this post was submitted on 12 Jul 2023
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Bank of Canada is only following the current leading economic theories such as Countercyclical Monetary Policy . The issue is that economic theories change with technology and advancements. There's an argument to be made that the prevailing theories from the early 2000s no longer apply, but what is the alternative?
The government has other levers on inflation that the BOC does not. If they were using them, there would be less pressure on the BOC to use their one lever. The government has a choice of levers that impact different people differently, and could help spread out the pain, like corporate tax rates, and passing laws that effect property tax calculations for investment properties.
Governments. Both federal and provincial governments can manage corporate tax rates, and both provincial and municipal governments can manage property tax rates.
But each of these governments serve the will of the people, and all three governments ultimately serve the very same people. Good luck convincing the people that they should willing choose to pay higher taxes.
Yes, I should absolutely be more precise. All levels of government have levers they can use here. Though, Municipalities are mostly just trying to keep their heads above water without having tent cities or crumbling roads. They don't have a lot of bandwidth to think about their effect on inflation. Certainly, the provincial governments have plenty of power to do something.
So this to me is the biggest problem when it comes to fiscal policy. During recessions, central banks reduce interest rates AND increase money supply in order to stimulate the economy. Governments HAVE to do their part by increasing spending but over the last 3 decades, government spendings have NOT matched the actions of the BOC in proportion. Spending needs to be immediate, and not some delayed project that takes 5 years to implement. Sub point to this is that government investment programs need to be counter-cyclical as much as possible (i.e. Chinese gov'ts massive spending during the last global downturn in infrastructure). And during inflationary times, governments need to reduce or restrain spending, and enact policies that remove supply constraints in essential goods like housing.
The BIGGEST issue we've had in the past 30-40 years has been the former - central banks having to act alone to resuscitate the economies without governments doing their part. Which has led to a successive cycle of cheap money-led boom and bust that's brought interest rates lower and lower which has fueled the wealth divide that's brought about the social inequities and class divide we have today.
Unfortunately, I don't see it ending soon.
@RandAlThor @kyr7x What would be the solution(s)?
A government willing to go into debt with public spending? Cut off corporate subsidies and allocate the increased revenue to new technology businesses to reduce the risk involved in trying something different?