Opinion
PM Trudeau’s “Monetary Policy” gaffe could cost the Liberals the election. But will it?
Back in 1993 things were not going well for Canada’s Progressive Conservative Government. Brian Mulroney’s government had served 2 mandates and Canadians were clearly ready to move on. The Conservatives decided Kim Campbell would be the best leader to bring a renewed excitement to their reelection hopes. Campbell was a fresh face and that was important to the party which was losing support quickly. She was also from Vancouver, which was a nice change for the party normally represented by leaders from Ontario or Quebec. Even more importantly, when she won the leadership she would become the first female leader of a country in North America. As Canadians would discover just a few months later though, no one cared about any of that. That campaign did not go well. The Conservatives not only lost. They were decimated right out of official party standing. The governing party won just 2 seats in the entire nation (Jean Charest in Quebec, and Elsie Wayne in New Brunswick). Kim Campbell did not even win her own seat. Henceforth the Reform Party represented the Conservative voice for the next two elections.
For one reason or another, Canadians simply did not connect with Kim Campbell. One of the biggest gaffes of that election campaign came when a reporter pressed Campbell for details on an issue and she replied “The election is not a time to discuss serious issues.” That was the wrong answer. Despite what she may have truly meant, all Canadians heard was “I don’t need to explain anything to you.”. That was exactly the wrong thing to say at the worst possible time.
Why bring this up now, 28 years later? Well Prime Minister Justin Trudeau has made his first major gaffe of this election campaign. And for those who care about monetary policy (which should be everyone who pays taxes and works or has savings, etc) it’s very likely as stunning a statement as Kim Campbell made three decades ago.
First some background. In 2021, Canadians find themselves in an astounding situation. When the covid pandemic hit last year governments all over the world shut down their economies for weeks, and then months. Government stimulus was the order of the day and Canada’s was among the most generous in the world. People were paid to stay at home. Businesses were paid to continue to provide jobs to people working from home. Landlords were paid to keep tenants afloat. All in all, government money is being spent at unprecedented rates.
To pay for all this the Trudeau government attempted to pass a bill through Parliament which would allow it to raise taxes at will without a budget and without even coming back to ask Parliament to present a plan or ask for approval. That didn’t go over so well. But instead of turning back the taps, or introducing a budget with higher taxes the government worked out a plan with the Bank of Canada. How this works basically is that every month the Bank of Canada prints out a few billion dollars, and the government uses that to pay for all the stimulus they want. Over the first year of covid that totalled about 350 Billion dollars!
The Bank of Canada has left the core function expressed in its mandate in order to print all this extra money. Despite it’s best efforts to decouple inflation from the printing of extra money, it’s not working. Canada’s inflation rate has been blowing through the target of 2% month after month after month.
This is the the mandate as expressed by the Bank of Canada itself on its website.
The Bank of Canada is the nation’s central bank. Its mandate, as defined in the Bank of Canada Act, is “to promote the economic and financial welfare of Canada.” The Bank’s vision is to be a leading central bank—dynamic, engaged and trusted—committed to a better Canada.
The Bank has four core functions:
- Monetary policy: The Bank’s monetary policy framework aims to keep inflation low, stable and predictable.
- Financial system: The Bank promotes safe, sound and efficient financial systems within Canada and internationally.
- Currency: The Bank designs, issues and distributes Canada’s bank notes.
- Funds management: The Bank acts as fiscal agent for the Government of Canada, managing its public debt programs and foreign exchange reserves.
The Bank of Canada’s mandate is expiring at the end of this year and the new mandate could change. Some are saying the Bank should continue to print money at an unprecedented rate and Canadians will learn to live with high inflation. Considering this drives up the cost of everything from our homes and vehicles, to the food we eat there could hardly be a more important issue. That’s why PM Trudeau’s response to this question in Vancouver this week is so stunning. When asked if he would consider a higher tolerance for inflation going forward here’s what he said.
Reporter Question about the renewal of the Bank of Canada mandate due at the end of 2021:
-Do you have thoughts about that mandate? Would you consider a slightly higher tolerance for inflation?
Prime Minister Justin Trudeau: “When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy.”
Of course this spurred an immediate reaction from the opposition Conservatives. That oppostion is perhaps best summed up in this address from Pierre Poilievre.
The question is, will Canadians punish Prime Minister Trudeau for either lacking basic economic knowledge, or not caring about it? Kim Campbell failed to win her own seat, but she did not seem to connect well with Canadians at all even before that election campaign. Justin Trudeau has so far been immune to gaffes. Even though he’s had more than 5 years in government, millions of Canadians stand by him loyally. Will this time be any different?
From the Daily Caller News Foundation
By Nick Pope
A new narrative is making its way through major media outlets about major oil corporations: climate change that they purportedly caused is taking lives, and they could be held liable for homicide.
In recent weeks, numerous outlets have run stories or opinion pieces promoting or otherwise examining the novel legal theory, which is the subject of a new paper published by the Harvard Environmental Law Review, according to a Tuesday E&E News report detailing the architects’ efforts to market their idea to prosecutors. The Boston Globe, The Guardian, Newsweek, Inside Climate News and other outlets have all recently published pieces promoting the idea that leading oil companies could or should be charged with murder for their role in climate change, which the theory’s architects claim has caused thousands of deaths in the U.S.
David Arkush, who runs Public Citizen’s climate program, and Donald Braman, a professor at George Washington University’s law school, articulated the theory in a March paper. Public Citizen is a left-of-center organization founded by failed Green Party presidential candidate Ralph Nader that, among other things, pressures American International Group (AIG) to stop providing insurance coverage for fossil fuel companies, according to its website and Influence Watch.
