In Canada, an unusual series of moves is playing out. The government, which just stood for election and returned with more seats, but still a minority, is facing off against the three opposition parties that have agreed to force a confidence vote that would bring down the government. Two of the three, the Liberals and the NDP, have agreed to a coalition, with Liberal leader Dion as care taker Prime Minister, and a cabinet of mainly liberals, with 6 NDP ministers. Dion would step down on May 5th after the Liberal Party votes a new leader, but would appoint the new cabinet. The Liberal-NDP coalition has agreed to stay together for the duration of the government, or mid 2011. The third party, the Bloc Quebecois, has promised not to vote against certain required confidence votes, but has reserved the right to bring down the government on other votes, or after mid-2010.
The Governor General, Canada’s formal "head of state" has the option of allowing the Conservative government to suspend Parliament, called "proroguing" until 27 January – effectively putting Canada into hibernation for almost two months – or refusing to allow adjournment. If the government is not adjourned, the Conservatives could attempt to avoid confidence votes, but cannot easily do so because they lack a majority. If the government faces a confidence vote, it will fall. At this point Harper has vowed to demand new elections. This request does not have to be granted. Since Harper end ran a previous election agreement, there is little taste for letting him have this his own way. The options – hibernation, coalition, dissolution – all take Canada into uncharted waters.
What is interesting is the massive screaming meltdown among the Conservative following and even members of their own party. Cries of "socialists" and "coup d’etat" have rung out. The careful message discipline and tweezing of the crazy conservative image, has melted in moments. Even as they attack the BQ for wanting to dissolve Canada, many of their own supporters have called for separation.
In England the political news is equally remarkable. This summer Gordon Brown was watching as safe Labor seats were being taken by opposition parties by huge majorities. He watched as the popular mayor of London was trounced by a loose lipped Tory new comer. His own standing in the polls, if put through in an election, would have left only a few dozen Labor MPs, and he would lose his own seat. Now the Brown Bounce as it is called, has him within the statistical margin of error of the Tories, with Labor voters "coming home" to their party. The unifying thread, in both cases, is the promise of massive Keynesian fiscal stimulus, and active response to the crisis. The Tories both in the Dominion of Canada, and the United Kingdom, have promised cuts and question marks, being dragged to admitting the need for action little and late. Dion, elected as a care taker leader, has managed to pull off one of the most spectacular negotiations in Canadian Parliamentary history, and Brown has come back from the political dead on the back of aggressive response, fiscal stimulus, and promising a direction which is avowedly rooted liberal and social democratic ideas. It’s something for American politicians to heed.
The one thing that the public has no taste for, is nothing. Because in a Depression, Nothing is indeed very strong, strong enough to destroy an economy as wages spiral below debt service, and people and corporations collapse into bankruptcy. Presently 58% of Americans favor a large stimulus bill, that number will go higher—credit card companies are set to reduce credit limits by as much as 2 Trillion US dollars over the next 18 months, and that will hurt the ability of people to stretch and smooth past the crisis.
However, the current proposals, at 500 billion dollars are still too small. Estimates based on usual macro-economic reasoning put the necessary size of a fiscal stimulus bill at around 700 billion – a number that Krugman calls "back of the envelope" – and that is assuming that it is well crafted. Throw in the almost inevitable wasteful measures, such as another round of rebate checks, and the size must be larger still. This may seem like a huge number for a year, however, we should compare it to the stimulus type spending that we’ve been doing: namely the Iraq War and the War in Afghanistan. Compared with Clinton’s last year in office, the inflation adjusted defense budget was 349 billion. Counting the wars and the increases from Bush, will be about 661 billion this year. That means that we are seeing 300 billion this year in war stimulus already. and 2000, while it was a year that was sliding into recession, was no 2008.
Just some perspective.