The Federal Reserve‘s obsession with imminent inflation – for once I agree with President Trump

President Donald Trump has done and said many negative things in the policy realm that I strongly disagree with. But on the subject of the Fed policy of restoring higher interest rates because of the supposed threat of inflation,  I must say I believe that the Fed is following the wrong policy.

It is  based on an out of date theory and President Trump is largely correct to criticize the Fed for prematurely raising the rates because of misperceived expectations about inflation automatically increasing as lower unemployment prevails for an extended period of time. It is true that the Fed has raised rates by very small amounts in an effort to return to what it calls more normal rates of interest. But its also true that that it appears to base its decision on a variant of the natural rate of unemployment and the old Wicksellian argument about the natural rate of interest. But this ignores or misunderstands and under appreciates the enormous impact of the crash of 2008 and the sharp rise in unemployment and banking fraud that followed it. Friedman‘s old argument which was based on monetarist orthodoxy has been disproven by the history of the past decade. This doesn’t mean inflation can never be a problem. But it does mean that we can expect that inflationary expectations are much less likely than in previous decades. The punch bowl of low interest rate stimulus can be left on the table somewhat longer. Furthermore the era of the revolution in information technology, developments in the energy industries and the rising educational levels of the population all contribute to keeping price rise disciplined except in special markets like real estate where the supply of stocks are constrained. There needs to be a wide ranging debate of these kind of issues and President Trump is correct to raise them. See my 2004 Adelphi University paper presentation to the Conference on Social Policy. It is posted on this web site on September 19, 2011.



Paper presented to the Conference on Social Policy as if People Matter, Adelphi

University , Garden City , New York, Nov.12, 2004. Many thanks to Helen Ginsburg and Trudy Goldberg for their kindness in including me in this very interesting conference.This paper is also a preliminary version of a chapter in my forthcoming book.


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CAQ Sweeps to Victory with an unexpected decisive large majority in Quebec election

Once again the polls were inaccurate. The vote for the CAQ was much larger than predicted, 1.4 million votes and 37.7 % of the vote while the Liberal vote collapsed to an historic low level of just over one million votes and just 24.8 % of the vote. Given the perverse undemocratic nature of the  first past the post voting system the Liberals were reduced to 32 seats and the CAQ captured more than double that number, 74 seats. The Quebec Solidaire received 16.1% of the vote and 10 seats in the National Assembly – just 8 % of the seats, the PQ 17.1 % of the vote but only 9 seats -7.2 % of the seats. Under a proportional system the CAQ would have received 47 seats, the Liberals 31 seats, the PQ 21 seats and Quebec Solidaire 19 seats.  Instead the CAQ with a minority of the votes command a four year majority mandate.

Voter turnout was an unimpressive 66.7 % . Once again austerity as a policy was shown to be a bad political losing strategy as well as I have argued for decades a damaging and irrational policy. We shall see how much difficulty for federalism and the state of human rights and democracy the dramatic CAQ victory delivers. But clearly a more sophisticated and progressive debt management strategy might have avoided the political debacle that was delivered by the Liberal party Austerians. Perhaps out of the wreckage a new progressive realignment of  political alliances might emerge. But then again it may not and we will simply suffer repeating the mistakes of history .

Update on the results . Elections Quebec states the results as follows.

CAQ 37.4% of the vote,  74 seats with 1,509,428 votes.

PLQ 24.8 % of the vote, 32 seats with 1,001,148 votes.

QS 16.1 % of vote, 10 seats with 649,488 votes.

PQ 17.0 % of the vote 9 seats 649,488 votes

Greens PV 1.7 % , 0 seats 67,870 votes.

Conservative party 1.5 % of the vote, 0 seats 59,053 votes

NDPQ 0.57% of the vote, 0 seats , 22,863 votes.


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Quebec election English language debate no clear winner but debate is substantive , some sharp differences emerge.

The party leaders all acquitted themselves reasonably well given the challenge of debating in English the complex problems and challenges that Quebec faces.This was more difficult for Manon Massé,the representative of Quebec Solidaire and perhaps, also at times a bit for Francois Legault.  It was revealing how the parties differed on key issues like assuring that the public sector properly reflects the minority composition of contemporary Quebec. Here the position of Massé and Lisée was notably better than that of Legault or Couillard.

Once again the issue of immigration to Quebec loomed large in a portion of the debate. Here the position of the CAQ despite Legault ’ s attempt to moderate it and explain it still remains offensive and factually impossible to implement creating a hard border between Quebec and the rest of Canada and an inevitable clash in the courts. The CAQ leader and the PQ leader had sharp effective attacks against the Liberal leader for the damaging cuts in spending they  had implemented. Legault scored well when he pointed out cutting services for children with learning difficulties and autism to balance the budget was unacceptable.The Liberal austerity obsession had inflicted damage on many vulnerable people. But Legault had no defence when it was pointed out by Couillard and the other leaders that his proposed tax cuts would undermine comparable health and education programs in the future.

There was also a good subsection of the debate which focused on the environment and climate change and the future role of hydro electricity in the province but no mention of the damage that these projects potentially could have and have had on indigenous peoples. It is difficult to argue that anyone will change their vote but it may well make people think carefully about whom they cast their vote for and which party will do the least damage in government. The CBC  poll tracker still shows the CAQ in the lead by a significant margin,  31.8 % to the Liberals 28.5% with the PQ at 21 % and Quebec Solidaire now at 14.5 % but the gap may narrow further in the coming week as voters begin to pay greater attention after the debates.There is a growing possibility of a minority government in which case the smaller nationalist but progressive parties will be in play perhaps forcing them to co-operate with progressive  federalists in the Liberal camp or reactionaries in the nationalist CAQ camp.

