Confusion Over Monetary Policy
It’s always been my understanding thatÂ left-of-centre economists, on the whole, like it when real interest rates are low (but not negative).Â Among other things, this encourages more companies to borrow (and hire more workers), reduces unemployment, reduces debt-servicing costsÂ for government, and increases the power of labour.
In July of this year, I blogged over my concern that “important voicesÂ among Canadaâ€™s left are reluctant to stress the importance of maintaining (after a recession) very low real interest rates over the long term.”
More recently, I’m both concerned and puzzled to see a progressive economist implicitly argue in favour of raising interest rates in Canada.Â In his column in today’s Toronto Star, Tom Walkom writes:
Record low Canadian interest rates â€” another offshoot of U.S. attempts to devalue its currency â€” penalize those trying to live on their savings and, at the same time, encourage housing prices to career out of control.
Tom stops short of overtly advocating in favour of higher interest rates, andÂ the entire column is certainly worth the read.Â But his negative spin on low interest rates takes me very much by surprise.
Nick Falvo is a Calgary-based research consultant. He has a PhD in public policy.