this post was submitted on 07 Jul 2023
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Why not just raise taxes, then?
I think that would be a better signal. After all, the poor who drive consumer inflation aren't given loans and thus don't feel interest rates directly. Interest rates only directly impact the rich who can shoulder increases for quite a while. And only after they've been feeling the pinch for a while will they start to cut spending where the poor are found. It might work eventually, but it is not a quick fix. Taxes can directly impact even the poorest among us right away.
But, of course, the whole reason the central bank assumed the inflation target mandate is because tax increases don't sit well with the people. It is easier to have a "We tried nothing and we are all out of ideas. It is the central bank's problem now." scapegoat in the BoC. Giving them some control over taxes would defeat the purpose of them having the inflation target mandate (a mandate that only goes back to the 1990s).
That said, the BoC has a quantitative tightening lever they can use, in much the same way taxes could be used, to reduce liquidity. They are actively using this lever. Interest rates are not the only knob they have.
Because it’s politically unpopular despite being good fiscal policy. Give some control to the central bank, who aren’t beholden to angry voters.
I still don't follow the logic. If people want higher taxes to combat inflation, they can simply raise taxes. If they don't want higher taxes to combat inflation, why would they give power to the BoC to raise taxes to combat inflation?
Because people don’t want higher taxes. Raising taxes is always politically unpopular even if for a valid reason. Politicians often do the opposite, e.g Trudeaus grocery rebate just puts more money into circulation and contributes to inflation. The BoC can operate autonomously from the federal government and could conceivably raise taxes when a politician would not have the political capital to do so.
I still don't follow. The BoC cannot be given such powers without the people's approval. If the people don't want higher taxes, why would the very same people accept handing control to the BoC to raise taxes?
Do you foresee a small group of people at the BoC overthrowing our democracy? Like, how are they going to magically get this power? Will they swindle us under the guise of "Trust us. If we control taxes we will never raise them!" and the people will be none the wiser of their true intentions until it is too late?
Okay, so first of all, they currently have the power to raise and lower interest rates without the people’s approval. This isn’t some undemocratic seizure of power.
Secondly, I don’t think they should have carte blanche to raise and lower every tax. It could be within some range of the federally set tax rate, e.g 2.5 points above or below.
It’s merely an idea, as people often complain about the BoC only having “one lever”.
The BoC was created by the will of the people to be, just as it continues to be, a bank (to the banks). Of course it is going to raise and lower its interest rates, just like every other bank. That's what banks do. There was no need to seize power because the public explicitly wanted this bank to exist and for it to function as such.
It is told that the public does not want taxes to be raised. Why would those same people then give power to the BoC to raise taxes? The wanted a bank. They do not want higher taxes.
Trying to loosen the direct influence of democratically elected officials from certain types of decisions isn't a bug, it's a feature.
Politicians run popularity contests, and often time politically popular positions aren't actually very good.
For example, taxes are universally unpopular, and so even though often times targeted taxes are actually the best answer, politicians won't because it may PERSONALLY cost them thier jobs.
It's similar to why we have an independent judiciary. Mob justice and the court of public opinion would rule otherwise. Insulating judges from elections is good.
You can actually see an unfortunate bleed over between justice and democracy in US counties with elected sheriffs. Arresting 'certain types' of people is more popular among the electorate than others, and I'll let you come to your own conclusions to what type of systemic issues that incentivized.
The BoC has a job, there are metrics to it's success, and when they aren't being met there are mechanics to shake it up.
I don't see these types of bodies existing at arm's reach from elected officials as a threat to democracy... I actually see them as protecting democracy from itself. It terrifies me that someone like Danielle Smith could ever have the official jurisdiction to direct a judge or central bank rates. We need adults who are prepared to make expert decisions in these positions who can make them, even when they're unpopular, without fear of losing their jobs.
I still don't follow. Again, what would compel the people to give these bodies power over taxes when you say that taxes are universally unpopular?
In a similar vein, murder is universally unpopular, but then to think that the people will give power to the police to kill whoever they want, no questions asked... Why would they do that?
It is not undemocratic when done democratically, but you have failed to fill in the missing link that explains why the democracy would approve of such a thing. Without that, it very much would require a undemocratic seizure of power to make happen.