{"id":7681,"date":"2018-04-27T18:35:52","date_gmt":"2018-04-27T22:35:52","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1582697"},"modified":"2018-04-27T18:35:52","modified_gmt":"2018-04-27T22:35:52","slug":"central-bankers-cant-be-expected-to-stay-silent-in-a-post-crisis-era","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/04\/27\/central-bankers-cant-be-expected-to-stay-silent-in-a-post-crisis-era\/","title":{"rendered":"Central bankers can\u2019t be expected to stay silent in a post-crisis era"},"content":{"rendered":"<p>David Tkachuk, a Conservative senator from Saskatchewan, thinks the man who Stephen Harper appointed to lead the central bank in 2013 has too much good to say about the policies of the current master of the Prime Minister\u2019s Office.<\/p>\n<p>In <a href=\"https:\/\/sencanada.ca\/en\/Committees\/BANC\/NoticeOfMeeting\/480945\/42-1\">an extraordinary exchange at the Senate banking committee on April 25<\/a>, Tkachuk accused Bank of Canada Governor Stephen Poloz of issuing an \u201cimplicit endorsement\u201d of Justin Trudeau\u2019s economic policy by using <a href=\"https:\/\/www.bankofcanada.ca\/2018\/03\/todays-labour-market-future-work\/\">a recent speech to describe how Quebec had narrowed the gender gap<\/a> in the labour force by subsidizing daycare, among other things.<\/p>\n<p>The senator didn\u2019t stop there. He told Poloz that, \u201cyou have been heard to endorse this government\u2019s spending outside of a recession, saying roughly we don\u2019t need to worry about deficits at this time,\u201d and then stated the leader of the central bank had \u201cendorsed\u201d Trudeau\u2019s infrastructure program.<\/p>\n<ul class=\"related_links\">\n<li><a href=\"http:\/\/business.financialpost.com\/news\/economy\/carmichael-poloz\">While inflation pressure heats up, Stephen Poloz comfortable with keeping his powder dry<\/a><\/li>\n<li><a href=\"http:\/\/business.financialpost.com\/news\/economy\/carmichael-services\">Canada\u2019s nostalgia for the factory has become a barrier to growth<\/a><\/li>\n<li><a href=\"http:\/\/business.financialpost.com\/news\/economy\/bank-of-canada-holds-key-interest-rate-at-1-25-per-cent\">Why the Bank of Canada is likely to raise interest rates again before summer<\/a><\/li>\n<\/ul>\n<p>\u201cThe people have to have confidence that you are an independent governor,\u201d Tkachuk said. &#8220;I think you may be straying a little bit beyond your mandate with these statements and creating a perception that you are a little too close to the government in power.&#8221;<\/p>\n<p>I\u2019ve never seen Poloz angrier and it\u2019s easy to understand why. Central banking as we know it in Canada is based on the premise that whoever is in charge will be left alone to raise interest rates as he or she sees fit.<\/p>\n<p>The idea is that if households and businesses believe monetary policy is made without political interference, then they will get behind what the central bank is trying to achieve. In Canada\u2019s case, that\u2019s annual inflation of about 2 per cent. If Canadians thought the PMO was pulling the strings, they might doubt that the central bank could be trusted to make the potentially controversial decisions necessary to achieve that goal. Instead of asking for a 2 per cent raise, or adjusting prices only marginally higher, labour and companies might set their expectations higher. That would would make controlling inflation that much harder.<\/p>\n<p>This approach to monetary policy has been working quite well for more than two decades now. But there\u2019s another side to the understanding about independence. In return for freedom to operate, central bankers are supposed to stay quiet on matters of a political nature.<\/p>\n<p>That\u2019s become extremely hard to do in the post-crisis era. Debt, climate change and the uncertainty created by the rise of populism all have outsized influence on the economic outlook, and therefore the trajectory of inflation. And yet many purists \u2014 and lots of partisans \u2014 still want central bankers to avoid these subjects entirely and stick to technocratic issues such as how the unemployment rate is affecting prices.<\/p>\n<p>It\u2019s not realistic, as Poloz coldly told Tkachuk.<\/p>\n<p>\u201cIt would be bizarre for me to ignore fiscal policy, for example, in trying to understand how the economy will behave over the next two years relative to our inflation target,\u201d he said. \u201cWhen you say that I\u2019ve endorsed a government plan; rather what I\u2019ve done is done the arithmetic around what the government plan will have as an impact on the economy and therefore how it figures into our calculation of the risks up or down on the inflation target.