Contractionary policy is contractionary

Mark Thoma finds a paper written by one of the European Union's own economists who says:

Coordinated austerity in euro-area countries has stifled economic recovery and deepened the crisis across the currency bloc, according to a new technical paper prepared by an economist at the European Commission.

Spending cuts in Germany in particular have made things worse for the weaker members of the euro area through “spillovers” – the economic impact on economies connected to Germany’s– the paper says, adding that limited stimulus programs in richer countries could help the whole of the currency bloc.

No surprise here.  Spending cuts slow an economy down.

Trade deal with Europe: where austerity prevails

The impact of austerity on Europe was summed up quite succinctly in a single graphic by the Washington Post today.  This is what is looks like:

Canada now has a new trade agreement with the European Union. Enough said.

Mulcair's prospects and the Nova Scotia Election

Recent national columns have suggested that the loss by the NDP in the recent Nova Scotia election is harmful to the national NDP's hopes for 2015.  For example see these commentaries by Thomas Walkom, Chantal Hébert, and Jeffrey Simpson. Inevitably all this foretold gloom for the NDP did lead to a counterpoint from Aaron Wherry.

NDP Leader Thomas Mulcair

TC's view is that the Nova Scotia defeat will, if anything, be beneficial to the federal NDP.  We live in era of slow growth-induced fiscal pressures on Canadian governments, pressures that result in a dampening of the popularity of incumbent governments when like the Nova Scotia NDP they cut spending and increase taxes.  Even though many have recovered to win elections, we should remember that incumbent governments including those in Ontario, B.C., Alberta and Manitoba had to come from behind to do it. Fumbles by their opponents played critical roles in the final outcome (let's not forget the contribution of Michael Ignatieff to the Harper majority in 2011).

There is an overlap between the federal and provincial political spheres that often causes political grief for the federal cousins of provincial administrations when the latter get into trouble. None of the columns cited above have taken that into account.  Let me give a few examples of this impact, both good and bad for the NDP, from history:

1.  The only one-term government in Manitoba's history was that of Tory Sterling Lyon, who ruled as a prairie Thatcher from 1977 to 1981. In the 1980 federal election, the NDP won half the Manitoba seats (7 of 14). Mr. Lyon's unpopularity contributed significantly to the outcome.  
2. Further back a poor showing for the NDP in the 1974 federal election in B.C. (just 2 seats) can be attributed in part to mid-term blues on the part of the NDP Dave Barrett government.  However, the impact of the wage and price control issue was likely more important (the threat of controls pulled union votes toward the Trudeau Liberals).  By 1979 and out of office provincially the NDP bounced back, taking 8 constituencies, more like their long-term normal. 
3. In the 1988 federal election the NDP had enormous success in both Saskatchewan winning, 10 of 14 seats, in no small measure because of the profound unpopularity of the PC government of Grant Devine, and B.C., winning 19 of 32 seats, where Premier Bill Vander Zalm was on his way to destroying the B.C. Social Credit party, a provincial cousin to the federal Tories. The 1988 election was the previous high water mark for the NDP when they won a record of 44 seats, not exceeded until 2011, including 10 ridings in Ontario. 
4.  In the 1993 election by contrast the NDP was decimated in Ontario losing all their seats.  The austerity program of the Bob Rae NDP Ontario government (most prominently the social contract) played a part in this. Similarly in B.C. the NDP lost all but 2 of its 19 seats where, with the NDP Mike Harcourt government in office in Victoria, the political implications of provincial incumbency reversed the effects felt in 1988. The NDP did win 5 of 14 seats in Saskatchewan where an NDP government elected in 1991 and beginning what would be 16 years in office was still holding its popularity.  (Its own austerity program could be blamed on the previous PC Devine government.)

So Thomas Mulcair faces 2015 with an almost clean slate provincially. Only in Manitoba where the incumbent Selinger government has recently been taking a beating in the polls does trouble beckon. As it is the NDP holds just two federal ridings in Manitoba currently.

