I have written a couple of pieces for Economy Lab in the Globe and Mail recently on the issue of secular stagnation. (Links below)
The term was coined by the pioneering American Keynesian Alvin Hansen who argued that the US economy of the late 1930s faced a long period of stagnation due to a chronic, structural gap between aggregate supply (the capacity of the economy to produce) and aggregate demand.
Keynesians of the time argued that the solution to stagnation underpinned by low private investment was public investment led growth, and were vindicated to a degree when World War Two (Read more…)
Arun here…breaking radio silence to share with you a thought-provoking piece by Larry Kazdan, a graduate of York University in sociology and history, and currently a Council Member with the World Federalist Movement-Canada, an organization that monitors developments at the United Nations and advocates for more effective global governance.
Our friend and fellow blogger Keith Newman recently wrote some words that set up Larry’s piece nicely so rather than trying to reinvent the wheel, I will let Keith introduce Larry’s work and then urge readers to read the piece in full.
****************************** The trillion dollar coin solution for the US (Read more…)
Assorted content for your Sunday reading.
- Alex Pareene muses that Lawrence Summers would be an entirely worthy nominee to oversee U.S. monetary policy – for a very specific set of criteria: Laws and policies he championed directly led to the financial crisis, and the same laws and policies caused that crisis to kick off a global recession that we still have not crawled out of. He is more responsible than almost anyone else alive — it’s him, Robert Rubin, Phil Gramm and Alan Greenspan, basically — for the severity of the crisis. I can’t think of a better (Read more…)
Today, I had the following commentary posted on The Globe and Mail’s Economy Lab:
The loonie is overvalued and the Bank of Canada has room to act
On Tuesday, Christopher Ragan characterized the notion of an overvalued Canadian dollar as a “seductive myth” that the Bank of Canada should not act to address. I have made the case that we should broaden our central bank’s mandate to include managing the exchange rate and welcome the opportunity to advance this important policy debate.
Significantly, Ragan agrees that currency “depreciation would spur Canadian exports and provide a much-needed stimulus to (Read more…)
Statistics Canada reported today that inflation collapsed to just 0.4% in April. The Bank of Canada’s core inflation rate, which excludes volatile items, fell to 1.1%.
Continued low inflation does not provide a rationale to raise interest rates. Perhaps for that reason, Canadian monetary hawks have shifted their rationale for higher interest rates.
In 2011, the C. D. Howe Institute released a paper entitled Overnight Moves: The Bank of Canada Should Start to Raise Interest Rates Now. It argued:
If more ‘no-change’ decisions are made by the Bank of Canada regarding its policy interest rate, inflation expectations might (Read more…)
1. He’s Number Two: Stephen Poloz was widely acknowledged in economic and political circles as the second-best choice for the top job at the Bank of Canada. So the surprise was not that he was chosen. The surprise was, Why Not Tiff Macklem? Will someone please find out and tell the rest of us?
2. Doctrinaire [or not?] on Inflation Targeting: He thinks it’s “sacrosanct.” Having studied with monetary policy guru David Laidler at the University of Western Ontario, and been part of the Bank of Canada team that brought inflation targeting to a neighbourhood near (Read more…)
In a very long and fascinating speech which has been amplified by Martin Wolf in the FT, Lord Adair Turner seeks to break the taboo on discussion of the potential ability of central banks to monetize fiscal deficits. His argument boils down to a political economic one … Some monetization might be useful in certain circumstances such as in Japan over the recent past, but there is a clear danger of going too far and stoking inflation if the central bank becomes too subject to political pressures.
He makes the interesting point that QE in the US and the UK
. . . → Read More: The Progressive Economics Forum: Breaking The Taboo on Monetizing Deficits
The Board of Directors of the Bank of Canada have retained Odgers Berndtson to seek a new Governor, and have placed an ad in the Globe and Mail, the Economist and La Presse.
The wording of the advertisement is questionable.
First, it states that “the Bank of Canada is the pre-eminent macro-economic institution in Canada.”
The Bank of Canada is undeniably important, but it has absolutely no role to play in fiscal policy which is entirely the responsibility of the Minister and Department of Finance.
Moreover, the inflation target which anchors monetary policy is set jointly by the
. . . → Read More: The Progressive Economics Forum: What Does the Bank of Canada Do?
