Thursday, April 14, 2016

The Poloz Seal Of Approval

The Conservatives -- and the Parliamentary Budget Office -- continue to pummel the Liberals over their budget. But Stephen Poloz made it clear yesterday that the Bank of Canada has a different take on things. Tom Walkom writes:

Speaking to reporters Wednesday, central bank chief Stephen Poloz said the government’s decision to run $29-billion deficits this year and next will more than offset the negative effects of a slowing world economy, a rising Canadian dollar and low oil prices.
The net effect, he said, is that he now expects Canada’s economy to do better this year than the Bank had predicted in January.
In an accompanying report, the bank says the government’s decision to spend more than it takes in promises to add an extra half a percentage point to the economy’s growth rate.

That doesn't mean that Canada's economy will be firing on all its cylinders. But, then, neither is the world's economy:

The world economy continues to struggle. China, a crucial player, faces financial stress. Japan’s wage growth is lacklustre. In Europe, investor confidence is sagging.
Throughout, downward pressure remains on the price of oil and other commodities that Canada sells abroad.
The crucial U.S. economy is recovering but not at the pace the bank had expected in January.

So, things may not be great. But, at least they're better -- because, instead of following Milton Friedman's doctrine, the central bank doesn't have to do all the heavy lifting.

Poloz has made it clear for some time that his ability to influence interest rates can do only so much to keep the economy on track and that the government, with its control over spending and taxation, should do more.
With their decision to deliberately run stimulative deficits, Trudeau and Morneau have complied.

For the time being, at least, Friedman and his acolytes have been sent packing.



Pamela Mac Neil said...

Welcome back Owen. I look forward to reading you daily, so you have been missed by this reader. Friedman's doctrine may not so much define the budget, which is good, but I think there is a strong chance it will define policy, especially in trade.We'll see.

Owen Gray said...

I am worried that Friedman's ghost is never far away, Pam. We'll have to see what develops. Thanks for the kind thoughts.

The Mound of Sound said...

Friedman, of course, is long dead but even he openly acknowledged before his death that his theories failed in practice. That didn't stop the market fundamentalists or their neoliberal political allies who conveniently ignored Friedman's admissions because his policies proved remarkably great at transferring ever more wealth to the 1% even if they failed the nation.

Owen Gray said...

Absolutely true, Mound. Friedman's followers are the 21st century version of the Flat Earth Society.

UU4077 said...

Like the federal budget or not at least in Canada we have fiscal policy lining up - more or less - with monetary policy. Central Banks can't do it all by themselves with a "austerity-minded budgets" creating headwinds.

Owen Gray said...

Exactly, UU4077. Monetary policy and fiscal policy should work in tandem -- and take into account present circumstances.

Hugh said...

Going much deeper into debt to gain a half-percentage point of GDP growth.

Ok, if you must.

We better hope the interest rate doesn't rise, or we'll be in big trouble.

So, therefore, you can guarantee the govt will do everything it can to make sure the interest rate does not rise.

And low interest rates lead to more debt, and so on.

Owen Gray said...

If we experience runaway inflation, interest rates will rise, Hugh. If inflation remains under control, interest rates will remain stable.

Steve said...

Et Tu Polz!

Owen Gray said...

It's interesting to note that Poloz was appointed by Harper, Steve.