Not being in office provincially has in the past been and is now an asset for the federal NDP not a liability.

Nova Scotia Election - Why did the NDP lose?

NS Liberal Leader Stephen McNeil

As TC suggested in his last pre-election post the Liberals did win big in the Nova Scotia election meaning that Liberal leader Stephen McNeil will soon take over as Premier of Nova Scotia.

There is an interesting analysis in the Halifax Chronicle Herald today that provides some clues as to why the election turned out the way it did. TC thinks that while such articles tend to focus on the 'clever' campaign strategies of the winners, the story of the election is less about how the Liberals won and more about how the NDP lost.

While the Dexter government crowed about its balanced budget, that accomplishment came at a considerable political cost including a "broken promise not to raise the HST", which Dexter hiked by two points. The budget also required austerity and spending cuts. As the article notes: "Program cuts take their toll on any government, and the teacher’s union spending tens of thousands of dollars on advertising to protest education budget trimming had an effect."

But the Dexter government also spent foolishly, especially on corporate giveaways, which might not in and of themselves been fatal, but looked especially bad in the context of austerity. One large giveaway was a $260 million forgivable loan to Irving industries but there were others. There is a comment below the main Chronicle Herald story worth quoting that illustrates the problem:

Raising the HST by 2% and breaking a promise really stunk, but for me as well as many others, I accepted it as Graham Steele explained that it was necessary to deal with the province's finances. But when the big handout to the Irving's came into being that reason for raising the HST suddenly hit home that they were using that added money for other reasons and not dealing with the finances, and went on a spending spree. Suddenly every single thing the NDP spent on gave the optics that they raised taxes to support their spending habits. They lost our trust. In the weeks leading up to the election call, we were deluged with spending promises. And despite reporting a "balanced budget" to make it appear that they were being conscientious financially, the public didn't believe them.

A good lesson for any government here, the electorate has a long memory when it comes to raising taxes and breaking promises. And it looks even worse when you start spending our money to further your agenda. Good decisions or bad decisions are part of the job, but you have to keep the public's trust first if you want them behind you in whatever you do.

The NDP's loss also stemmed from an unambitious program in 2009 that did not a include a signature

Darrell Dexter

equality-promoting commitment. In fact, it reads like a program that almost any party could run on: more jobs, reduce health care waiting times, fix rural roads etc.

Fundamentally, however, the NDP's loss had its origin in a bad economy over which they had little if any control. That can be seen in the data TC generated from a Statistics Canada CANSIM series on employment. In Nova Scotia employment has been stagnant since the Dexter NDP took office. The table I generated is dense with data (can't link directly to it) but here are the two key figures:

Total Employment in Nova Scotia June, 2009: 410,423
Total Employment in Nova Scotia June, 2013: 408,818

A provincial government in Nova Scotia can't do all that much to have an impact on employment levels in the context of a globalized economy and the biggest economic downturn since the thirties. In this context one can understand the desperation that led to corporate giveaways.

The impact of the global economy on the Nova Scotia will be just as important for the incoming Liberals whose fates will depend on external events every bit as much as those of Dexter's NDP.

TC noted that the central Liberal promise in this election is to reduce electricity rates by introducing competition for the private monopoly electrical utility Nova Scotia Power. What Sir Humphrey Appleby once said in an episode of Yes Prime Minister I think applies here: "Prime Minister, it is the most courageous policy that you have ever proposed."

Nova Scotia Election - If the polls are right the Liberals will win big

I made an adjustment on my normal forecast model for Nova Scotia (won't go into details but it is to take account of the large increase in Liberal support).

If the polls are accurate, which I think likely in Nova Scotia as they have all been traditional telephone polls (unlike the many online polls in B.C.), the Liberals will win a large victory in the October 8, 2013 election. It will be their first victory since 1998 when they eked out a bare plurality in the popular vote and a minority government supported by the PCs that was gone a year later.

I project the seat distribution based on an average of recent polls as:

Liberal - 35
NDP - 10
PC - 6.