Mark Carney’s tenure as Governor of the Bank of Canada overlaps some challenging economy history. Appointed in early 2008 just as the US housing bubble was popping, Carney took the helm in time for a financial crisis that brought the global economy to its knees. We are still living that history in terms of a [...] . . . → Read More: The Progressive Economics Forum: Mark Carney’s tenure and the state of monetary policy
The following is a guest blog from Marc Lavoie and Mario Seccareccia at the University of Ottawa:
In a speech delivered on October 4th to the Winnipeg Chamber of Commerce (see: http://www.bankofcanada.ca/2012/10/speeches/a-measure-of-work/), the senior deputy governor of the Bank of Canada, Tiff Macklen, has offered some self-congratulatory remarks, by arguing that the near-zero inflation policy pursued by the Bank under the leadership of John Crow had given rise to a healthy and more efficient labour market, with low unemployment rates. Senior deputy Governor Macklem has only one regret: labour productivity growth in Canada has been dismal
. . . → Read More: The Progressive Economics Forum: Guest Blog: Selective Amnesia at Bank of Canada
Assorted content to end your week.
- Yes, it’s alarming that the Cons are eliminating environmental assessments on a huge number of projects. But even more worrisome is the complete lack of a connection between the basis for the exclusion and the possible environmental impacts: Ottawa is also walking away from conducting assessments on various agricultural and municipal drainage works, log-handling facilities, small-craft harbour and marina development and expansion, the sinking of ex-warships as artificial reefs, the disposal of dredged material, and a 73-hectare mixed-use development on Tsawwassen First Nation lands.
Under the new legislation, BC Hydro also no longer
. . . → Read More: Accidental Deliberations: Friday Morning Links
Yesterday, Mike Moffatt took to The Globe and Mail’s “Economy Lab” in response to my suggestion that the Bank of Canada should moderate the exchange rate. (Perhaps his motive for encouraging me to seek the Saskatchewan NDP leadership was to get me as far as possible from the levers of monetary policy.)
My rebuttal of Mike’s rebuttal appears in today’s Economy Lab:
Mike Moffatt’s friendly rebuttal of my comments on last week’s inflation report advances an important debate about Canadian monetary policy and the exchange rate. In fact, I believe that we agree on several key aspects of
. . . → Read More: The Progressive Economics Forum: Broadening the Bank of Canada’s Mandate
Statistics Canada reported today that, for a third consecutive month, consumer prices declined and the inflation rate fell below 2%. In July, the inflation rate was 1.3% and the Bank of Canada’s core rate was 1.7%.
Gasoline and natural gas prices, which have been lower this summer than last, dragged down the overall Consumer Price Index. However, there is little indication of inflationary pressure anywhere.
Even those categories with the largest price increases were in line with the Bank of Canada’s 2% target. Food prices and household expenses rose 2.1% over the past year. The inflation rate
. . . → Read More: The Progressive Economics Forum: Prices Decline Yet Again
Today’s report that the national inflation rate fell to 1.2% in May deflates calls for higher interest rates to reduce inflation. The central bank’s core rate was 1.8%, also below the 2% target.
The other argument for an interest-rate hike was to moderate mortgage lending and the housing market. However, the federal government’s move to reign in mortgage lending through the Canada Mortgage and Housing Corporation removes the pressure for the Bank of Canada to do so through monetary policy.
An important reason to keep interest rates low is to avoid upward pressure on the Canadian dollar, which
There is a very interesting interview with PEF’s own Marc Lavoie here on the Naked Capitalism site on his new book.
Monetary Economics was co-authored by Marc with the late Wynne Godley. (Make sure to start by linking back to Part 1.)
Readers of this blog will have hopefully read my report “The big banks big secret” which examines the $114 billion that Canada’s banks received during the 2008-09 financial crisis. Its major finding was that at some point three of Canada’s five big banks had received support worth more than their market capitalization, or the value of all the stock, at around $20-25 billion per bank.
As I noted in the report both the Bank of Canada and CMHC have refused to release the secret details of their support programs including how much each bank got, when they got it and what
. . . → Read More: The Progressive Economics Forum: Complete details of 2008-09 Bank Support
Canada’s economy grew by half a percent in the first quarter of 2012, staying on pace for unimpressive annual growth of two percent.
The good news is that business investment was strong, at least on a seasonally-adjusted basis. (As usually happens in the first quarter, the actual dollar value of business investment actually decreased.)
Unfortunately, the other major components of GDP weakened. Government spending on goods and services fell by 0.4%, its largest quarterly decline since 1997. Fiscal austerity is starting to take a bite out of Canadian economic growth.
