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Should the Bank of Canada be fighting climate change?


It may not be making many headlines but the Bank of Canada will have a renewed mandate by the end of the year.

Since 1991, the government and the bank have issued a joint statement about the renewal of the bank’s mandate every five years, spelling out its targets until the next renewal. After wide-ranging consultations, it’s a chance for the government and bank officials to weigh up whether the bank’s mandate needs to be broadened, or if it needs more authority in tackling its existing goals around price stability, or if it should carry on with the status quo.

“Past debates about the bank’s mandate have been quiet affairs. Most discussions took place behind closed doors, either at the Bank of Canada or inside the federal Department of Finance,” wrote economists Stephen Gordon and Christopher Ragan, in the Globe and Mail. In a change from previous years, the bank has tried to stoke public interest in its mandate this time.

Canadians won’t know until the joint statement is released by the end of the year but in the meantime, with the bank hoping to encourage debate on the topic, some have argued that our monetary policy should help fight climate change, tackle income inequality, make housing more affordable, or aspire to full employment.

This would take the bank into new territory, beyond its singular focus on inflation and price stability in the Canadian economy, but it’s not completely unheard of. Nearly 50 years ago, the U.S. Federal Reserve was assigned the task of promoting full employment and in Europe, the central bank has promised to pitch in on the climate change fight.

Fighting climate change

Canadians are concerned about climate change and so there has been a recent push for the Bank of Canada to incorporate some kind of climate action into its mandate.

Some proposals are more extreme than others.

In Europe, the central bank recently pledged to incorporate climate change considerations into bond-buying decisions, which is a relatively low-key way to expand its mandate. More extreme proposals from environmentalists would limit quantitative easing bond-purchasing to green bonds or even deny credit to carbon-intensive industries.

John Murray, a former deputy governor of the Bank of Canada, argued at the C.D. Howe Institute that this is a matter for fiscal policy rather than monetary policy and that it’s “not obvious that there is any shortage of other, more effective, instruments with which to pursue green solutions.”

Murray notes that carbon pricing, regulation, and direct subsidies would be far more preferable and would be enacted by elected officials.

It’s clear from public statements, though, that the bank is broadly paying attention to the issue, especially its effect on prices.

The Bank of Canada announced last week during the United Nations climate summit in Glasgow that it will observe how severe weather events could impact prices and will soon release a “how-to guide” on reporting climate risk.

Speaking at the summit in Glasgow, Bank of Canada Deputy Governor Toni Gravelle said he expects to see economic growth slow down due to policies designed to fight climate change, as asset prices in carbon-intensive industries fall.

The labour market

The labour market may represent the most interesting possibility for change because it is already in the scope of the bank’s American counterparts at the Federal Reserve and it seems to have piqued interest in Canada.

It’s also notable because, generally, price stability and full employment are often consistent with each other.

Murray warns, though, that the relationship isn’t perfect and full employment can be tough to track.

“Full employment is not a condition that can actually be observed in real time,” Murray writes. “You can only be sure you have achieved it once you have gone beyond it.”

If policymakers overshoot, then inflation will rise, creating a need for drastic tightening “with unfortunate consequences for the real economy.” In other words, Murray worries that officials could create the very problem they were trying to avoid.

Beata Caranci, chief economist at Toronto-Dominion Bank, told Bloomberg in the summer that she had noticed Bank of Canada officials were much more likely to talk about the labour market than in the past. It could be a sign that a change is in the works, or it could be a sign that bank officials, like most Canadians, are preoccupied with the labour market in the wake of the COVID-19 pandemic.

The bank could also employ a number of subtle ways to put the focus on the labour market, including publishing labour market forecasts, said Caranci.

Income inequality

Income inequality is on the minds of Canadians, with few having much faith in government to tackle the issue and some arguing that central banks should take some of the responsibility for it.

Could that lead to a defensive action by central banks to fix the problem?

Although the idea has been floated, even those who blame central banks for rising income inequality think this is a problem better handled by politicians than bankers.

It’s true that the actions of a central bank in response to a downturn can hit people on the lower end of the income scale because they are most sensitive to rising prices and don’t benefit as much from asset-price appreciation. The nature of monetary policy, though, means that in the reverse scenario when the economy is running hot, people on the lower end tend to benefit and the effects roughly average out.

