Nov. 30, 2005
The current strategy of Canada and most G7 countries appears to focus on trade as the engine of growth of the domestic economy.
This can be analysed by using the conventional Keynesian and neo-classical macro-economic equation of
C+ I + G-T + X-M = GDP. where C is consumption, I is investment, G is government expenditures, T is tax revenures and X is exports and M imports. Currently the Government of Canada is running a budgetary surplus. This means that G-T is negative.
To offset this the Government is counting on exports X to exceed M imports and for investment I to be larger because they believe that a surplus guarantees low interest rates because they believe in the theory of loanable funds. Lower rates means higher I investment and therefore the combination of higher I and a booming export industry translates into faster economic growth and lower unemployment.
But what if the Bank of Canada does not co-operate and raises interest rates?
Look what happens. A rate rise leads to less investment, that is I declines and higher rates mean a stronger Canadian dollar. A stronger Canadian dollar in the absence of offsetting gains in productivity through increased use of technology or lower wages means less competitive exports and the gap between X and M diminishing. All of this adds up to slower growth and not as big a rise in the GDP.
Now if the surplus is used to retire outstanding debt the return of funds to bondholders may offset some of the pressure of rate rise but it also complicates the problem of translating these returned savings no longer in asset form but in cash form into investments. At the same time taxes which exceed spending subtracts purchasing power from the economy. So the strategy of putting too many eggs into the export led growth strategy without at the same time ensuring a supportive fiscal and monetary policy could backfire. That is why the tax cuts and the new program expenditures are so important. More on this in future blogs.
Sunday, September 19, 2010
The German economic dilemma
Nov. 23, 2005
The recently formed grand coalition between the SDP and Mrs.Merkel's Christian Democrats faces a major dilemma. The Merkel Conservatives would like to impose neo-con style reforms of the labour market practices and the welfare state in Germany.
Most of these are wisely resisted by the SDP. But the SDP has agreed to significant tax increases. Tax increases when the unemployment rate is above 11% are not a smart idea. Coupled with the dogmatic monetarism and tight money policies of the European central bank the result is likely to be higher not lower unemployment.
The European central bank needs a major overhaul and rethink of its strict monetary targeting. The rigid anti-deficit rule that prevails in the European Union also needs to be reformed. Its not possible to fight dangerously high unemployment with both the fiscal and the monetary hand tied behind your back.I wonder how long it will be before either the Christian Democrats or their SDP partners wake up to this reality?
Labour market clearing strategies that rely upon the neo-Keynesian doctrine of rigidities explaining why general equilibrium does not always hold sometimes are useful. But this time in Germany they are too close to the classical laissez-faire economic doctrine of the 1930s that insisted despite enormous evidence to the contrary that unemployment was due to rigidities rather than inadequate aggregate demand.
The European central bank and the resistance to using budget deficits to stimulate are the true culprits. Lets hope the political leadership in Germany comes to realize this soon.
The recently formed grand coalition between the SDP and Mrs.Merkel's Christian Democrats faces a major dilemma. The Merkel Conservatives would like to impose neo-con style reforms of the labour market practices and the welfare state in Germany.
Most of these are wisely resisted by the SDP. But the SDP has agreed to significant tax increases. Tax increases when the unemployment rate is above 11% are not a smart idea. Coupled with the dogmatic monetarism and tight money policies of the European central bank the result is likely to be higher not lower unemployment.
The European central bank needs a major overhaul and rethink of its strict monetary targeting. The rigid anti-deficit rule that prevails in the European Union also needs to be reformed. Its not possible to fight dangerously high unemployment with both the fiscal and the monetary hand tied behind your back.I wonder how long it will be before either the Christian Democrats or their SDP partners wake up to this reality?
Labour market clearing strategies that rely upon the neo-Keynesian doctrine of rigidities explaining why general equilibrium does not always hold sometimes are useful. But this time in Germany they are too close to the classical laissez-faire economic doctrine of the 1930s that insisted despite enormous evidence to the contrary that unemployment was due to rigidities rather than inadequate aggregate demand.
The European central bank and the resistance to using budget deficits to stimulate are the true culprits. Lets hope the political leadership in Germany comes to realize this soon.
On deficit finance and President George Bush
Nov.19,2005
Two years ago I wrote an op ed in The Globe and Mail Canada's leading newspaper that defended President George Bush's policy of running a deficit to stimulate the American economy through a combination of tax cuts and increased spending in certain areas.
This was a very politically incorrect thing to do and offended some of my friends on the left who resented Bush because of his foreign policies and in particular the War in Iraq. But as I pointed out in the op ed one did not have to agree with Bush on his foreign policy or even aspects of his domestic policy to appreciate the willingness of the Bush administration to make use of appropriate deficits to stimulate the economy. As I said at the time it would have been far more preferable for the President to cut the taxes of the poor far more than the taxes of the rich.
