Back in the 1950s and 60s, Canada engaged in big, expensive infrastructure projects like the Champlain bridge in Montreal. These created good paying jobs and greased the wheels of business. They were investments that not only paid for themselves, they paid dividends.
Today we apply duct tape solutions to keep crumbling infrastructure from falling into the river. Where did it all go wrong?
Paradox of thrift
To understand the answer we have to go back to the Great Depression of the 1930s. Back then, free-market ideology caused the global economy to implode in a never-ending depression. At the source of the problem was the “paradox of thrift”: people were afraid to spend which killed economic activity and jobs in a vicious circle.
John Maynard Keynes identified the problem as a lack of demand. From this he created the centrist mixed-market system founded on partial government involvement in the economy and progressive taxation.
In the post-war era, Western governments embraced the Keynesian system. Even though they had greater debt than they do today, they spent big on infrastructure and social programs to prime demand and keep the economy firing on all cylinders.
The end result? An economic golden age which enabled governments to pay off most of their debts by the mid-1970s.
The empire strikes back
In the 1980s, free-market ideology made a comeback through leaders like Ronald Reagan and Margaret Thatcher. To them, Keynesian “big government” was the problem. This began an era of big tax cuts, deep spending cuts, deregulation and trade liberalization.
The result? Instead of paying our bills we borrowed vast sums to dole out in tax cuts to the rich. Instead of investing in infrastructure, we let our roads and bridges crumble. Instead of having an economy firing on all cylinders, we got soaring inequality and another free-market implosion.
We don’t need to reinvent the wheel to fix the mess we’re in. The centrist Keynesian system worked before. It works great in northern European countries today. It will work here again.