“Activists and journalists have called executives of major oil companies ‘mass murderers,’ lamenting that ‘millions of human beings will die so that they can have private planes and huge mansions,’ and a growing chorus of communities devastated by [fossil fuel companies’] lethal conduct have begun to demand accountability,” the authors state in their paper. “But as of this writing, no prosecutor in any jurisdiction has charged [fossil fuel companies] with any form of homicide over climate-related deaths. They should.”
The paper also suggests that the American Petroleum Institute (API), a leading trade association for the oil and gas industry, was involved in the industry’s purported attempts to obscure the effects of emissions.
“The record of the past two decades demonstrates that the industry has achieved its goal of providing affordable, reliable American energy to U.S. consumers while substantially reducing emissions and our environmental footprint,” a spokesperson for API told the Daily Caller News Foundation. “Any suggestion to the contrary is false.”
The two authors contend that energy corporations were aware of the warming that emissions from their products and operations would cause for decades, and that those companies decided to mislead the public and obscure what effects those emissions may have. A similar narrative lies at the heart of climate lawsuits that have been filed against energy companies in numerous jurisdictions across the U.S. in recent years.
Arkush wrote a Wednesday piece for Newsweek laying out his theory and referencing these climate lawsuits, opining that the fossil fuel industry’s purported “crimes may be among the, if not the, most consequential in human history.” The Boston Globe ran a similar opinion piece authored by Arkush and another official for Public Citizen on March 17.
The Guardian ran its own piece about the climate homicide theory on March 21, using the headline “Fossil fuel firms could be tried in US for homicide over climate-related deaths, experts say.” Clean Technica, a site that promotes green energy, ran a March 16 piece on the new legal theory with the headline “Climate Criminals — Prosecuting Big Oil For Environmental Crimes.”
Inside Climate News published an April 4 story on the subject, using the headline “Should Big Oil Be Tried for Homicide?” and including excerpts from interviews with the two architects of the climate homicide theory. The pair suggested that the aim is not to punish individuals or seek vengeance, but instead achieve results that would prompt companies to shift their investments away from fossil fuels, according to Inside Climate News’ story.
However, Inside Climate News did quote legal experts who expressed skepticism about the theory’s merits.
“I do not believe that a criminal prosecution on homicide charges against the major oil companies is appropriate or can be sustained,” John Coffee Jr., a professor at Columbia Law School who specializes in corporate law, told the outlet.
Nick Pope is a contributor at The Daily Caller.
From the Fraser Institute
In the minds of most Canadians, there’s little connection between housing affordability and productivity growth, a somewhat wonky term used mainly by economists. But in fact, the connection is very real.
To improve affordability, the Trudeau government recently announced various financing programs to encourage more investment in residential housing including $6 billion for the Canada Housing Infrastructure Fund and $15 billion for an apartment construction loan program.
Meanwhile, Carolyn Rogers, senior deputy governor of the Bank of Canada, recently said weak business investment is contributing to Canada’s weak growth in productivity (essentially the value of economic output per hour of work). Therefore, business investment to promote productivity growth and income growth for workers is also an economic priority.
But here’s the problem. There’s only so much financial capital at reasonable interest rates to go around.
Because Canada is a small open economy, it might seem that Canadian investors have unlimited access to offshore financial capital, but this is not true. Foreign lenders and investors incur foreign exchange risk when investing in Canadian-dollar denominated assets, and the risk that Canadian asset values will decline in real value. Suppliers of financial capital expect to receive higher yields on their investments for taking on more risk. Hence, investment in residential housing (which the Trudeau government wants to promote) and investment in business assets (which the Bank of Canada warns is weak) compete against each other for scarce financial capital supplied by both domestic and foreign savers.
For perspective, investment in residential housing as a share of total investment increased from 22.4 per cent in 2000 to 41.3 per cent in 2021. Over the same period, investment in two asset categories critical to improving productivity—information and communications equipment and intellectual property products including computer software—decreased from 30.3 per cent of total domestic investment in 2000 to 22.7 per cent in 2021.
What are the potential solutions?
Of course, more financial capital might be available at existing interest rates for domestic investment in residential housing and productivity-enhancing business assets if investment growth declines in other asset categories such as transportation, roads and hospitals. But these assets also contribute to improved productivity and living standards.
Regulatory and legal pressures on Canadian pension funds to invest more in Canada and less abroad would also free up domestic savings for increased investments in residential housing, machinery and equipment and intellectual property products. But this amounts to an implicit tax on Canadians with domestic pension fund holdings to subsidize other investors.
Alternatively, to increase domestic savings, governments in Canada could increase consumption taxes (e.g. sales taxes) while reducing or even eliminating capital gains taxes, which reduce the after-tax expected returns to investing in businesses, particularly riskier new and emerging domestic companies. (Although according to the recent federal budget, the Trudeau government plans to increase capital gains taxes.)
Or governments could reduce the regulatory burden on private-sector businesses, especially small and medium-sized enterprises, so financial capital and other inputs used to comply with often duplicative or excessive regulation can be used to invest in productivity-enhancing assets. And governments could eliminate restrictions on foreign investment in large parts of the Canadian economy including telecommunications, banking and transportation. By increasing competition, governments can improve productivity.
Eliminating such restrictions would also arguably increase the supply of foreign financial capital flowing into Canada to the extent that large foreign investors would prefer to manage their Canadian assets rather than take portfolio investment positions in Canadian-owned companies.
Canadians would undoubtedly benefit from increases in housing construction (and subsequently, increased affordability) and improved productivity from increased business investment. However, government subsidies to home builders, including the billions recently announced by the Trudeau government, simply move available domestic savings from one set of investments to another. The policy goal should be to increase the availability of risk-taking financial capital so the costs of capital decrease for Canadian investors.
Author:
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