How About Monetary Policy?

Today’s Toronto Star features an op-ed by John Cartwright, President of the Toronto and York Region Labour Council. (I once had the chance to hear John speak at a press conference in Toronto and found him to be an oustanding public speaker.  But I digress…)

In the piece, he argues that “we” (I think he means both the Harper government and the McGuinty government) should cancel “the outrageous corporate tax cuts and [invest] in vital public services instead.”

I don’t disagree with John.  Personally, I have a long list of things I’d like to see more public spending on (i.e. child care, non-profit housing, income support, public transit, student financial aid, etc.).  Moreover, it’s my understanding that, in the eight years of the Harris/Eves government, so many tax cuts had been implemented that the McGuinty government was left with roughly $18 billion in reduced annual fiscal capacity compared to when Harris came to power in 1995.  Moreover, my understanding is that the corresponding figure for the federal government, after the Chretien/Martin years, was in the ballpark of $50 billion annually.  I’m no expert in optimal tax rates, but it certainly sounds reasonable to suggest that tax rates (both personal and corporate) could increase.

What troubles me about John’s op-ed, however, is that it ignores monetary policy.  I often get the impression that important voices among Canada’s left are reluctant to stress the importance of maintaining (after a recession) very low real interest rates over the long term.  As long as the overall size of Canada’s economy increases faster over the long term than the size of our debt, why do we have to get our knickers in a knot over the deficit?

And if such an attitude sounds unthinkable politically, let me ask this question:  how many commentators would have predicted two years ago that a Stephen Harper minority government would be able to have a $56-billion-dollar deficit and still maintain a comfortable lead in the polls?


  • I agree about the importance of monetary policy Nick, and have written a piece on called the Bank of Canada Blows It about the recent hike in rates. I am not sure the recession is over; if it is, it has been replaced by stagnation.

  • I agree that monetary policy is very important. I often address it on this blog and in the mainstream media.

    However, Nick should not be troubled by John Cartwright’s op-ed. John makes a compelling case against corporate tax cuts (maybe I am biassed because he cites me).

    It would have been pretty difficult to also tackle monetary policy in the same piece. It is not a matter of ignoring monetary policy, but of being unable to cover everything in a single op-ed.

    John explicitly addresses both federal politics and Ontario provincial politics. The latter has no potential to change monetary policy.

    Perhaps the left should put greater emphasis on monetary policy at the federal level. But we also need to advocate coherent fiscal policies at the provincial level.

  • Well, low interest rates for longer than the Canadian central bank seems willing to maintain them. But after a certain point, how to put it . . . low interest rates are good, but my support for them would be contingent on a lot of regulation both in the financial and real estate spheres and ideally a Tobin tax. Low interest rates aid and abet bubbles, that’s one of the reasons we got into this economic mess in the first place. Before we stimulate the economy with low interest past a certain point, I want to see measures in place to push that easy money into the productive economy instead of all the destructive con-games it normally gets funneled into nowadays.

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