Murray once again argues that targeted fiscal policy measures would be far more effective for fighting income inequality than tweaking monetary policy on the fly.

Instead, the Bank of Canada should take its independence seriously and focus on fine-tuning its approach to the existing mandate, argues Murray. There are a number of ways to do that, but they won’t make any splashy headlines.

“The bar for any change is exceptionally high,” writes Murray.

The secret to George Will’s success? Decisions based on baseball


If there’s a common thread through the life of George Will, the conservative columnist and intellectual who has been influencing American politics for 50 years, it’s likely the sport of baseball.

Growing up in Champaign, Illinois, Will was an equal distance between Chicago, where the White Sox and Cubs play, and St. Louis, where the Cardinals play.

“At an age too tender to make life-shaping decisions, I had to choose, and I chose the Cubs. All my friends became Cardinals fans and grew up cheerful and liberal. And I became a gloomy conservative,” said Will, in a conversation with David Axelrod.

“Losing is supposed to build character and boy, do I have character,” he said.

In a conversation today with The Hub’s editor-at-large Sean Speer, Will discusses his lonely outpost in American conservative politics after the Trump years, his gradual shift toward stronger libertarianism and, of course, the pennant prospects of the Toronto Blue Jays.

At 80 years old, Will has had a remarkable career in journalism but, without baseball weighing heavily in his decision-making, he may have spent his life as a relatively unremarkable lawyer.

When he had to choose between Harvard Law School and PhD studies at Princeton, Will settled for Princeton because it was midway between two National League baseball cities: Philadelphia and New York. The decision between those two schools was the difference between embarking on a law career and becoming an academic, and it was his eventual career as an academic that brought him to Washington, D.C. and a life as a political writer.

Will’s opinion-writing has earned him a syndicated column, a Pulitzer Prize, and a reputation for erudition. His profile was even large enough in the 1990s to win him a mention on the sitcom Seinfeld, in which Kramer describes him as an attractive man, although admits that he doesn’t “find him all that bright.”

Will taught briefly at the University of Toronto until Gordon Allen, a United States senator and chairman of the Republican policy committee, decided he wanted a Republican academic to write for him.

“It was 1969. There were no Republican academics except me, and I was in Canada,” said Will, in a conversation with David Axelrod.

Will took the job in D.C., almost entirely due to curiosity as a fledgling political scientist, hoping to see how things were done in the real world.

He had planned to go back to Toronto until he accidentally talked himself into a job at National Review magazine, which was becoming a raucous and influential voice on the right. (One wonders if Will would have been more inclined to stay in Toronto if the Toronto Blue Jays baseball team, which was founded in 1977, had arrived on the scene a few years earlier).

In a conversation with the magazine’s founder, William F. Buckley, Will argued that National Review needed a Washington editor.

“Bill essentially said, ‘you’re right I do, and you’re it,'” said Will.

Will started his job in 1973, right in the thick of the Watergate scandal, and his drumbeat of columns criticizing Richard Nixon caused an uproar among the magazine’s readership and donors, so much so that Will noticed that “subscription cancellations and George Will” were essentially the same category in the monthly National Review mail analysis.

In the Donald Trump years, Will led a similar drumbeat against the Republican president, who he argued had a “comprehensive disdain for conservative essentials.” Forty years later, Will was similarly politically homeless and the target of ire from people who had previously considered him an ideological ally.

On the issues, though, he has mostly remained steadfast, although he has leaned more into his libertarian sensibilities and has grown to further appreciate the benefits of the free market.

One of Will’s primary concerns right now is the potential for generational conflict brought about by the “tremendous social achievement” of increased human longevity. With an ageing population, free-spending governments, and entitlement programs that are an ever-increasing part of government budgets, the burden on new generations is rising.

“The elderly are looting the futures of the rising generation,” said Will, in a conversation with Russ Roberts on the EconTalk podcast

In that episode, Roberts paused the episode to marvel at Will’s ability to recall facts and quotations from memory, with no crib notes or notepad in front of him.

“How do you keep track of this? Do you have a technique? Do you have a system? Or do you just have a big brain?” asked Roberts.

“I blame baseball. I grew up memorizing statistics and thinking about Jimmie Foxx. I shudder to think how many of my brain cells are devoted to this. It just sticks,” said Will.