I’m not surprised that inflation has become an issue in this election, given the way that certain parties have been making political hay out of the temporary spike in the numbers that have been reported over the past few months. I’m also not surprised that the “debate” over it – if you can call it that – has been mind-numbingly stupid, driven by simplistic narratives that rely on lighting one’s hair on fire about the top-line number without bothering to actually read what’s causing it, and most of the media outlets that people will readily consume are too busy shouting that “the cost of everything is going up!” without unpacking what it means.
The first thing we need to understand is that governments have very little control over monetary policy. They set the Bank of Canada’s target every five years, and the Bank operates at arm’s length from government, and had a hard-fought battle to ensure its institutional independence back in 1961. This is important, particularly in light of the discussion around inflation that’s happening right now. Since 1991, the Bank’s mandate has been to target inflation and to keep it between one and three percent, averaging two percent annualized, and they’ve been enormously successful at it. So much so that most people these days don’t remember the days of high inflation that led to double-digit interest rates to control it.
Why this has become politicized lately is because the Conservatives, and Pierre Poilievre in particular, have decided they want to make inflation an issue. Because the Bank reduced its rates to near-zero at the start of the pandemic to help keep the economy going during the financial crisis that COVID wrought, and engaged in quantitative easing to keep liquidity in the economy, this turned into memes about the Bank “printing money” that was being used to buy government bonds. Or as Poilievre likes to call it, printing money to buy the government’s debt, and he has managed to convince scores of people online that he’s a monetary policy genius, and that this QE program is going to turn into runaway inflation and that we will soon turn into Venezuela – none of which is actually true. More concerning is his repeated insinuation that the Bank is in cahoots with the federal government, politicizing the arm’s-length body in what should be alarming, yet is being met with a shrug by most media because they don’t care to understand what’s at stake.
Given that the Conservatives have been banging this particular drum the loudest, and warning that inflation is one of the reasons why they need to form government as soon as possible, you’d think that they have policies to address it – but they don’t. They talk in their platform about ways they’ll lower the cost of living, and will handwave about competition in a country mired in oligopolies, but don’t actually say anything about how to address inflation – the words “monetary policy” don’t appear in the platform, nor does “Bank of Canada” appear anywhere. And for a party that claims to be so worried about inflation, many of their policies, including their much-ballyhooed “GST holiday” will actually increase inflation rather than combat it, so way to go there.
For the record, the NDP platform also doesn’t mention monetary policy, but does make the bizarre claim that they will “change the mandate of the Bank of Canada to focus on contributing to net zero.”
“We will support Canada’s net-zero target by reviewing financial legislation, such as the Bank of Canada Act, the Export Development Canada Act, and the Canada Pension Plan Investment Board Act, to ensure federal financial levers and Crown corporations are aligned with the goal of net-zero,” the document reads, and the economists I’ve reached out to are stumped as to what that could possibly mean.
If O’Toole is so worried about inflation, then there are two possibilities – one is that he doesn’t believe that the Bank of Canada is doing their job in controlling it, and should just say so and declare his plans to replace the Governing Council; or he’s saying that their mandate needs to be changed, and should say what he thinks they should be targeting. Given that he’s so concerned about rising prices, maybe he thinks they should be targeting zero inflation or even deflation (which will have consequences for economic growth). But when pressed on the campaign trail on Thursday, he stated that the current policy of targeting inflation at two percent is “one we should continue.” In other words, the dishonesty of this attack becomes clearer.
So, if we’re going to try and make inflation an election issue, then we should be prepared to discuss monetary policy – especially since the Bank’s mandate comes up for renewal at the end of this year. They’ve been doing research to look at what other inflation targeting measures are out there, such as targeting full employment rather than two percent inflation, or some kind of dual mandate, and what the repercussions might be of doing so. But whoever is in government at the end of the year will have to decide, so it’s a discussion worth having. Nevertheless, it hasn’t gone well – media outlets are more interested in facile narratives, and when Justin Trudeau was asked by Bloomberg about this very question, his meandering answer was truncated to sound like he said “I don’t think about monetary policy” when he was outlining the different affordability programs his government was undertaking, and that truncated answer was being used to fuel a narrative that he is being flip about the issue, along with a bunch of Conservative shitposts.
This is a serious issue. We should have serious parties having serious discussions about it, but we don’t. Instead we have cheap headlines, conspiracy theories, and a Canadian public who is being misled because nobody will bother to fact-check what is actually going on. Monetary policy matters, and if we’re going to have parties make fools of themselves over it in public, or mislead people as to the situation, then the public should at least be able to comprehend that it’s what they’re doing, rather than this particular dog and pony show that we’re being subjected to.
