Canada Should Prioritize Full Employment over Low Inflation, CAW says
November 17, 2011, 10:00 AM EST
The CAW is calling on the federal government to drop its rigid program of inflation targeting and instead mandate the Bank of Canada to adopt a more flexible system that emphasizes full employment, above all other goals.
CAW Economist Jim Stanford delivered the union's message in a presentation to the House of Commons Standing Committee on Finance on November 15 in Ottawa. Stanford was among a group of private sector economists and academics to address the committee.
Stanford indicated that, in practice, the inflation-targeting system employed by the Bank of Canada since the mid-1990s (steering inflation towards a 2 per cent target) has imposed several unexpected costs on Canada's economy. These unexpected costs include inhibiting price adjustments, increasing the real burden of debts, reducing real tax revenues for governments and growing income inequality.
"Many global economists are now concluding that a two percent inflation target is too low, and has inadvertently contributed to the current crisis of the world economy," Stanford said. "Our national monetary policy is such that maintaining two percent inflation is an end-goal in itself, and overlooks the primary importance of promoting full employment."
Stanford said the federal government and Bank of Canada should have considered the economic issues and evidence more carefully before rushing to extend the existing two per cent target for another five years (a move made on November 8).
"What's most concerning about this move is that it was made before the House of Commons Finance Committee even held one hearing on the matter," Stanford said.
Instead of targeting inflation in its own right, and then assuming the real economy will take care of itself, we would do better to actively enlist the power of monetary policy in our effort to maximize real output, which is in fact the true economic goal," Stanford said.
The full text of Jim's presentation is available online: http://www.caw.ca/en/10730.htm