Macro-meddler Mark Carney

This story in yesterday’s Post had Bank of Canada governor Mark Carney putting "politicians, regulators and chief executives on notice ... that he plans to be a more forceful advocate in influencing public policy and market behaviour ...". In a lunch-time address to a Toronto audience last Wednesday, Carney outlined how he planned to expand his role as BoC governor into meddling with how the financial sector does business.

The story had ‘Peter Foster rebuttal’ written all over it:

...What he appears to be advocating is a brand of populist Keynesianism that suggests that banks are "hoarding" money, combined with the much less saleable notion that individuals are doing damage by being similarly prudent.

... Mr. Carney acknowledged the abject failure of central banks, ministries of finance and international financial institutions in predicting current problems, but drew analogies designed to indicate that valuable lessons had been learned.

... said Mr. Carney, "we must develop early-warning systems with precision and with teeth." So much better than aimless gummy gnawing.

... How? By being more macroprudent. Which means? "Put simply," said Mr. Carney, "a macroprudential approach focuses on the forest, not the trees."

... But could it be that the forest-not-the-trees approach is actually a big part of the problem? Could the very Keynesian conceit that policy wonks can work with stratospheric "aggregates" and get above those messy individuals and companies who actually create wealth be a dangerous delusion? Certainly history suggests so.

... the last thing we want is for governments to tell banks where to lend money.

... Keynesian wonks always speak as if they are delivering advice to benevolent despots and philosopher kings, not terminally-expedient and economically-challenged stimulators such as Danny Williams.

... Mr. Carney, typically, wants "more tools." Monetary policy, he admits, is a "blunt instrument," presumably because it has been unsuccessful in promoting imprudent lending and borrowing. So his new tool is … "advocacy!"

... The Bank’s latest Rube Goldberg-ian tool is a Financial Stress Indicator, FSI, which "is now showing record levels of stress." We would never have guessed.

... a forecasting tool, a bit like those wooden balls that spotted future murderers in the Tom Cruise movie Minority Report. This will presumably spot upcoming "thriftcrime."

... Call me a macro-denier, but I can’t help thinking that just as looking after the pennies means that the pounds look after themselves, so micro-prudence is the only genuine form of that modest virtue. But then Keynesianism perpetually seeks to turn common sense on its head.

See also Mr. Foster’s The ugly spectre of ‘new Keynsianism’.

Peter Foster for governor of the BoC!