Quotulatiousness

April 29, 2011

Stephen Gordon: Layton needs to avoid disruptive monetary policies

Filed under: Cancon, Economics, Politics — Tags: , , , , — Nicholas @ 13:20

It’s almost as if nobody bothered to read what the NDP had in their platform until last week . . . and paying even less attention to what Jack Layton said on the campaign trail. They’re paying attention now:

In my recent post on the prospects of a possible NDP government, I came to the conclusion that not very much would change; their platform had none of the transformational elements that had been a feature of so many NDP campaigns in the past.

But if recent reports are correct, and if Jack Layton seriously thinks that it would be a good idea for a Prime Minister to instruct the Bank of Canada to keep interest rates low, then this benign assessment no longer holds. Such an intervention would be a serious mistake that would seriously endanger the recovery, and could generate another spiral of higher inflation and higher interest rates.

The first thing that would happen after such an order is that Governor Mark Carney would have no choice but to resign. This would be a serious shock to the financial system, and unless his successor could extract a promise that no further orders would be forthcoming, the Bank of Canada’s credibility would simply disappear.

You remember all those smug, self-congratulatory pieces about how well Canada had weathered the recession and how well positioned the country was to take advantage of economic growth? Perhaps this is the imp of the perverse coming back for a revision of all that hearty back-patting.

2 Comments

  1. As much as I’d love to see Carney resign and the BoC’s credibility disappear, I hate recessions. And I hate business cycles. Too bad Layton isn’t smart enough to campaign on the Hayekian triangle.

    Comment by Caleb983 — April 29, 2011 @ 21:29

  2. If it is acceptable that when unemployment drops under 8% for them to cry “The economy is overheating! The economy is overheating! We are below NAIRU! Quickly, raise those interest rates! Cause unemployment!”, and for after the unemployment is caused for them to say, “Ah, it’s over 8% again, over the NAIRU. Crisis averted”, then perhaps you should be with those attacking Layton over this issue. RE

    Comment by R — April 30, 2011 @ 11:52

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