Categories
Financial security Governance Monetary policy

Is Canadian housing price inflation an intended policy outcome?

Bank_of_Canada

During the press conference following the Bank of Canada (BoC) July 2014 Monetary Policy Report, bank governor Stephen Poloz was asked whether the Bank was making up excuses – likely in response to his “serial disappointment” remark – to avoid raising its target rate. A lower rate benefits the federal government in a number of ways, primarily by lowering its debt servicing and public spending costs. However, the dangers of an extended period of low interest rates include excessive household debt accumulation, particularly mortgage debt.

But what if the BoC views excessive housing price inflation as a key economic driver – and that view is affecting its policy rate decision?

Categories
Employment Financial security Governance Immigration Justice Race and ethnicity

Why Canada avoids asking about race, and why that’s a problem

Making waves in his first speech after taking office in 2009, outgoing US Attorney General Eric Holder then described his country as a “nation of cowards” afraid to confront racial issues. While the US had made remarkable progress on civil rights in the latter half of the twentieth century, election of a biracial president aside, there’s evidence to suggest it has recently regressed. There are anecdotes, like recent incidents in Detroit, Michigan and Ferguson, Missouri. But there are also race-based statistics collected, compiled and published by various US government agencies, from Justice to Labor to even the Federal Reserve.

If fear of confronting race is cowardice, what does one call fear of even asking about it? Because that’s where Canada is at the moment.

Categories
Financial security Housing Monetary policy

Canada’s housing price stats likely contributed to inflating bubble

Chart 1 Statistics Canada,Bank of Canada and Teranet-National Bank housing price indices
Chart 1 Statistics Canada , Bank of Canada and Teranet-National Bank housing price indexes

At the July 2014 Monetary Policy Report (MPR) press conference, Bank of Canada Governor Stephen Poloz announced the Bank would be keeping its policy rate in “neutral” for the foreseeable future. While introducing a new catchphrase – “serial disappointment” – the MPR report and the Bank governor’s comments gave short shrift to the over-heated Canadian housing market, which continues to be fuelled by historically low interest rates. Despite conceding “particularly strong” price growth over the past year and “near record-high house prices and debt levels,” the Bank insists housing is in for a “soft landing”.

While the lack of housing market information has been a popular topic of late, a closer look at the little available info on housing prices may shed some light on why the Bank has downplayed rising home prices, and why if or when the housing bust happens the Bank will say it didn’t see it coming.

Categories
Employment Financial security Governance Taxation Trade and investment

r > g: ‘Capital in the Twenty-First Century’, meet ‘Kapital’ of the nineteenth century

Kapital_titelCapital_titre

One can’t have an economics page without commenting on this book, apparently. Its recently published English edition, Capital in the Twenty-First Century, was a US best-seller – a remarkable feat for a hefty econ tome.

For those who haven’t read it and/or have no intention of doing so, The Economist has taken to reviewing it in parts (of which there are four) for subscribers. It’s that important. The critique of Capital‘s conclusion is noteworthy:

 If the most likely outcome of the trends Mr Piketty describes is that somewhere down the line a left-of-centre government is elected and passes higher top income-tax rates, higher estate-tax rates and pension reforms, and that defuses the crisis, well, that puts the rest of the book in perspective. If the most likely outcome is revolution, well, that does too. And while it would be absurd to expect Mr Piketty to say definitely whether one possibility or another is bound to occur, I don’t think it’s asking too much, given the ambition of the rest of the book, to think we ought to be given some sense of his view on how social and political movements generally evolve in response to widening inequality, and how that evolution tends to be reflected in policy. What good is it to suggest utopian ideas about how to fix these problems without at least gesturing toward the political mechanisms needed to bring them about?

The topic of capital and wealth distribution precludes separating the political from the economic analysis – which, ironically, is the point of contention between Capital and Kapital. As Marx succinctly put it (prior to Kapital): Although theoretically the former is superior to the latter, in actual fact politics has become the serf of financial power.

In noting that the post-World-War periods during which income inequality declined were an aberration rather than proof that capitalism (as we’ve come to know it) optimally (re)distributes wealth, Piketty effectively supports Marx’s central premise that it doesn’t.

And it’s not just Piketty who (despite not conceding the point) has recently come to the uncomfortable realisation perhaps Marx was right.

However, Piketty (among others) ignores the obvious correlation between capital ownership and political influence by suggesting policy makers can address widening inequality by simply hiking taxes on capital wealth. Bill C-23, the Canadian ‘Fair’ Elections Act, and related recent events in the US speak to the obvious omission.

Picketty also ignores capital flight, a problem his home country of France faced only a few short years ago. And that was before it elected a Socialist government and a famed French actor made it headline news.