And of course increased civilian spending is usually better than increased military spending. Nevertheless because the Democrats and their ideological allies in Canada had become so dogmatically fiscally conservative it was a welcome breath of fresh air that this compassionate conservative Republican appeared to understand that sometimes deficts were an appropriate policy.
What have been the results? Unemployment has dropped significantly in the US in the past two years and economic growth continues to surprise analysts. Furthermore despite the trade deficit and the public sector deficit the US dollar continues to be a strong currency.
Maybe its time that people re-evaluated their approach to deficits and rediscovered the wisdom of Keynes. Public sector deficits that are targeted on investments in infrastructure, tax cuts for the poor and middle classes and social investments are an excellent response to a business cycle downturn.
Rather than crowding out private investment they crowd it in by changing pessimistic expectations to more optimistic ones among investors and by injecting much needed aggregate demand to combat the downturn in the cycle.
What is extraordinary is that the fiscal conservatives are now located among liberals, social democrats and in the US centrist Democrats, while conservative Republicans appear at least in part to be Keynesians, even if only military Keynesians.
The next deep business cycle downturn will pose some serious challenges to the fiscally orthodox.
Two years ago I wrote an op ed in The Globe and Mail Canada's leading newspaper that defended President George Bush's policy of running a deficit to stimulate the American economy through a combination of tax cuts and increased spending in certain areas.
This was a very politically incorrect thing to do and offended some of my friends on the left who resented Bush because of his foreign policies and in particular the War in Iraq. But as I pointed out in the op ed one did not have to agree with Bush on his foreign policy or even aspects of his domestic policy to appreciate the willingness of the Bush administration to make use of appropriate deficits to stimulate the economy. As I said at the time it would have been far more preferable for the President to cut the taxes of the poor far more than the taxes of the rich.
And of course increased civilian spending is usually better than increased military spending. Nevertheless because the Democrats and their ideological allies in Canada had become so dogmatically fiscally conservative it was a welcome breath of fresh air that this compassionate conservative Republican appeared to understand that sometimes deficts were an appropriate policy.
What have been the results? Unemployment has dropped significantly in the US in the past two years and economic growth continues to surprise analysts. Furthermore despite the trade deficit and the public sector deficit the US dollar continues to be a strong currency.
Maybe its time that people re-evaluated their approach to deficits and rediscovered the wisdom of Keynes. Public sector deficits that are targeted on investments in infrastructure, tax cuts for the poor and middle classes and social investments are an excellent response to a business cycle downturn.
Rather than crowding out private investment they crowd it in by changing pessimistic expectations to more optimistic ones among investors and by injecting much needed aggregate demand to combat the downturn in the cycle.
What is extraordinary is that the fiscal conservatives are now located among liberals, social democrats and in the US centrist Democrats, while conservative Republicans appear at least in part to be Keynesians, even if only military Keynesians.
The next deep business cycle downturn will pose some serious challenges to the fiscally orthodox.
Keynes versus monetarists 2
Some additional distinctions : Keynes&monetarists
Keynes' theory of investment depends upon what he calls the marginal efficiency of capital. He defines the mec as follows: that rate of discount from a future stream of earnings that equates the current supply price of capital. All of this takes place under conditions of uncertainty.
For Keynes uncertainty is not strictly reducible to a quantitative calculable probability.(See His Treatise on Probability and Ana Carabelli's interpretation of it.) Because of these factors investment is unstable and strongly affected by the bank rate. Should the bank rate rise this will eliminate investment projects that have a lower rate of return. Obviously it is increasingly difficult to assess risk the further into the future one goes. In addition the stock market is highly risky because of the tendency toward speculative selling of shares and the tendency to operate on short term time horizons . Inherent values matter less than whether one can sell at a higher price than one has bought. Accurate judgement in the market is premised upon being able to judge the likely judgments of others about value and price. Therefore the markets are an unstable source of investment in capital projects.
The monetarists do not seem to have a unified theory of the investment process. Like Friedman's theory of inflation money in - prices out, what I and others call a black box theory they seem to argue that investment happens more or less naturally because the animal spirits are strong(Keynes' phrase) or the entrepreneurial knights of creative destruction(Schumpeter) or the waves of technological innovation bring it about. They also argue that statist intervention is antithetical to investment. Some of them, but not Friedman also argue that deficits raise interest rates and thereby crowd out investment. Keynesians would say au contraire deficits in recessions crowd in investment.
The classical quanity theory equation was MV=PT and then MV=PO where M was money stock, V velocity, P prices, T transactions and O output. Since V was regarded as highly stable and predictable and T and O fixed at the full employment level by Say's law then there was held to be a direct relationship between M and P.
