The Liberals are now able to imply to voters that they are not reactionaries who are indifferent to climate change like the Conservatives. Nor are they crazy lefties who don’t care about Canada’s economic future like the NDP or the Greens.


Once again, Elections Canada is imposing strict limits on spending and behavior on any entity getting involved in this year’s campaign as “registered third parties.” But the agency, at least so far, has not required the Ontario government, with its advertising against the federal Liberals, to register. How does Elections Canada expect people to respect the rules when a provincial government is getting special treatment?