January 15, 2015


Harper’s man at the BOC

The Tories are counting on Stephen Poloz to help deliver a fall election win


Stephen Harper is one of the country’s shrewdest political strategists in a generation. Polls suggest that Canada’s Prime Minister has a fighting chance to be the first since Wilfred Laurier to pick up a fourth straight mandate. He’ll be counting on Stephen Poloz, governor of the Bank of Canada, to help accomplish that.


The hope is that the Poloz, whom Harper nominated to the post last year, will continue to goose the Canadian economy with low interest rates. This would presumably boost sluggish job creation (according to Statistics Canada 4,300 posts were lost during December) by the time Canadians head to the polls this fall. 


So far, Harper appears to have bet on the right man. Almost five years after the Bank of Canada cut its policy rate to near zero levels, Poloz is making sure it stays there. This despite the fact that sensible monetary policy would involve tightening things up, to provide manoeuvre room should another financial crisis hit. However sanity is sadly lacking in global monetary policy circles these days and Poloz shows no sign of straying from the pack.


An uneasy relationship

The relationship between rich world politicians and central bankers is a tenuous one. Monetary authorities are supposed to be free from the meddling of politicians. Otherwise central bankers would be under enormous pressure to print money all the time. This would make political leaders popular over the short term, but would have disastrous inflationary consequences over the longer haul. 


However those who follow US developments – including many in the Canadian Conservative Party – know what happens when a central bank head takes his job too seriously. For example Alan Greenspan is widely blamed by Republicans for not lowering interest rates fast enough in the early 1990s. This - they say - caused the defeat of George Bush “The Elder” in the 1992 election. 


Vetting central bankers

Knowing that, you can bet that Harper made sure when he nominated Poloz to his new post, that the future Bank of Canada governor was vetted thoroughly. The Tories wanted a man who would keep the money printing presses going full tilt - at least until the day the polls closed.


Because of the supposed independence of central bankers from politics (a view Greenspan describes as “naive”) that is easier said than done.  Once a central bank governor takes his chair, removing him is almost impossible, without putting a huge stain on the process. 


Harper Government staffers would thus have resorted to alternate methods of ensuring Poloz’s political reliability. These would have included reviewing papers that Poloz may have published, his political affiliations and his record at Export Development Canada, his previous gig. Politically it looks like Harper chose well.


That said whether Poloz’s actions will be sufficient to compensate for Tory mismanagement in other areas of the economy, numerous scandals and failings on the defence front, is unclear. How Poloz will defend the hidden and deferred costs of his incitements to Canadians to spend money they don’t have is also a question for another day.


All we know is that so far Harper’s man at the Bank of Canada is delivering the bacon.





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