The Conservative Attack on the Government over Inflation

An event that should surprise no one, inflation has spiked as the world economy recovers from the worst of the impacts of the COVID-19 pandemic. As they become normalized people are doing some of the things they did before the pandemic shut everything down. That release of pent up demand and the continuing impacts of the pandemic on global supply chains has caused inflation to jump.

Every economist or economics organization that does not have any skin in the political game has stated that the inflation will be transitory and we should believe them. As I stated this was predicted months ago and the one factor that contributes to run-away-inflation, wage growth, does not exist. Indeed, wage growth pretty much stopped after the pandemic hit the world and it is still dead. If that remains the case until this current bout of inflation decrease (look for that to happen early in the new year) then inflation will not be a problem. In fact, I would suspect that deflationary pressures will be the problem we need to worry about, pressures that will be made worse by the current efforts of some politicians and their cheerleaders in the media in talking up inflation.

The most interesting thing about the Conservative attack on the government over inflation is their statements that it is caused by overspending of the government. Some may just dismiss this as their usual attack on government spending. After all, Conservatives only believe governments should spend money on buying votes and to provide tax cuts to big business and the wealthy. Any other kind of spending is opposed as a matter of political faith.

The problem for Conservatives is the economic consensus was drifting away from this point of view before the pandemic hit us and then it virtually disappeared afterwards. I am still amazed that after the government announced the 2020 budget deficit was almost $350 billion and that the government debt had topped the $1 trillion mark the reaction of Canadians was a collective shrug. I am no deficit hawk but even I experienced some sticker shock at seeing those numbers. However, a broad cross-section of Canadians did not see a problem and in fact appreciated the spending of the government in supporting them during the pandemic.

That is bad news for the Conservatives. They are still married to austerity and to have Canadians generally ignore and maybe even agree to government spending is an existential threat to their long-term electoral fortunes. The two Conservative governments that have followed the austerity route, in Ontario and Alberta, are both in trouble, although part of that is also their handling of the pandemic. However, it should be noted that the popularity of both of these governments was dropping before the Spring of 2020 because of their very unpopular fiscal policies.

I have stated in this space before that the Conservative Consensus on government spending and finances has been breaking down for some time and I stated the pandemic seems to have accelerated that breakdown. I am certain that some in conservative circles are seeing the same thing and they are looking for something to at least decrease the rate of that breakdown if not completely reverse it. 

That is the reason why Conservatives are blaming inflation on government spending. They do not really care that Canadians maybe spending more for goods and services. They care about the central economic plank of their ideology being eroded away and their increasingly desperate efforts to at least slow it down. Personally, I do not believe they will succeed. The momentum away from the Conservative Consensus had reached a point of no return before the Spring of 2020 and it is probably unstoppable by now.