Economic policies missing the mark

Let’s apply a little common sense to macro economic policy.

The latest hike to the Bank of Canada rate is a full percentage point with the express purpose of decreasing demand to battle inflation. It’s the largest increase in decades and more increases are expected. While some boost to interest rates is reasonable given how low they’ve been for so long, will this actually cool inflation?

Is it really excess demand driving up the cost of living? Or is it supply chain disruptions, transportation bottlenecks, the war in Ukraine and a lack of workers? If the latter points are the main reasons, an increased cost of borrowing won’t do much to solve inflation.

The billions poured into Covid supports and the federal government’s disregard for ballooning deficits has no doubt had an effect on inflation and the feds show few signs of curbing their out- of-control spending. Instead, interest rate increases are supposed to wrestle inflation to the ground.

With inflation occurring in nations around the world, it won’t be possible to insulate Canada. Higher interest rates should cool Canada’s overheated housing market, but it’s hard to see how the policy will have much of an effect on the general economy.

Will higher interest rates make fertilizer, crop protection products and equipment parts any less expensive? I don’t think so.

Out of the blue, the feds increased the level of interest free cash advances for producers. Small to medium-sized producers won’t see much benefit because the value of their inventory often isn’t high enough to access the increase. Raising the limit wasn’t something requested by farm groups, so it’s a rather surprising development.

Will more interest free money contribute to even more inflation of farm input costs? Probably not. That’s the other side of the logic regarding the efficacy of interest rate increases.

Another macro economic policy is the carbon tax. It’s supposed to make fuel more expensive thereby encouraging less use and the adoption of alternatives. As fuel prices have escalated with carbon taxes on top of that, calls have intensified to provide relief for consumers.

Ironically, even many of the environmental zealots that support the carbon tax are now calling for governments to make fuel less expensive. Obviously, public opinion trumps policy objectives.

As farmers, we’re exempt on carbon taxes for most of our fuel, but it gets us in numerous other ways from grain transportation to the manufacturing of fertilizer. What policy benefit is being derived from this extra cost?

The feds love doling out cash to specific green ag projects and pretending that their Living Labs initiative is somehow going to uncover carbon secrets we don’t already know. What’s missing is any overall widely-available policy initiative that might actually make a difference.

Macro economic policy matters. Just look at Sri Lanka where in addition to corruption, the ban on synthetic fertilizer and agricultural chemicals has produced an economic collapse. Or look at Holland where tens of thousands of Dutch farmers are protesting government plans to dramatically scale back an agriculture industry that has been extremely successful.

All of Europe is heading the same direction with their Farm to Fork initiative. In Canada, the clearest manifestation is the aspiration to cut fertilizer emissions by 30 per cent.

When people have trouble affording food, the platitudes about cutting carbon emissions ring rather hollow. In less fortunate nations, policies can lead to hunger.

Macro economic policy needs more common sense so that it can actually meet objectives.