People scratched their heads this week when Bank of Canada governor Stephen Poloz announced that he was prepared to employ negative interests rates to prime the Canadian economy. What he was really saying, Tom Walkom writes, is that it's time for the Liberal government to spend:
But the more important lesson is his statement that this task could be better accomplished by the federal government running deficits.
Citing the late British economist John Maynard Keynes, the central bank chief reminded his audience that when interest rates are already low, fiscal policy (the willingness of governments to spend more than they take in) is always more powerful than monetary policy (attempts by central banks to promote investment).
In effect, he was telling Prime Minister Justin Trudeau and Finance Minister Bill Morneau to go for it — to run deficits if necessary in order to get the country working again.
Switzerland has already employed negative interest rates:
In Switzerland, where the practice already exists, one commercial bank has served notice that it will start explicitly charging its depositors negative interest next year.
This means that those who insist on leaving their savings deposited in this particular bank could see them shrink bit by bit until nothing is left.
In Switzerland, you get a better return by investing your money, not by putting it in the bank. Poloz was saying that the fixation with deficits will not get Canada out of its economic slump.
It's time for some Keyensian economics.