The last incumbent government in Canada to be decisively ousted was in 2010 in Nova Scotia's neighbouring province of New Brunswick. The one-term Liberal government of Shawn Graham in New Brunswick was defeated by the Progressive Conservatives led by current Premier David Alward.  Interestingly the most recent Corporate Research Associates poll puts the New Brunswick Liberals way ahead of the PCs with 47%, with the NDP in second at 24%, trailed by the PCs at 23%.  It appears that a likely one-term NDP Atlantic government in Nova Scotia will potentially be followed by another one-term administration in New Brunswick. Alward is scheduled to face the voters in September 2014. By this time next year we could see two Liberal provincial governments in Atlantic Canada.

Atlantic provinces have struggled with public finances in recent years because of the global economic crisis, making either unpopular budget cuts or tax hikes. While several multi-term incumbent governments further west have been re-elected since 2011 (most recently the B.C. Liberals but also governments in Alberta, Saskatchewan, Manitoba and Ontario), the pattern seems to be different in the big provinces in Atlantic Canada. The smaller provinces of Prince Edward Island and Newfoundland have a long-term pattern of electing multi-term governments.

Recent Ipsos poll consistent with summer long trend

The poll released by Ipsos Reid on September 27 is essentially consistent with other polls released this summer. Translated into an election it would produce an indecisive result.

Perhaps less obvious but just as true generally for all polls since the start of summer is that there is a relatively consistent pattern across the country of vote losses and gains.  The chart below compares the Ipsos poll to the May 2, 2011 election.

The Liberals are up everywhere, more in some regions, less in others.  The Conservatives are down everywhere including in their areas of strength such as Alberta, sufficiently so that they would lose seats in Alberta if the poll accurately projects an election held today. It is possible that federal Liberal strength in Atlantic Canada is assisted by the unpopularity of the provincial NDP in Nova Scotia (if current provincial election polls are to be believed).  Perceptions of party brands normally spill over between the two orders of government. Nova Scotia accounts for about 40% of the votes cast in Atlantic Canada. Would the federal NDP benefit in the longer run from a loss by their provincial cousins in Nova Scotia?

The poll also includes some valuable data on issues.  One nugget that emerged was that there were two economic categories that respondents cited among the list of most important issues: the "Economy" and "Jobs and Unemployment".  No surprise there. However, there is a difference when one looks at additional questions about which party is best able to manage issues.  We find that while the Conservatives have an enormous advantage over other parties when in comes to managing the "Economy", but that disappears when the issue is "Jobs and Unemployment".  That category is essentially split three ways between the three major parties.

Here is a quote from the press release:

The Conservatives are perceived as the best economic policy managers among those who think the economy is the most important issue, but Liberals and NDP are more competitive in most other areas.

Economy: Conservatives (45%), Liberals (28%), NDP (14%), Green (2%), Bloc (1%)
Healthcare: Liberals (31%), NDP (25%), Conservatives (24%), Bloc (5%), Green (3%)
Jobs/Unemployment: Liberals (31%), NDP (23%), Conservatives (21%), Green (3%), Bloc (2%)

This is interesting: if the economy is viewed as an abstraction, the Conservatives are clearly ahead, but conceived of in terms of its practical impact on jobs they fall to third place. That strongly suggests that Stephen Harper does not have exclusive ownership of economic issues.

Another questions asks: "Which Federal Party and leader best understands the pressures on middle class families today and is most likely to come up with the best policies for them?"  The answer: Thomas Mulcair and the NDP lead with 38% followed by Justin Trudeau and the Liberals at 30% and Stephen Harper at 26%.  What seems to be a slightly different version of the same question has the same order of finish but the Liberals just one point behind the NDP. See this table pages 7 & 8. 

Politics is traditionally viewed in rigid perceptions and categories: Conservatives best on the economy and crime, NDP on healthcare, Liberals on national unity, etc. However, it is important to recognize that public perceptions of parties and issues are more complex than is often assumed, and perceptions of relative strengths likely much softer.