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David Frum: Trudeau was a disaster for Canada

Frum goes to town on the legacy of Pierre Trudeau.

Pierre Trudeau took office at a moment when commodity prices were rising worldwide. Good policymakers recognize that commodity prices fall as well as rise. Yet between 1969 and 1979 – through two majority governments and one minority – Trudeau tripled federal spending.

In 1981-82, Canada plunged into recession, the worst since World War II. Trudeau’s already big deficits exploded to a point that Canada’s lenders worried about default.

Trudeau’s Conservative successor Brian Mulroney balanced Canada’s operating budget after 1984. But to squeeze out Trudeau-era inflation, the Bank of Canada had raised real interest rates very high. Mulroney could not keep up with the debt payments. The debt compounded, the deficits grew, the Bank hiked rates again – and Canada toppled into an even worse recession in 1992. Trudeau’s next successors, Liberals this time, squeezed even tighter, raising taxes, and leaving Canadians through the 1990s working harder and harder with no real increase in their standard of living.

Do Canadians understand how many of their difficulties of the 1990s originated in the 1970s? They should.

To repay Trudeau’s debt, federal governments reduced transfers to provinces. Provinces restrained spending. And these restraints had real consequences for real people: more months in pain for heart patients, more months of immobility for patients awaiting hip replacements.

If Canada’s health system delivers better results today than 15 years ago, it’s not because it operates more efficiently. Canada’s health system delivers better results because the reduction of Trudeau’s debt burden has freed more funds for healthcare spending.

Pierre Trudeau was a spending fool. He believed in a state-led economy, and the longer he lasted in office, the more statist he became. The Foreign Investment Review Agency was succeeded by Petro-Canada. Petro-Canada was succeeded by wage and price controls. Wage and price controls were succeeded by the single worst economic decision of Canada’s 20th century: the National Energy Program.

The NEP tried to fix two different prices of oil, one inside Canada, one outside.  The NEP expropriated foreign oil interests without compensation. The NEP sought to shoulder aside the historic role of the provinces as the owner and manager of natural resources.

Most other Western countries redirected themselves toward more fiscal restraint after 1979. Counting on abundant revenues from oil, the Trudeau government kept spending. Other Western governments began to worry more about attracting international investment. Canada repelled investors with arbitrary confiscations. Other Western governments recovered from the stagflation of the 1970s by turning toward freer markets. Under the National Energy Policy, Canada was up-regulating as the US, Britain, and West Germany deregulated. All of these mistakes together contributed to the extreme severity of the 1982 recession. Every one of them was Pierre Trudeau’s fault.

While I disagree with Frum that Trudeau was one of the worst prime ministers of our time, I will agree that his economic legacy has impacted the country for over a decade.  Frum’s is an interesting take.

2 Comments

  1. Sig Hartmann says:

    “I will agree that his economic legacy has impacted the country for over a decade”

    How and Why?

  2. koby says:

    Frum’s article is one of the worst written articles I have every read. It is littered with factual errors and non-sequiturs.

    For example,

    1) Frum claims that commodity prices were on the rise when Trudeau took over. They were not. They spiked 5 years later and far from being good for Canada they pushed us into recession.

    2) Frum claims that Trudeau gutted the military. However, Trudeau kept military spending at roughly the same percentage of GDP as when he started. Furthermore, as the economy grew during that time, that meant military spending in real dollars went up.

    3) The notion that Trudeau era spending in the 1970s was responsible for the debt crisis in the 1990s is so patently absurd it hardly worth discussing. Leaving aside the fact that two thirds of Canada’s debt accumulated under Brian Mulroney, when the Liberals were defeated in 1979 the debt to GDP ratio was 16% and the debt in inflation adjusted dollars was the same as what it was 1961! For his first 7 years as PM, the debt shrank as % of GDP and because of inflation actually shrank in real dollars.

    4) The notion that the recession of 1981 1982 was brought on by Trudeau’s fiscal policies is even more absurd than the notion that Trudeau’s 1970s era spending was behind the debt crisis in the 1990s. The recession in the US and Canada was in partially a self inflicted wound yes. However, the cause was monetary policy and not fiscal policy. Ever since the the disbanding of Bretton Woods and the 1973 OPEC oil crisis, stagflation had plagued every Western economy. At the beginning of the 1980s, the US Fed chairperson Paul Vocker, with prospect of another energy Crisis looming over the economy, decided to do something about it. He declared a war on inflation. The Bank of Canada followed suit. Both the BOC and the Fed purposely drove the economy into a deep recession by greatly increasing interest rates. An example should put things into perspective. In July 25th 1980 interest rates stood at already high 11%; on December 16th 1980 the US Fed had raised them to 21.5%. US policy coupled with surging oil prices brought about by the Iran Iraq war resulted in a spike in inflation in Canada and so the BOC responded in kind. In Canada interest rates reached a high of 23%! Interest rates were no where near as high under Mulroney.

    5) Frum claims that Trudeau increased threefold between 1969 and 1979. He did indeed do just that, but but the figure Frum cites is not adjusted for a decade of record inflation, indexed to population or GDP growth. In other words, it is meaningless. No one, except an utter armature or someone wishing to advance a political agenda irrespective of the truth, would make, for example, a meal out of the fact that federal expenditures were 10 times higher in 2000 than in 1970. What counts is how much federal spending increased as percentage of GDP. And when you factor out the amount of money devoted to debt servicing — which went up three fold between 1975 and 1995 — the amount of Federal spending as percentage of GDP remained virtually unchanged between 1959 and 1989. Where there was a marked increase in spending during this time was at the provincial level.

    6) Frum makes a meal out of the fact that Trudeau introduced wage and price controls. However, neglates to mention that these policies were copied from copied from Progressive Conservative leader Robert Stanfield — “zap your frozen” — and Republican Richard Nixon.

    7) Frum implies Canada suffered more than other “de regulating” countries in 1981 1982. This wrong. Unemployment, for example, in the US nearly doubled and stayed at 10% for much of 1981 and 1982. As for West Germany and Britain, unemployment doubled in W. Germany in 1981 and unemployment in Britain was above what it was in Canada and remained above 10% until 1988.

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