Keynesian economics stands for a concept of government involvement in order to control fiscal policies with the purpose of pulling the economy out of a slump and back into normal shifts. It suggests deficit government spending in order to bring money into the economy, create jobs, and ensure that the population remains occupied and well-paid as a means of bolstering the economy (Pettinger, 2016).
Keynesian economics in Canada, as well as in other parts of the world, was adopted as a result of the Great Depression, which overturned the classic economic theories prevalent at that time. Canada’s economy experienced growth during the 1950s-1960s, which was attributed to the adoption of Keynesian policies, which involved fiscal expansionism, rejection of crowding out, and the introduction of rigid wages (“Lecture 15: Economic policy,” n.d.). The primary goal was unemployment reduction. However, because of these policies, inflation saw growth, while rigid wages resulted in increasing poverty and stilted economic growth (“Keynesian policies,” n.d.).
Monetarism economics, on the other hand, refers to economic measures taken by the government in order to affect business crediting and financial markets, in order to support businesses, and, as a result, create a stable and prosperous economy (“Monetary policy,” n.d.). These policies are usually conducted involving the Bank of Canada. Monetarist policies were introduced in 1975 by Trudeau. These means were set in order to control inflation rates by denying government spending. As a result, wages and employment started to drop.
Canada implemented the M1 as a means of measuring the country’s money supply, including hard cash, loans, and deposits. The reason why it was ineffective as a financial aggregate was that it did not account for liquid assets, which included currency stored in banks, savings, market funds possessed by companies, and other sources of cash (“Lecture 15: Economic policy,” n.d.).
Monetarism had a profound role in reducing wages and workers’ expectations. Without the government to provide additional jobs through deficit spending, the workers were left at the mercy of the market in order to dictate how much a particular person in a particular position should be receiving. This caused a confrontation between workers’ unions and entrepreneurs, one of the examples of such being the Inco strike of 1978, which lasted for nearly 9 months. Although eventually, monetarism was capable of reigning inflation from nearly 11% to 4.7% a year, it came at the expense of drastically increasing unemployment (“Monetary policy,” n.d.).
In the late 1970s, due to the foreclosure of the factories and unavailability of government bailouts, the number of unemployed Canadians grew from 1.5 million to nearly 3 million capable working men and women (“Lecture 15: Economic policy,” n.d.). A decrease in government spending also affected women, particularly those on maternity leave. Due to wage gaps and other social injustices, women are historically more reliant on deficit spending and extensive government protection. The introduction of inefficient monetarist policies that did not help drag down inflation, in combination with a gradual withdrawal of the government from social policies due to lack of funding from the Bank of Canada, had significantly exposed and threatened this social group’s economic stability.
References
Keynesian economics. (n.d.). Web.
Lecture 15: Economic policy since World War II. (n.d.). Web.
Monetary policy. (n.d.). Web.
Pettinger, T. (2016). Keynesianism vs. monetarism. Web.