With a federal election on the horizon, economic policy is once again taking centre stage. Yet missing from the national debate is a serious reckoning with the failures of neoliberalism and the urgent need for alternatives.

A continued adherence to neoliberal policy, and the fiscal austerity it entails, risks deepening social divides and strengthening the electoral prospects of the far right (absent a compelling populist left). To meet today's challenges, parties must explore more progressive schools of economic thought like modern monetary theory.

Liberal Leader Mark Carney, with his experience across banking and global finance, is one figure who could potentially steer that shift. Carney's career, spanning Morgan Stanley, the Bank of Canada, the Bank of England and Brookfield Asset Management, has exemplified his competence within the bounds of economic orthodoxy.

As the Bank of Canada's governor, Carney pre-emptively cut interest rates to cushion the blow of the 2008 financial crisis. Standard measures like interest rate cuts and quantitative easing are meant to keep economies afloat during downturns. While necessary, these steps remained squarely within the bounds of conventional economic thinking.

Today, however, those old tricks aren't enough. The twin crises of climate collapse and socioeconomic inequality demand bolder policy and braver leadership from policymakers.

Modern monetary theory (MMT) offers a more ambitious economic toolkit to policymakers than current approaches do.

MMT scholars argue that countries that issue their own currency, like Canada, have monetary sovereignty. These governments don't need to rely on bond markets for funding; instead, they can create money directly through public spending. And, when they do sell debt, there's never a shortage of demand for it.

Read more: Explainer: what is modern monetary theory?

From this perspective, the real constraint isn't money, but productive capacity: materials, energy and labour. Public debt is neither inherently dangerous, nor is it "owed" to anyone.

MMT also argues the "tax and spend" perspective is backwards - taxes are not needed to fund public spending. In its view, governments spend first, then tax to remove money from circulation to keep inflation under control.

Inflation risk stems not from government spending, but from economic over-demand or supply constraints. During periods of low growth, spending is not just safe - it's essential, as we saw during the COVID-19 pandemic.

Inflation during the pandemic was driven predominantly by supply chain disruptions and gas price spikes, not overspending. Strategic taxation can be used to curb demand and reduce inequality when inflation emerges.

The hallmark policy of MMT is a job guarantee - a public option for employment that would employ anyone wanting to work. This would effectively end structural unemployment while improving conditions for those employed in the private sector through competition.

Such an initiative would help unlock productivity needed to revitalize and decarbonize housing, transport, energy and other critical infrastructure.

Yet instead of embracing such ideas, centrist parties like the Canadian Liberal Party and United Kingdom's Labour Party cling to outdated concerns over "fiscal responsibility," echoing debates that have been outdated since the end of the gold standard in the 1970s.

Carney appears to have retreated into political caution and has avoided challenging fiscal conservatism in any substantive way. Immediately upon taking office, he capitulated to misleading narratives promoted by politicians like Conservative Leader Pierre Poilievre, and cut the consumer carbon price.

Carney also is cancelling a proposed hike to the amount of capital gains subject to tax to avoid penalizing Canada's "builders." But who are the real "builders"? Not hedge fund managers, but the workers who actually produce goods and services.

According to the government's own analysis, only the top 0.13 per cent of Canadians stood to lose from a modest increase in the inclusion rate for taxing unearned income.

Like Poilievre, Carney has expressed support for new oil and gas projects, including pipelines - despite the scientific consensus that any new fossil fuel infrastructure is incompatible with avoiding climate catastrophe. Poilievre and Carney's positions contradict the urgent need for a rapid energy transition - which begins with no new fossil fuel projects.

Read more: Canada needs to set its businesses up for success in the clean energy transition

During the Liberal leadership race, Carney advocated for using public investment to attract private capital during a CBC News interview. Sidestepping a direct answer about whether he'd balance the overall budget, he instead committed to balancing "operational spending." When pressed, he said he would run deficits when necessary to "invest [in] and grow Canada's economy."

Carney's approach frames public spending as a way to mobilize private capital, rather than as a driver of public-led economic transformation. True to his background, his language casts the government as a shrewd investor, not a driver of structural change.

Carney also framed public investment as "borrowing," which MMT clarifies is a misnomer: unlike a household or a business, a currency-issuing government doesn't need to borrow in the traditional sense and faces no risk of running out of its own currency.

Canada needs more than cautious tweaks to the status quo. A climate jobs program, like a Youth Climate Corps, could guarantee well-paid, meaningful work in communities across the country for anyone ready to contribute. Public opinion is already there: more than half of Canadians support a climate corps.

Public-sector competition in industries like housing and renewable energy could keep private firms efficient and accountable. During World War II, engineer and businessman C.D. Howe became Minister of the Department of Munitions and Supply and oversaw the creation of 28 Crown corporations that drove wartime production.

That same spirit of pragmatic, state-led investment could help address the ongoing climate and economic crises, instead of being used to buy more pipelines.

Read more: Canada's federal election doesn't seem like it's about climate change, but it actually is

Canada already has a Crown corporation mandated to support affordable housing: the Canada Mortgage and Housing Corporation. This agency could be expanded to not only finance, but also tender contracts and build housing. It could be a federal landlord, with long-term goals of community management and ownership.

The more affordable units kept out of an increasingly profit-driven market, the more accessible housing will be. This would stabilize the market and provide a floor (and roof) for affordability.

Some MMT scholars and social movements have even called for a homes guarantee - a federally-funded program to guarantee a place to live for anyone squeezed out of the housing market.

Critics might say bold investment is politically infeasible. But is it? Or could one of Canada's federal parties champion policies that inspire instead of capitulate? Traditionally, the NDP would pick up this mantle, but they ceded their place as the progressive vanguard after former NDP Leader Tom Mulcair promised to balance the budget in 2015.

The real risk isn't ambitious reform, but relying on outdated tricks in a world that demands new solutions.