Consumer spending grew by an anaemic 0.2%,
. . . → Read More: The Progressive Economics Forum: GDP: Austerity Bites
Today, Statistics Canada reported an annual inflation rate of 2%, precisely in line with the Bank of Canada’s target. With inflation under control and renewed risks to the global economy, there is little rationale for the central bank to raise interest rates anytime soon.
In fact, the Bank of Canada should now be more concerned about the exchange rate than the inflation rate. Recent debate about Dutch disease highlights the Canadian dollar’s overvaluation.
While the loonie trades for about 98 U.S. cents on financial markets, the OECD calculates that its real purchasing power is equivalent to only 76 U.
. . . → Read More: The Progressive Economics Forum: Inflation On Target; Exchange Rate Off Target
The most interesting comments from Bank of Canada Governor Mark Carney last week, in releasing the Bank’s semi-annual Monetary Policy Report, dealt with the relationship between the price of oil and the Canadian currency. The Globe and Mail reported Carney as publicly questioning why currency traders automatically presume such a direct link between the loonie and the world oil price. After all, he accurately pointed out, Canada produces a lot more than just oil. Why do traders associate our currency with commodity prices in general, let alone this single particular commodity?
Mr. Carney’s remarks had an
. . . → Read More: The Progressive Economics Forum: The Oil Price-Loonie Transmission Mechanism
Canada’s business press has recently been filled with speculation that the Bank of Canada may soon hike interest rates based on its somewhat more optimistic economic outlook. But today’s Consumer Price Index report indicates that there is no need to raise interest rates. Statistics Canada reported that both headline and core inflation fell to 1.9% in March, slightly below the central bank’s 2% target.
Higher interest rates are not warranted to combat already low inflation, but could derail Canada’s fragile economic recovery by increasing borrowing costs and driving up the overvalued loonie. The latest OECD data on purchasing power
. . . → Read More: The Progressive Economics Forum: Deflating the Monetary Hawks
Statistics Canada reported today that consumer prices decreased in December, lowering the annual inflation rate to 2.3%. The Bank of Canada’s core inflation rate declined to 1.9%.
Tame inflation leaves room to lower interest rates. If unemployment continues to rise, the Bank of Canada should reduce interest rates to boost the economy and create jobs.
The modest inflation rate still exceeds the 2.2% average increase in hourly wages. Sluggish wage growth is another sign of a weak labour market, which calls for stimulative fiscal and monetary policy.
Although the overall price level decreased, shelter costs
. . . → Read More: The Progressive Economics Forum: Lower Inflation Frees Carney’s Hand
As faithful readers of this blog will know, I make only very sporadic contributions to this blog but a substantial fraction of those contributions have made reference to modern monetary theory (MMT), the view (crudely put) that, based on a detailed understanding of the institutional mechanisms behind monetary operations, calls into question our obsession with balancing the budget.
Well, after many years in the wilderness, it looks like one of the chief MMT protagonists has gotten the attention of The Economist: http://www.economist.com/node/21542174 while the community at large has gotten the attention (and admiration) of at least one senior
. . . → Read More: The Progressive Economics Forum: The Economist Takes Note: Modern Monetary Theory Gets Much Deserved Attention
Statistics Canada reported today that the annual inflation rate remained 2.9% and the Bank of Canada’s core rate remained 2.1% in November.
The monthly increase in consumer prices slowed to 0.1% in November from 0.3% in October. The monthly increase in core prices slowed to 0.1% in November from 0.2% in October.
Inflation remains modest and should not deter the Bank of Canada from keeping interest rates low, and perhaps reducing them, to support our fragile economy and labour market.
However, even this modest inflation exceeds the small pay increases received by Canadian workers.
. . . → Read More: The Progressive Economics Forum: Modest Inflation Outstrips Wages and Canada Social Transfer
Many long-held tenets of neoclassical orthodoxy have fallen by the wayside in the past 3 years, but perhaps one of the biggest dominos that is at least teetering precariously (if not fully tipped over) is the consensus that inflation targeting should be the exclusive focus of monetary policy.
The policy was closely associated with the so-called “New Consensus in Macroeconomics” — the premature and presumptuous claim that rational-expectations-augmented analysis had produced the “end of history” in macroeconomics (analogous to Francis Fukuyama’s preposterous claim about global politics). The idea was that by anchoring inflation expectations at the target, the central
. . . → Read More: The Progressive Economics Forum: Inflation Targeting and the Crisis