Trudeau, Harper and oil: Fighting ghosts in the federal election

There is plenty that is strange about attacking the record of a man who has been dead for more than a decade, and who hasn't been prime minister for 30 years, but that hasn't stopped Finance Minister Joe Oliver from conjuring up the spectre of Pierre Trudeau's supposed "big spending" in the 1970s.

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In fact, Trudeau delivered a much bigger personal income tax cut than Harper ever has. In 1971, the Liberals overhauled income taxes, cutting the top rate from 80 per cent to 43 per cent and eliminated the estate tax, replacing it with a capital gains tax.

For that, and other reasons, blaming the economic crises of the 1970s and '80s on Trudeau requires a special kind of tunnel vision, since the oil crisis wreaked economic havoc on a global scale.

In 1973, OPEC decided to turn off the oil taps. The price of oil, which had been $2 a barrel for almost a decade, quadrupled overnight. Imagine running a householdto say nothing of a businessif that happened today.

While everyone understands that oil is critical to the economy, a 2011 research paper by economist James Hamilton showed that oil shocks not only preceded virtually every major recession in the 20th century, the economic impact was an order of magnitude greater than previously thought.

In the '70s, while oil was clearly a problem, the focus of blame fell on the policies of the centre-left governments who were all in power in Canada, the United Statesand United KingdomLiberal, Democrat and Labour.

In fact, all three governments and their central banks had started to abandon Keynes and were adopting the anti-inflation monetarist policies of Milton Friedman, even before the election of Margaret Thatcher in 1979 and Ronald Reagan in 1980.

Devastating effects

In 1979, at the time of the Iranian revolution, oil spiked again, to $30 a barrel. With inflation running over 10 per cent a year, central banks cranked up interest rates to levels that seem unimaginable today except on a credit card: over 15 per cent in the U.S. and over 20 per cent in Canada.

The combined effects of recession and interest rates were devastating. In a couple of years, the U.K. lost a quarter of all its manufacturing. The U.S. suffered hundreds of thousands of jobs lost in manufacturing and construction, and so did Canada.

Canada ran big deficitsbut so did conservative icons Reagan and Thatcher.

Unlike the U.K. and U.S., Canada had oil. The Trudeau Liberals had provided R&D money to the oilsands which, in the 1970s, were considered "alternative energy."

In 1980, the Liberals introduced the much-reviled National Energy Program (NEP). Among its goals were spreading the concentrated benefits of oil wealth, and, ideally, helping Canada achieve energy independence so it could insulate itself from price shocks.

Albertans, unsurprisingly, hated it, in part because it forced them to sell below the world oil price to other Canadians(though the U.S. had introduced just such a program in 1974 under Nixon).

The National Energy Program and Trudeau personallybecame a lightning rod for discontent. Even though oil prices were at record highs, personal bankruptcies in Alberta soared and capital investment decreased, though interest rates of 15 to 20 per cent were also certainly a factor.

Then, in 1985, the price crashed to just $10 a barrel. The oilsands were suddenly unprofitable, Alberta was thrown into economic turmoiland federal revenues dropped. Having seen the price of oil go up 1,500 per cent in a decade, the Liberals in 1980 didn't imagine that oil could drop again by half.

Caught off-guard

For Stephen Harper, it was the defining political and economic event of his life, spurring the rise of the Reform Party and his own political career.

If anyone should be aware that oil prices can crash, it should have been Harper, yet his government appears to have been caught completely off-guard. Oliver hasn't been able to do the only job he has: put out a budget once a year.

Harper has presided over the worst economic growth since the 1930s. Personal debt is at all-time highsand CIBC says job quality is at a 25-year-low.

In just seven years, Harper has added $260 billion to Canada's $615-billion national debt more debt than every Liberal government since 1970 combined, during a period of historically low interest rates and what the government tells us have been "good" economic times.

We don't have a problem with runaway inflation: inequalityand the fact that for many Canadians, incomes have been stagnant since Trudeau was prime minister in 1982,are much more serious.

Conservatives may hope that fighting Pierre Trudeau's ghost will resonate with Canadians, but it is a reflection of a deeper problem. In both their politics and their policies, they are going after something that no longer exists.

Dougald Lamont is a writer and strategic communications consultant in Winnipeg. He has worked on many political campaigns and in 2013 ran unsuccessfully for leader of the Manitoba Liberal Party.