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Pierre Elliott Trudeau:

Economic ground shifted during Trudeau years
To accuse former PM of capriciousness or ignorance is to misunderstand the challenges he faced, MADELAINE DROHAN says
Saturday, September 30, 2000

It is the conventional wisdom in Ottawa that Pierre Elliott Trudeau was a failure when it came to economic policy. No one will put it quite so bluntly in the wake of his death. Yet even the most cursory survey reveals this sentiment is widespread.

Look no further than the tributes pouring in from people of all political stripes. Most neatly sidestep his famous and not-so-famous economic policies -- the national energy program, the anti-inflation board and the inexorable rise of federal debt and deficits under his reign -- to concentrate on his accomplishments in the fields of social and constitutional policy.

This is due in part to our reluctance to speak ill of the dead. The time to criticize Mr. Trudeau for his economic thinking was when he was alive and able to defend himself. But given that his passing has led to the inevitable assessment of his legacy, economics is not an area we can ignore.

There is no doubt that by the time he left office after his famous walk in the snow in February 1984, the country's finances were in a dismal state. During his time in government, the national debt had grown tenfold to $169-billion and the annual budgetary deficit had reached a whopping $38-billion.

The drastic measures needed to reverse this fiscal decline changed the face of Canada. The cuts in spending and in provincial transfers have made the country more decentralized than it would have been otherwise. It is a sad irony that Mr. Trudeau's economic policies had this enduring political impact, which runs counter to his vision of Canada.

But to accuse Mr. Trudeau of capriciousness or ignorance in the economic sphere, as many commentators have done, is to misunderstand completely the challenges he faced. His period in government coincided with tumultuous times throughout most of the industrialized world. The fact that he did not steer a straight course says as much about the confusion that prevailed in economic circles as it does about his policies.

He came to power at the end of the 1960s, a decade of optimism generated by steady growth. In those heady years, Canadian governments launched major national programs such as medicare and the Canada and Quebec pension plans, programs that were to become touchstones of our national identity. Who was to know that the steady growth of the postwar years was not to go on forever?

The young Liberal government was hit hard when U.S. president Richard Nixon abandoned the gold standard in 1971, precipitating the breakdown of the Bretton Woods system of fixed exchange rates. Growing U.S. protectionism added to the deterioration of relations between Canada and its most important trading partner.

A greater shock was in store with the OPEC oil crisis of 1973. This pummeled the economy and led to confrontation between Ottawa and Alberta over that province's oil wealth.

After these shocks, and a growing threat from inflation, the government tried to boost growth with deficit spending, subsidizing the price of oil and indexing personal tax rates to shield Canadians from the worst ravages of inflation.

These were the years of stagflation, when economic theory was turned on its ear and governments were helpless to find the right policy. Deficits climbed. So did inflation. But the economy sputtered like a car without enough gas, even though the government had its foot to the floor.

As government spending rose in double-digit amounts through the mid-1970s, the auditor-general grew alarmed and warned that the government had either lost or was close to losing control of the public purse. By the time Mr. Trudeau took personal control and announced a $2-billion spending cut without consulting with Jean Chrétien, who was then his finance minister, it was too late to stop the pattern of mounting deficits.

But what commentators miss when they review this chain of events is that the ground underneath Mr. Trudeau's feet was shifting even as he tried to make economic policy. "Nobody had the answers in the 1970s," veteran Ottawa economist Judith Maxwell says. "Everybody was groping."

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