Hopefully anti -immigrant dog whistle politics will not play any role in the final weeks.

(The latest poll tracker numbers as of September 20th show a virtual dead heat between the CAQ at 30.9 % and the Liberals at 30.6 % The PQ are at 20.3 % and Quebec Solidaire at 14.4% with others at 3.8%.In predominantly French speaking areas the CAQ have a much bigger lead  36 % to 18 % for the Liberals with the PQ running second while the Liberals are stronger in multicultural and anglophone areas, particularly in metropolitan Montreal.The left wing nationalist party Quebec Solidaire is very popular among the 25 and under age cohort)



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The Notwithstanding clause comes back to haunt us just as Pierre Trudeau warned it would. Ontario Premier Ford says he intends to use it to overcome a Superior court decision declaring his restructuring of Toronto city council in the midst of an election violates the charter of rights.

The increasingly clear indication from Ontario’s new right wing government is that it leans in. a very partisan disruptive direction and shows little respect for democratic rights and freedoms. It is nothing less than demagogic to argue the government is advancing democracy by making drastic changes in the composition of the council by cutting the number of seats in half in the middle of an election campaign. It adds insult to injury to claim that this was mandated by the outcome of the provincial  election since his drastic  plan was never revealed in any detail nor highlighted during the election. As Judge  Edward Belobaba stated his action crossed the line and violated charter rights of freedom of expression in the section of the charter on fundamental freedoms.

.Furthermore it might well encourage Quebec again to use similar methods with respect to charter rights in the near future. This could only exacerbate federal tensions in the future as well as threaten the status of minorities. Pierre Trudeau as prime minister well understood the pitfalls of the notwithstanding clause in a political culture where authoritarian political tendencies were not uncommon. He and many others had witnessed such behaviour in Quebec and Ontario during the 1940s and 1950s . The most notorious was Quebec’s padlock law which he,  Frank Scott and their allies in the union movement  had fought against over many years. It is a return to the darkness of those days that we must avoid in these difficult days where authoritarian politics has been gaining ground.

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Long term consequences of a lopsided trade deal need to be carefully evaluated

It s now more than thirty years ago on October 4th 1987 that Canada ,under the direction of the then Conservative prime minister Brian Mulroney , agreed to a free trade agreement with the United States. In doing so it abandoned a near century old position that after the failure of reciprocity under Prime Minister Wilfred Laurier,  Canada had adhered to  the independent economic and social development of a separate Canadian vision of the northern half of North America .  We built a very successful , not without imperfections and some failures, nation state that we now identify as a precious contribution to democratic diversity. We did so through creative federalism and co-operative compromise. The Canadian federation  has protected and nurtured a linguistic partnership of two of the western world’s great cultural communities with immigrants drawn from all over the world building the nation and the nations within.


At the time of this original agreement which over time developed into NAFTA there were many critical voices in the intellectual community and in the national Liberal party and the social democratic New Democratic Party that warned the agreement in the long run might threaten both the prosperity and the ethical values of an independent Canada. Trade liberalization is not two dimensional winners versus losers. It is , if is to be successful, mutually nurturing as well as enhancing freedoms and prosperity. Like any serious relationship it must not be rushed into under the pressure of circumstance. It is complex not simple. There is in this era of globalization much to be debated.The Canadians need to resist the pressure to sign immediately onto an agreement that has already been established without their participation on terms that may turn out to be very unattractive in the years to come. There are domestic political considerations as well as federal considerations and not just economic ones that need to be weighed in the balance. We must not forget that energy self sufficiency is an asset and not a burden. Trade diversification on better terms is also possible.

Canada is a vast storehouse of resources both natural and human that will grow in value over the coming years. We need to be mindful of these facts in the days to come.

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Energy price rises due to tax increases, tariffs and price distorting power of oil cartel not a measure of true inflation

A number of Canadian analysts have responded to the news that Canadian “inflation” has risen to 2.5 % a level above the Bank of Canada’s target rate of 2 % as a justification for arguing that the central bank ought to continue to raise the rates. But how credible is that policy advice?  If we look more deeply at the data we discover that almost all of the rise in prices is due to tax hikes and the actions of the oil cartel. Given this fact it makes no sense to argue that core inflation has risen to above a key trigger point. Furthermore given the negative trade atmosphere it makes even less sense that we should approve of slowing economic growth and risk a recession to fight a mythical policy and cartel induced rise in prices. It’s time for a serious rethink of NAIRU based monetary policy. In my view a similar argument is applicable in the US debate over monetary policy.

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Bank of Canada Raises interest rates again : No sign of inflation and danger of trade war slowing growth Underestimated in its Decision

Once again the central bank operating as it does with a Friedman based Nairu perspective with respect to inflation has mistakenly raised the overnight lending rate. This is an inappropriate response to the emerging trade war and likely recession promoting circumstances implicit in the delay to settling a renewal of NAFTA and the general hostile attitude to free trade among leading political circles in the U.S. In such an atmosphere it seems unwise to withdraw stimulus from the economy and argue that we ought not to lower the unemployment rate further in the current non inflationary environment. If tariffs cause prices to rise this is not inflation appropriate to treatment by tighter monetary policy. In the months to come we shall see what the consequences will be.

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