\u201d<\/p>\n<p>The current debate around central bank independence would seem strange to most people. It features academics and journalists arguing that a powerful institution should err on the side of providing less information to the public, not more. And the entire notion depends on the assumption that a cabinet appointee who won an obscure hiring competition is somehow immune from political influence. Harper left behind <a href=\"https:\/\/goo.gl\/images\/JD2CoM\">visual evidence of why that is unlikely the case<\/a> by summoning the newly appointed Poloz to his office for a photo-op. The message was clear: Don\u2019t forget who\u2019s boss.<\/p>\n<p>So when I listen to Tkachuk\u2019s attack on Poloz\u2019s credibility, I hear a note of betrayal. If he was objectively concerned that the governor had compromised his independence, the senator would have asked Poloz why he avoided talking about fiscal policy when Harper was in power. For example, <a href=\"https:\/\/twitter.com\/LJKawa\/status\/722449483393540097\">during testimony at the House finance committee in April 2015<\/a>, Conservative member of Parliament Andrew Saxton asked the governor if he would, \u201cexplain the benefits of a balanced budget for the Canadian economy?\u201d Poloz declined, saying \u201cit\u2019s not really our role to comment on fiscal policy.\u201d<\/p>\n<p>We know now that if Poloz had answered that question, he probably would have said that by constricting spending while the economy was weak, the federal government would force the central bank to keep interest rates low, which would in turn cause households to take on more debt. That\u2019s <a href=\"https:\/\/www.bankofcanada.ca\/2016\/06\/staff-discussion-paper-2016-13\/\">the argument Poloz made in a paper he published in June 2016<\/a> and Exhibit A in the case that he is running cover for Trudeau and other deficit spenders.<\/p>\n<p>Randall Bartlett, chief economist at the University of Ottawa\u2019s Institute of Fiscal Studies and Democracy, says Poloz should be consistent; if he opted to bite his tongue before the election, he should continue to do so now. Bartlett doesn\u2019t think the governor is a Liberal flunky; his point is that the inconsistency from one prime minister to the next has created an opening for those who do think Poloz is apologizing for Trudeau to attack the central bank\u2019s neutrality.<\/p>\n<p>I\u2019m unconvinced that asking central bankers to live like monks is the answer. The financial crisis forced them into the public\u2019s consciousness. Traders obsess over every word a central banker utters, and media companies have built business plans around catering to that obsession. Traditionalists can lament the fact that central bankers have become rock stars, but they should accept that Poloz and his peers are like the Rolling Stones \u2014 they won\u2019t be leaving the stage anytime soon.<\/p>\n<p>So rather than encourage the central bank to protect its independence by being less transparent, <a href=\"https:\/\/www.cigionline.org\/articles\/canada-has-discovered-new-way-appoint-central-bankers-it-just-doesnt-know-it-yet\">critics such as Tkachuk should demand a more rigorous selection process that includes a role for the Finance Committee<\/a>. This would dilute the perception that the central bank governor is a puppet of whoever is in power.<\/p>\n<p>And the rest of us need to stop overreacting every time a central banker talks about something other than the Phillips curve. All Poloz has been doing is offering neutral assessments of the economy as he sees it. Some of what he has to say supports government policy, but not always. Another Conservative senator, Betty Unger, asked Poloz to comment on the perception in the oil industry that Canada had become a country that, \u201ccan\u2019t get anything done.\u201d It was a direct reference to the Trudeau government\u2019s inability to overcome provincial resistance to pipelines. Poloz\u2019s response: \u201cWhat I can report is companies are saying things like that to us.\u201d<\/p>\n<p>The Bank of Canada governor didn\u2019t sound all that close to the government at that moment.<\/p>\n<p><em>\u2022 Email: <a href=\"mailto:kcarmichael@nationalpost.com\">kcarmichael@nationalpost.com<\/a> | Twitter: <a href=\"http:\/\/twitter.com\/carmichaelkevin\" class=\"twitter-follow-button\">carmichaelkevin<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Kevin Carmichael: In return for freedom to operate, central bankers are supposed to stay quiet on matters of a political nature &mdash; but that&#8217;s extremely hard to do<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/7681"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=7681"}],"version-history":[{"count":1,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/7681\/revisions"}],"predecessor-version":[{"id":7683,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/7681\/revisions\/7683"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=7681"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=7681"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=7681"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}