Wednesday, September 06, 2023

What has Doug Ford to teach the Bank of Canada?

The Bank of Canada is full of highly-qualified, super-smart financial whizzes, and part of their job is to monitor the Canadian economy and keep inflation down as close as possible to 2%, on the grounds that history shows that that is the best thing for the economy as a whole. That's why they have been gradually increasing interest rates in recent months, because, once again, history shows that this is one of the few things that a central bank can do to help control inflation downwards.

The BoC actually didn't raise interest rates this month (against the advice of some economists, it must be said, although it says it reserves the right to recommence its rate hikes in subsequent months), because they try to be as cautious as possible, in the full knowledge that the current high interest rates are hurting Canadians (although, crucially, not as much as persistently high inflation would). The Bank of Canada is not a perfect institution, but it has a pretty good handle on the situation and a wealth of timely financial data, and it will do whatever is needed to keep the economy as healthy as possible.

However, Doug Ford - folksy, avuncular Dougie, an engaging populist, but not the sharpest knife in the draw, and certainly not an economist - thinks he knows better, and has sent a friendly letter to the Bank of Canada, advising them and reminding them that high interest rates are "hurting people" and are a burden on individuals and businesses alike. Well, thanks, Dougie, but I think the BoC is perfectly well aware of that. "You want to destroy people's lives, you want to watch people go bankrupt and lose their homes?", Ford asks (rhetorically?) It's OK, Dougie, I think they know what they're doing.

And Ford's solution to reducing inflation? For the federal government to send him more money to build houses, houses, houses, and a bunch of unnecessary roads. And that will deal with inflation ... how? Boosting investment in infrastructure is guaranteed to increase demand and spending, which is only going to make inflation worse.

Ford is also (like BC Premier David Eby and Newfoundland Premier Andrew Furey) pushing the false idea that high interest rates are the main cause of the inflation we are experiencing. In fact, mortgage payments are just a small element of the basket of good and services that the inflation rate is based on. In fact, in a press conference concerning the letter, Ford came right out and said of the BoC, "You personally are responsible for creating inflation". He really doesn't get it. 

Federal NP leader Jagmeet Singh also tried to get in on the act, suggesting that Justin Trudeau should tell the BoC not to raise rates (the BoC is completely independent of the government of the day, which is as it should be). There seems to be a lot of misunderstanding and ignorance on this matter (willful or otherwise).

The Bank of Canada has the unenviable task of controlling the ogre of inflation, and it is using a whole variety of different indicators and variables in order to achieve that, rather than resorting to the simplistic, self-serving jingoism that is the level on which Doug Ford is working.

Sending an open letter in this way is, of course, merely grandstanding by Ford, an attempt to sound like he has his finger on the pulse, and to spread the blame for anything "bad" onto someone (anyone) else. Essentially, the premiers are at pains to make it clear that THEY are not to blame for interest rates hikes, someone else is. Former BoC Governor David Dodge did not beat about the bush: "It's a bit of ... political grandstanding on the part of the premier". Some economists, though, think that the attempts by the premiers to influence and pressure the BoC is much more sinister than that, calling it "ridiculous" and "reckless".

I think both Ford and Eby had a pretty good idea that the BoC was not going to raise rates again this month, and thought it would look good if they got in first, so that it looks like they have an influence on the central bank (they really don't). Playing politics, basically.


After this provincial grandstanding, BoC Governor Tiff Macklem sent the three provincial premiers who thought it a good idea to send him a letter with their own pearls of wisdom, explaining that they shouldn't do that because it could undermine public confidence in the independence of the central bank.

It looks like David Eby took the advice. Andrew Furey and our own Dougie, however, knew better, and decided to send Macklem another friendly missive before this month's interest rate announcement. The guy is incorrigible (and not in a cute way).

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