Federal Conservative leadership frontrunner Pierre Poilievre wants to fire the current governor of the Bank of Canada, Tiff Macklem, and replace him with one who will focus like a laser beam on fighting inflation.
He said as much during the all-candidates’ leadership debate on Wednesday, May 10.
There is no evidence Governor Tiff Macklem lacks the will to fully use the instruments at the Bank of Canada’s disposal to bring down inflation.
The Governor raised the Bank’s key lending rate by half a point in April. It was an aggressive move. The Bank usually raises the rate in quarter-point increments.
Because the bank steeply dropped its interest rate during the pandemic, that rate now sits at a mere one per cent, even after the April hike.
But Macklem has indicated he will move that rate up again in June, probably by another half per cent, and will continue raising it until it reaches a range of two to three per cent. Bank economists call that the neutral range, the point at which the Bank’s rate fuels neither inflation nor an economic downturn.
None of these facts matter to Pierre Poilievre.
The Bank’s current anti-inflation posture means nothing to him. He appears to hold a deep grudge over the Bank’s use of what economists call quantitative easing during the economic near meltdown brought on by the pandemic.
Bank and government worked hand-in-hand to head off disaster
When the economy hit the skids as a result of lockdowns necessitated by public health, the federal government intervened with massive income supports of various kinds (including the Canada Emergency Relief Benefit, the CERB), while the Bank of Canada bought up billions in government securities in order to drive down interest rates.
It was a two-pronged approach.
The government put cash in the hands of workers, including gig workers, who suddenly found themselves without income.
For its part, the Bank cut the cost of borrowing to almost zero. That measure allowed businesses which had lost much of their earnings to keep paying their overhead and stay afloat.
Other advanced industrial societies did more or less the same, including the US under Donald Trump. In fact, the Federal Reserve, the US central bank chaired by Trump appointee Jerome Powell, led the world in quantitative easing.
The alternative could well have been a deep depression, reminiscent of the 1930s, marked by massive business failures, steeply rising unemployment, and ballooning poverty.
We are now experiencing high inflation, which has many causes, chief among them supply chain bottlenecks wrought by COVID outbreaks worldwide and the Russian invasion of Ukraine. The latter has driven up the price of fuel, wheat and other essential commodities.
Inflation is a global phenomenon. As an integrated part of the world economy Canada could hardly expect to escape it.
Conservative MP and the party’s onetime finance critic Pierre Poilievre chooses to make Canada’s central bank the exclusive culprit for our inflation.
Early in his career, Poilievre decided he could benefit by attacking neutral and professional public servants – and he has not kicked the habit.
Poilievre targeted the Chief Electoral Officer
When he was Stephen Harper’s minister for democratic reform in 2014 Poilievre took direct aim at the non-partisan Chief Electoral Office and the respected institution he led, Elections Canada.
Poilievre had introduced a series of reforms to the way elections are conducted in Canada called, oxymoronically, the Fair Elections Act.
Among this legislation’s many noxious provisions were limits on the Chief Electoral Officer ‘capacity to communicate with Canadians on most matters, including possible election fraud.
The Act also moved the official responsible for investigating fraud and abuse out of Elections Canada and into an office that reported directly to a (politically partisan) cabinet minister. At the time Poilievre accused the neutral Chief Electoral Officer of “wearing a team jersey”.
It was an unprecedented attack. No cabinet minister of any party had ever before made Elections Canada – an institution respected throughout the world – a political target.
There is more precedent for Poilievre’s frequent attacks on the CBC.
The 1930s Conservative government of RB Bennett created the Canadian Broadcasting Corporation, as a means to get Canadian voices on the radio when the airwaves were flooded with US content.
But for decades the right flank of the Conservative party has delighted in making the public broadcaster a whipping boy.
Poilievre did not get a chance to say it during the debate, but his calls to “defund the CBC” often the get the biggest cheers at his well-attended rallies.
Six decades ago Bank Governor wanted tight money while government wanted stimulus
The last time a federal government tangled with Canada’s central bank was in the period from 1959 to 1961, in what has become known as the Coyne Affair.
Progressive Conservative and prairie populist John Diefenbaker, member of parliament for Prince Alberta, Saskatchewan, was prime minister at the time.
In response to an economic slowdown, his government was pursuing a policy of stimulus, running deficits in order to stimulate growth. The then-Governor of the Bank of Canada, James Coyne, did not approve, and said so bluntly, both in private and in public.
Diefenbaker’s finance minister Donald Fleming wanted Coyne to join the government’s anti-recession efforts by lowering interest rates, but the Governor flatly refused. He believed Canadians were living beyond their means and had to tighten their belts.
In the end, the Progressive Conservative majority in the House of Commons passed a motion declaring the Governor’s position vacant, in effect firing Coyne. The Senate refused to go along, but Coyne resigned nonetheless. Maclean’s magazine made him Man of the Year for 1961.
Poilievre’s case against the current Governor is the opposite of Diefenbaker’s vis-à-vis Coyne. Poilievre has not spelled out his position clearly, but he seems to want the Bank of Canada to focus solely on inflation, regardless of economic circumstances.
If a tanking economy might call for measures to keep businesses going and people employed, that’s none of the Bank’s business, Poilievre seems to be saying.
We can not be sure of Poilievre’s rationale for putting a target on the Bank of Canada Governor’s back. The Conservative frontrunner is more interested in crowd-pleasing rhetoric than the finer points of monetary policy.
The Conservative leadership debate touched on a lot of other subjects, with its strange reality-show format, but Poilievre’s one sentence about the Bank Governor has attracted the most attention.
Fellow leadership candidates, including Jean Charest, Prime Minister Trudeau, and many commentators have pointed out that Poilievre’s attacks could undermine international confidence in Canada’s economic stability.
Poilievre’s ardent supporters do not seem to care. What will voters think?