With the election results in Canada from last week-end I wondered how a Liberal that promised to increase the public deficit wound up as premier. Did the New Democrats not promise Keynesian policies? Actually, no, their plan says:
Unlike Justin Trudeau’s reckless promise of years of deficits and future cuts, the NDP’s commitment increases investment sustainably each year to grow the economy while balancing the budget.
As the NYT writes:
Mr. Trudeau has promised some major policy changes, among them legalizing marijuana, dropping out of the American-led bombing campaign against the Islamic State and deficit spending to pump up the economy and rebuild infrastructure.
The policies of the Conservative party are well-known, you find the usual deficit scare stories. With the US being the major trade partner and a lightly negative current account, it will be interesting to see what happens in North America. One might suspect the Canadian dollar to weaken a bit, and this is what markets first reaction was. Let’s see how a relatively small country with its own sovereign currency and a flexible exchange rate reacts to some fiscal stimulus. This will provide an interesting lesson. I am sure that Europeans will be watching with interest.