Conservative finance critic Pierre Poilievre is not known for subtlety and under-statement, but his recent attack on the Bank of Canada barely counts as rational even among right-wing pundits.
On October 15, Poilievre accused the Bank of Canada of being “an ATM for Trudeau’s insatiable spending appetites” and alleged that monetary policy was becoming ideological and “more and more political.”
It is fair game for parliamentarians and all Canadians to debate the merits of current monetary policy. But the opposition finance critic provided not a shred of evidence that the Bank of Canada is driven by motives of political partisanship or has been instructed to act in a particular way by the federal Liberal government.
This is a serious allegation since the Bank is supposed to be independent of the government of the day in pursuing its policy mandate, unless and until the government issues a formal policy directive.
It is certainly true that monetary policy has changed in that the central bank has now embraced so-called quantitative easing for the first time, holding down interest rates on government bonds and on securities more widely by buying up government securities with newly created money.
But, the Bank of Canada is pursuing the same course of action as most major central banks around the world, including the US Federal Reserve, the European Central Bank and the Bank of England.
These institutions are hardly in thrall to Justin Trudeau. Rather, they all recognize that extraordinary times call for extraordinary measures.
The global coronavirus pandemic has devastated employment and output to an extent which is unprecedented since the Great Depression. Institutions like the International Monetary Fund have argued that quantitative easing was and is needed to backstop the global financial system and to avert an even greater shock to the economy.
Mr. Poilievre failed to even note that the Conservatives have supported the major spending measures to support businesses and workers legislated to date by the federal Liberal government in response to the pandemic. If it were not for a major change in monetary policy, the cost of these measures and the deficit today would be even greater since the government would not have had access to ultra cheap money.
Currently, the federal government is financing the deficit by selling long term bonds with a very low interest rate, 0.5% for a ten year bond. Most conservative commentators, such as former Bank of Canada Governors, argue that the monetary policy response has been appropriate and that there is no short-term problem given that inflation is very low and the economy is operating well below capacity.
Mr. Poilievre says it is “insane” to think that “governments can just print money to pay their bills.” It would be even more crazy to let the economy fall into a deep depression by not responding through aggressive monetary and fiscal policy.
It is true that some concerns have been raised by economists as to how long very loose monetary policy can last. But inflation is not a threat, and the Bank of Canada does not need to change course until it deems necessary.
Those of us with long memories will recall that the Harper Conservatives dragged their feet in responding to the global economic crisis in 2008, and embraced stimulative policies only after being almost defeated in Parliament, and at the strong urging of other countries.
The Conservatives remain so devoted to orthodox finance and balanced budgets that they are afraid to act even in times of dire emergency.
Andrew Jackson is the Senior Policy Advisor of the Broadbent Institute and the former Chief Economist of the Canadian Labour Congress.