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Despite Trudeau's shrug, an election should provide an opportunity to discuss monetary policy. It appears likely that monetary policies' emergence as an election topic will be a temporary one. Photo by Kevin Light/Reuters
Article content Justin Trudeau would have been more truthful to answer a question on monetary policy. He would have said that an election campaign is not the right place to discuss complicated issues. His weak answer instead set some circles ablaze.
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Article content Unedit: The question was about the mandate of the Bank of Canada. This mandate expires at the end of the year. The review or extension of the mandate will be the most important economic policy decision you make if you are re-elected. Some talk of the Bank of Canada being allowed to modify its mandate in order to allow it to be more flexible to handle higher inflation and to help the economy more during this difficult time. Are you able to give your opinion on the mandate? Would you be open to a slightly higher tolerance of inflation?
Tap here to view other videos by our team. Refresh your browser or try again. If I have to think about the most important economic policy this government would pursue, I will forgive you if I don't think about monetary policies. It will be clear that I am thinking about my families. In 2015, when we were elected, we raised taxes on the richest one percent to lower the tax burden for the middle class. The Liberal government will invest in support for seniors, students, and families if it is reelected. We are investing in housing because it is wrong that so many people in the Lower Mainland, and across the country, can't afford to buy their first home. These are the policies that will make a difference in our country's growth, in the number of jobs available, and in the opportunities for people to prosper. This is what we will continue to be focused on.
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Article content He claimed that he did not see the Bank of Canada's mandate review as being the most significant economic decision the next government will face. The prime minister added that he was not comfortable with that kind of glibness that even Liberals find irritating. Let's not let this attitude get in the way of the solution. At the end of the year, the mandate of the Bank of Canada from the government will expire. Convention is to reach agreement on new marching orders before time becomes an issue. Governor Tiff Macklem will not be sending his staff home Dec. 31 if this doesn't happen. Although the last update was in October 2016, the mandate remains essentially unchanged since 1991, when the Bank of Canada and Brian Mulroneys government reached an inflation target.
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Article content Not a big deal. It all depends on how you approach it. Paul Martin, the Liberal Prime Minister before Trudeau believed that investment decisions should be based on interest rates and not taxes. The Bank of Canada is the best lever Ottawa can pull to reduce the cost of living. This is not something that any party has been discussing. Any suggestion that monetary policies are something only bond traders or other wealthy people care about is a fabrication. The Bank of Canada has already raised taxes on the richest one percent. Everyone is affected by the benchmark interest rate. What if Trudeau thought that he would have more to worry about than the Bank of Canada's mandate? Because there is nothing to be done. The central bank tested various policy options against computer models that simulate real-life conditions. It found that none of them produce significantly better results than the current strategy, which is to maintain the consumer price index at a rate of around two percent annually.
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Article content. It is probably time to mention that Trudeau was not the only leader of the party who didn't spend much time on monetary policy before the campaign. Conservative leader Erin OToole tweeted it was very troubling that Trudeau didn't think about monetary policies. However, there is no evidence to suggest that he does. In the 160-page policy manual of the Conservatives, the word monetary is not found anywhere. Bank is mentioned 18 times in the 160-page policy book. However, it's never used in conjunction with Canada. It is a technical task that the central bank performs at a great distance from politicians. The governor and his staff engage Finance to ensure that the government is happy with the technocrats' conclusions as they wind down their mandate. Change is a high priority.
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Article content It is clear that the Bank of Canada should do things if there are major parties who feel this way. Macklem has noted that a dual inflation-and-employment mandate did well in computerized trials and that he could decide to recommend such a policy to the government. If one of the parties doesn't like this idea, they should let it be known now. When OToole was pressed on Aug. 19, he stated that the current policy of targeting inflation of 2% should be maintained. Macklem, however, has made it clear that he has great faith in the Bank of Canada's approach to inflation since the early 1990s. Bay Street economists believe the central bank will continue to target inflation in its current way. An election campaign would be a good opportunity to speak out if any party feels it is time for a change. We'll see if they do. However, it appears likely that the emergence of monetary policies as an election issue is a temporary one. Trudeau did not receive any follow-up questions about the topic on August 19. At least, the press corps had decided there were bigger and more important topics to discuss. Email: kcarmichael@postmedia.com | Twitter:carmichaelkevin
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