Canadian Conservative Party candidate Pierre Poalever takes part in a debate at the Canadian Conference on Strong and Free Networks in Ottawa on May 5. BLAIR GABLE / Reuters
In his strong and frequent criticism of the Bank of Canada, Pierre Poalever draws many miles from the way the central bank started the COVID-19 crisis, thinking that deflation, not inflation, would be a major concern for the country. The Conservative candidate has recently called the bank’s think tank “financially illiterate” because it has so wrongly called for inflation.
His serious charge received an even heavier dismissal from former Bank of Canada governor David Dodge in a national television interview Sunday.
“This is nonsense, to be honest,” Mr Dodge told Evan Solomon on CTV’s public relations show. Period of questions.
Dumb, but true.
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Mr Poilievre’s repeated public denigration of the Bank of Canada’s concerns about deflation is a fundamental misunderstanding or misrepresentation of what the bank was actually talking about two years ago.
The bank’s concern about the risk of deflation was not a terrible mistake that set the stage for today’s inflation problem. Rather, it informs policies that protect the economy from a much worse fate and allow a remarkable recovery from one of the worst and most unpredictable economic shocks in history.
“Why would anyone think the Bank of Canada’s concerns about deflation in the early days of the pandemic were a mistake?” Laval University economist Stephen Gordon tweeted this week.
Mr Poilievre is certainly not the only critic who believes the Bank of Canada stumbled into managing inflation threats during the pandemic. He captures and inflates the mood of disappointment with the country’s troubles with inflation and the desire to blame. The central bank, which has the task of maintaining low and stable inflation, is the obvious goal.
For some of the economic detectives inhabiting social media, the bank’s public warnings in 2020 about the risk of deflation are the smoking gun. This is the original sin in a series of inflation mistakes that the bank made throughout the pandemic. This is proof that the bank is turned 180 degrees in the wrong direction.
But the whole premise is wrong. Contrary to what Mr Poilievre has repeatedly argued, the Bank of Canada never “Predicted” or “promised” deflation.
When talking about deflation at the beginning of the pandemic, she openly warned of one of the most serious threats facing the economy at the time. With the cessation of public health, halting economic activity, rising unemployment, businesses facing near-total revenue losses – in fact, inflation has actually turned negative on an annual basis for two months in the spring of 2020 – deflation seemed a very real danger unless governments and central banks take strong measures to prevent it.
Prolonged deflation is a notorious killer of the economy, associated with sending recessions into prolonged depressions. Although the likelihood of a deflationary reversal was difficult to measure in the deep uncertainty of spring 2020, the Bank of Canada knew that among the risks it faced, this one had absolute priority. Was not prediction deflation, he argued monetary policy largely against this deflationary risk to ensure that the country would prevent a major economic catastrophe.
It is always more difficult to trace the cause and effect of things that did not happened than for things that happened. But the fact that the economy did not sink into a deflationary depression, but rather recovered much faster and stronger than anyone imagined from the massive pandemic decline, suggests that the Bank of Canada’s actions were reasonable.
Whether these actions have ultimately contributed to accelerating the inflation we see today – whether they have provided too many economic incentives for too long – is a very different debate. But it is absolutely wrong to assume that inflation is where it is today, because the Bank of Canada believed that the economy would be mired in deflation by now, and it has turned its policy in the wrong direction. He believed and said nothing like that – and he was damn sure it wouldn’t happen.
Mr Poilievre responded to Mr Dodge’s salty comment with a statement on Twitter blaming Bank of Canada policies, along with the huge deficits the federal government had accumulated during the pandemic (financed, Mr Poilievre said, by “printing of “central bank” money), for the plight of Canadians who have been affected by inflation.
“David Dodge says he is offended. All right. Do you know who else is offended? A single mother who can’t afford food, a worker who can’t afford to fill his gas tank, and a 32-year-old boy living in his mother’s basement because the government has inflated the cost of living to high levels of generations. ” , Mr. Poilievre said.
But if the Bank of Canada had ignored the deflationary risks that Mr Poilievre scoffs at, the depression that may have followed would have led to many, many more single mothers struggling to make ends meet; many more unemployed workers with empty gas tanks; many more young adults who cannot find work to pay rent. Today’s high inflation also comes with an abundance of jobs, rising wages and the lowest unemployment rates in 50 years.
“Warning of something bad that could happen, taking steps to make sure the bad thing didn’t happen and then the bad thing it will never happen is a success story. It is the opposite to failure, “said Dr. Gordon.
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