...against fictions and other tall tales

Wednesday, 16 November 2011

Inflation-targeting: Still the BoC's top priority

It's a shame this sort of discussion didn't occur during the last federal election. A debate on the renewal of the Bank of Canada's inflation-control target would have added much substance to what I thought was a particularly lame election. But what is even more regretful is that this discussion, it now turns out, got to take place only after the renewal of the five-year agreement became a fait accompli

That said, yesterday's session of the House of Commons Standing Committee on Finance aimed at discussing the merits of the renewal of the BoC's inflation target contained some good exchanges. The economists who were invited to present their views included Mario Seccareccia of the University of Ottawa, Scott Sumner of Bentley University, Jim Stanford of the Canadian Auto Workers Union, Chris Ragan of McGill University and Craig Alexander of TD Bank.

I was particularly pleased by the fact that the discussions were not limited to the renewal of the inflation target. Topics also touched upon included the role of fiscal policy, the current slowdown in the global economy, the actions of the Bank of Canada in recent years, as well as the state of Canada's manufacturing sector.

My views on the BoC's inflation target can be found here and here. Given that this type of conversation only occurs once every five years, I thought it might be appropriate to post it here (click on Play to hear the session) Enjoy.


  1. Very timely reminder and comment, circuit.

  2. Your previous stances are well formulated. I would simply like to add as a gesture of collegiality the BOE's Governor King's letter to the Excheq. It reflects an assessment that is appropriate for both Europe and Canada, esp. Canada. Our Government for some curious reason looks towards the UK to formulate adequate policy. Unfortunately, austerity is not working in the UK,and inflation targeting is a second brand on the BoE's shelf these days, and rightly so. The stats coming out of the UK are discomforting and some are alarming.

  3. Pardon my omission: here is the link circuit:


  4. Thanks for the link. I've been following the BoC's actions and strategies. Can't say I don't agree with how it's addressing the current inflation pressures. Much better than how the ECB has dealt with it in recent years.

  5. i saw your recent comment on the ECB to a Classic Indeed posting:


    a nod!! to whatever for challenging the status quo on the 'threesome'. the argument is viable, but the inspiring result is moreso improbable.

    i was also at first taken aback by your reference to KC Wheare (nod) who was a 'classic indeed' on federalism. i was surprised the titan is still recalled in circles beyond jurisprudence and political science. however, i caution that a political perspective on federalism as advocated by Wheare is not readily convertible to an economic perspective without a radical transformation of its membership. in days past, the distinction between a fully federal and quasi-federal arrangement among sovereigns was operative. Canada & the US of course are still linked to the former. at the time of Wheare's scholarship, the EU was a concept/vision in a great italian's hope of a reconstituted pôst-war entity that would firstly preclude forever another war and secondly emerge as a viable self-sustaining economic force. Wheare's optic was unfortunately restricted by history. your optic demands a revision of history that Wheare cannot offer-the economic backbone for a sovereign EU abandoning membership sovereignties. that you are a visionary is a given, but the for the vision to become reality is today almost impossible. it will be more realistic for Germany to refute your recommendation than for Germany even to consider it.

    on that bleak note, stay the course, swells's squall is approaching.

  6. It's almost the time for the bell, but I have a few tics, so here goes. JH, you're right on circuit's overly legalistic interpretation of KCW. I think circuit was actually positing for a renewed federalist idea in Europe that leaned more on the classic models of the US, than the Commonwealth. I didn't understand circuit as labeling the EU as a classic model. Quite to the contrary,his invocation of economic institutions places him in that direct line of federalist thinkers that engage federalism as possible iff it institutionalizes a sovereign currency and respective monetary authority to manage the operations.

    Having said that, I nod CI for the courage it takes to rattle the cages of Merkel, Sarkozy and Cameron. CI is absolutely correct, Draghi has to drag the markets to the table and rethink their obsession with deficits, debt reduction and budgetary constraints. This accounting model is not applicable as CI suggests to the modern global economy. It merely complicates and mystifies the issues. CI's rule of thumb: put people back to work is the only fiscal commitment that Euro Area can constitutionally engage without entrapping sovereignties. In fact, the vision behind intra-Union trade, immigration, tariffs and regulations was about democratizing the workplace in order to promote growth. So unless the ECB abandons orthodox interventions, the ECB will worsen the situation in Europe, and the CI's Kierkegaardian 'leapsters' will be known as Quixote's 'three amigos'.

  7. JH, Swells, you caught circuit trying to channel publius. All I was trying to say was that good people with good intentions drove the EU project. In retrospect, the way it evolved was perfect: the common market came about, the treaties were negotiated and ratified, and important institutions were established (ie, Parliament, ECJ, ECB). They even came close on the constitutional end (further than I thought imaginable). The legal framework was all there. I tend to think the insights of Wheare were an inspiration. But they all took a wrong turn on the idea of an optimal currency area. It was a mistake to think that this area would be viable without the appropriate economic institutions to support it. The Fed and the US should have been the model for the ECB and EMU. Instead, they went ahead with a Bundesbank 2.0 and an inflexible monetary regime. I admit the politics constrained the options available (see Pinder 'Economic and Monetary Union: Pillar of a Federal Polity', 1996). But ideology played an important part in the EMU's design. This is where it all went wrong. For a while, it even looked like Davos (SW!) would become the political pole of the EU. Imagine that: governance via press releases and rating agencies! And still today, that ideology rules supreme. That's the problem. It's like what we heard today from the EU leaders: allowing the ECB to buy sovereign would present a 'moral hazard' (i.e. it would provide a way out for the 'profligate' nations to not make the necessary spending cuts). But this logic is backward. The problem lies with the monetary system itself, not necessarily with the public finances of the impacted nations. The real moral hazard are the people in charge and the stubborn belief that market forces will prevail. Indeed, they will. Therefore, the problem isn't going away

  8. Very well articulated, circuit... however, the underlying challenge for the EU, in my judgment is no longer institutional, but rather nationalism. I am more concerned that a rise in nationalism by both the unstable and more stable members create the type of tension that will dismember the original fabric of governance. As far as the economic challenge, I read with great caution CI's post and the respective comments. Without being overly generous, I hope CI is wrong, because if he is correct, the crumble is imminent.

  9. GC beat me to it. I concur that parochialism is fostering enormous political tension within the Ezone. There admittedly is little opportunity for an immediate resolution to the constitutional impasse that overhangs Draghi's first 100 days, if the system can last that long. I don't recall New York in 2008 being so soft-spoken as Frankfurt on Nov 21,2011.

  10. I've been concerned by the use of 'national character' (stereotypes) for explaining the economic ills affecting the southern Euro nations from the get-go. Some of the stats are quite conclusive: it's simply not true. Here is a good piece that debunks the myth somewhat.


    That said, I wonder if a pinch of nationalism might not be a benefit in some regard. Perhaps it might lead to better policies and, for lack of a better word, more 'radical' action on the part of *elected* leaders. It might provide some fuel to counter the market ideology view I described above. But any split of the EU, whether along nationality or economic cleavages, would be a step back. That's why I agree with your basic point. And add large-scale unemployment to the mix and we have ourselves a true mess.