Blue Liberals and the Coyne crisis

It is no wonder many former “blue” Liberals find themselves aligning with the Conservative party on fiscal and economic matters.

(This column originally appeared in the Toronto Sun)

By: Candice Malcolm

Last week, former PM Paul Martin scolded the Harper government for its fiscal and economic plan. Stephen Harper and his finance minister, Joe Oliver, will finally table a balanced budget later this month, but rather than celebrating with the rest of us, Martin called the plan “an absolute disgrace.”

This may strike some as odd. Martin was Canada’s finance minister from 1993 to 2002, during which time he helped navigate the country from the brink of a debt crisis. After decades of big spending and big borrowing in Ottawa, Martin reformed Canada’s finances by significantly reducing spending in every single government department. He brought in a series of balanced budgets and put Canada on course to reduce the federal debt by over $100 billion.

Some consider this turnaround a financial miracle. Economic scholars and historians around the world study Martin’s reforms as a model for sound fiscal policy, and tout his story as a roadmap for a common sense economics.

It would seem that Martin has had a change of heart, however, since his time in office. While speaking on a CBC radio, Martin nagged the Harper government to take advantage of low interest rates set by the governor of the Bank of Canada. He chided the Conservatives for their lack of stimulus spending, and encouraged more borrowing and more debt to finance government projects.

Not only is this a drastic departure from Martin’s once wise fiscal policy, it also represents a broader reversal in the fiscal and monetary policies of the Conservative Party and the Liberal Party.

It might sound difficult to believe – especially to those in Ontario who have endured endless waste and borrowing under the Liberal government – but historically, the Liberal Party was the party of sensible fiscal policy, whereas the Conservatives were the ones advocating for big spending.

Nothing demonstrates these role reversals like the “Coyne Affair” of the late 1950s. James Coyne was the governor of the Bank of Canada from 1955 to 1961, and during this time, his disagreements with Progressive Conservative Prime Minister John Diefenbaker caused an institutional crisis over Canada’s monetary and banking policies.

As governor, Coyne gave a series of speeches criticizing the Diefenbaker government’s budget deficits and use of artificially low interest rates. He called for “sound money” and to avoid policies such as stimulus, which inevitably leads to inflation and unhealthy debt levels.

Prime Minister Diefenbaker shot back, insisting that a high-risk monetary policy and stimulus spending were needed in the face of a recession. The feud between the deficit-loving Diefenbaker and the fiscally cautious Coyne ended when Diefenbaker introduced a bill that forced Coyne’s resignation.

Despite his resignation, the public sided with Coyne. He was named newsmaker of the year by the Canadian Press; meanwhile, Diefenbaker and the Progressive Conservatives lost 92 seats and their majority in the 1962 election. Thanks to the efforts of James Coyne, reforms were implemented to give the Bank of Canada greater independence from the government of the day.

Under Coyne’s watch, the Bank of Canada’s policy was to tighten the money supply and encourage greater saving by Canadian households and institutions – a policy backed by the Liberal Party. In contrast, the Progressive Conservative government was intent on artificially boosting the economy through budgetary deficits, borrowing and printing money.

Oh, how the times have changed.

Today, the Conservative government has retired its stimulus policies and is determined to balance the budget, reduce the government’s reliance on debt, and offer taxpayers a break.

Meanwhile, the Bank of Canada’s governor Stephen Poloz, backed by high profile Liberal Party brass like Paul Martin, is intentionally and artificially reducing interest rates to encourage greater levels of borrowing, debt and stimulus.

During Paul Martin’s rant on CBC, he said “fiscal policy and monetary policy have to work hand in hand, they cannot contradict each other.” He expressed his frustration over the elected government’s unwillingness to sway to the Bank of Canada’s incentives to borrow and spend money we don’t have.

Martin is calling for exactly the opposite of what Governor Coyne fought for and achieved. It is no wonder many former “blue” Liberals find themselves aligning with the Conservative party on fiscal and economic matters.

The Coyne Crisis represented the height of small ‘l’ liberal economic principles in the face of misguided economic populism.

Martin’s comments, and his newfound insistence on borrowing and passing a mountain of debt onto future generations of taxpayers, shows just how far the party has come from its liberal roots.