Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Thursday, January 21, 2016

Governor Poloz’s advice: You, not my bank, must change (Part 3)

Let’s agree that after 45 years of official indifference it’s time for our elected representatives and their agentthe Bank of Canadato acknowledge that the dollar’s exchange price is a public responsibility, not strictly a market responsibility. It’s time they set aside some of their busy, busy work for a big-policy deliberation. It being 2016, however, we can’t just leave them free and naked to think on their own.

After decades of official silence, what might the government say about the dollar’s value? In the spirit of incrementalism, here are three positions of escalating significance and consequence. All would aim to influence the government’s overall fiscal and monetary choices, how we and the market judge those choices.

Hopefully, they would enhance our credibility and bolster our purchasing power on this continent and globally:

1. Make a ‘Strong Dollar’ Declaration of Intent:

This would go well beyond in-camera meetings with government officials and public lectures by retired bank governor David Dodge. New York, London and Davos bankers wouldn’t be the primary audience. Canadians would be told that the bank governor, the PM and the minister of finance declare that their policies and economic vision will support a strong dollar, not rely on a cheap one. 

Along with full employment, structurally balanced budgets and stable prices, the government would accept that a stronger dollar must also be a public objective. A stronger dollar would be a tangible benchmark for consideration in the next election, as well as a benchmark in the bank governor’s and economic minister’s performance contracts. If Poloz isn’t enthusiastic, someone else should have the job.  

2. Pick a Number between 80 and 85 cents:

Instead of holding interest rates below those set by the US Federal Reserve, the Bank of Canada could intervene to hurry up the dollar’s recovery. Going back to at least 80 to 85 cents against the US dollar would provide immediate relief to consumers and place a transparent government performance test on the table. Those economists who so blithely argue that we can carry a $30-billion federal deficit should agree that the bank has the resources and credibility to defend a modest exchange rate target. It was pegged at 92.5+/-cents through the 60s when the Pearson Government created the CPP and Medicare, and negotiated the popular free trade Auto Pact with the US.

A value of 85 cents US would be a stretch for our least-cost-competitive industries. It would say, effectively, that if you can’t adjust, get into another line of business; ask for help, if need be, but stop expecting everyone else to stay 30% poorer. The bank would only have to intervene significantly in the currency markets if the government failed to secure the public and the market’s trust that it can govern within its means.

3. Make Getting Back to Parity a Medium-Term Objective:

The basic factors of production up hereworker skills, population age, public infrastructure, access to money, reputation for competent public administration and respect for individuals and property, urban density and global brandmake our growing-increasingly-diversified regions competitive with America’s own regional champions.

There is no security or excuse for perpetuating, as public policy, a currency below par. As they say: It’s not who we are.

All three proposals I sketched out would aim to take advantage, not alter who we are: a series of economic regions chasing the same material and social goals Janet Yellen’s US Federal Reserve is trying to serve. Yes, Canadian monetary policy (interest rates and money supply) and stabilization policy (government expenditures, taxes and deficits) would have to be in harmony with Washington policy.

Acknowledging that would still allow us to debate the underlying issue: Do we maximize who we are nowa capitalist satellite of the US and its Dream—or do we want to build another vision, be a more centralized social democracy or good ol fashion isolation.

But the status quo deserves better than a 70-cent dollar.

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