Interest rates are not the only anti-inflationary tool we have

The prevailing wisdom is that the only way to deal with rampant inflation is to increase interest rates. This is presumably because it worked once, back in the 1970s, eventually at least. But it's a notoriously blunt instrument, and it runs a very real risk of causing an economy-wide recession.

It was interesting, therefore, to hear economist Jim Stanford, director of the Centre for Future Work, take the stance that there are in fact alternatives to strict monetary policy, in an interview on CBC's The Sunday Magazine. Mr. Stanford has been quite critical of Tiff Macklem and the Bank of Canada's interest rate hikes, even if that is also the approach being taken by most other western countries. As he says, if all your tool box contains is a big hammer (interest rates) then everything starts to look like a nail.

Recognizing that corporate pricing and profits are at least as much to blame for the current inflationary phase as labour costs, Mr. Stanford points to any number of other policies that might preferentially have been pursued over interest rate hikes, including:

• Tightening credit in certain sectors of the economy, rather than employing the blunt instrument of overall interest rates.
• Price caps in certain strategic sectors like energy, house rents, etc.
• A tax on excess profits to redistribute some of the money big companies have earned recently, to help regular folks pay for their groceries.
• Increased taxation on high earners to help ease inflationary pressures.

Any or all of these measures, in addition to some level of monetary policy does seem to make sense, particularly given that this post -pandemic inflation is not the same animal as 1970s stagflation. In particular, Mr Stanford is quite critical of policies that seem determined to put the burden on the working stiff - Tiff Macklem makes no bones of his view that employment is too high, and that measures that put more Canadians out of work are the way to go.

Food for thought.