Keynes used the Cambridge variant of the equation M= 1/k (PO) where k is the demand for money balances or the tendency to hold money rather than to part with it. He also elaborated the equation by distinguishing between money stocks, M1, M2 and M3 where M1 was income deposits, M2 business deposits and M3 savings deposits the precursors to his transactions demand, precautionary demand and speculative demand for money. Then P= V1(M-M2-M3)/O where M = M1+M2+M3 .(See his Treatise vol.1 The pure Theory of money p.150London: Macmillan, 1930 and Tract, CW)
Friedman alters the classical model by writing it in Keynesian form as the demand for equities, financial assets, real capital assets, and cash. Md = P.f(y,w;R*m,R*b,R*e;u) where Md = the demand for money and P is the price index,y income of a single wealth holder, w fraction of wealth in non human form ; R*m expected nominal return on money; R*b expected nominal rate of return on securities; R*e expected nominal rate of return on phsyical assets, u all other variables that affect the utility attached to the services of money. (See his Quantity Theory of Money in the new Palgrave Money edited by John Eatwell, M.Milgate and P.Newman, eds.London: Macmillan, 1989.p.13; also see Phillip Cagan, Persistant Inflation:Historical and Policy Essays for an interesting'' monetarist'' approach to what became inflation orthodoxy during the 1970s and 1980s.)
Key Words: "Keynes"; "monetarists"; "Milton Friedman"; "quantity theory"; and from previous entry
"Say's law" ;involuntary unemployment" "labour market clearing"
Keynes' theory of investment depends upon what he calls the marginal efficiency of capital. He defines the mec as follows: that rate of discount from a future stream of earnings that equates the current supply price of capital. All of this takes place under conditions of uncertainty.
For Keynes uncertainty is not strictly reducible to a quantitative calculable probability.(See His Treatise on Probability and Ana Carabelli's interpretation of it.) Because of these factors investment is unstable and strongly affected by the bank rate. Should the bank rate rise this will eliminate investment projects that have a lower rate of return. Obviously it is increasingly difficult to assess risk the further into the future one goes. In addition the stock market is highly risky because of the tendency toward speculative selling of shares and the tendency to operate on short term time horizons . Inherent values matter less than whether one can sell at a higher price than one has bought. Accurate judgement in the market is premised upon being able to judge the likely judgments of others about value and price. Therefore the markets are an unstable source of investment in capital projects.
The monetarists do not seem to have a unified theory of the investment process. Like Friedman's theory of inflation money in - prices out, what I and others call a black box theory they seem to argue that investment happens more or less naturally because the animal spirits are strong(Keynes' phrase) or the entrepreneurial knights of creative destruction(Schumpeter) or the waves of technological innovation bring it about. They also argue that statist intervention is antithetical to investment. Some of them, but not Friedman also argue that deficits raise interest rates and thereby crowd out investment. Keynesians would say au contraire deficits in recessions crowd in investment.
The classical quanity theory equation was MV=PT and then MV=PO where M was money stock, V velocity, P prices, T transactions and O output. Since V was regarded as highly stable and predictable and T and O fixed at the full employment level by Say's law then there was held to be a direct relationship between M and P.
Keynes used the Cambridge variant of the equation M= 1/k (PO) where k is the demand for money balances or the tendency to hold money rather than to part with it. He also elaborated the equation by distinguishing between money stocks, M1, M2 and M3 where M1 was income deposits, M2 business deposits and M3 savings deposits the precursors to his transactions demand, precautionary demand and speculative demand for money. Then P= V1(M-M2-M3)/O where M = M1+M2+M3 .(See his Treatise vol.1 The pure Theory of money p.150London: Macmillan, 1930 and Tract, CW)
Friedman alters the classical model by writing it in Keynesian form as the demand for equities, financial assets, real capital assets, and cash. Md = P.f(y,w;R*m,R*b,R*e;u) where Md = the demand for money and P is the price index,y income of a single wealth holder, w fraction of wealth in non human form ; R*m expected nominal return on money; R*b expected nominal rate of return on securities; R*e expected nominal rate of return on phsyical assets, u all other variables that affect the utility attached to the services of money. (See his Quantity Theory of Money in the new Palgrave Money edited by John Eatwell, M.Milgate and P.Newman, eds.London: Macmillan, 1989.p.13; also see Phillip Cagan, Persistant Inflation:Historical and Policy Essays for an interesting'' monetarist'' approach to what became inflation orthodoxy during the 1970s and 1980s.)
Key Words: "Keynes"; "monetarists"; "Milton Friedman"; "quantity theory"; and from previous entry
"Say's law" ;involuntary unemployment" "labour market clearing"
Keynes versus the monetarists 1
A Quick Guide to Keynes and the monetarists Dec 2, 2005
Keynes:
1. Rejects Say's law of markets that supply creates its own demand; he also doesn't accept Walras's law that says non zero supplies are matched precisely by non zero demands for goods and services.he doesn't believe that the invisible auctioneer eventually clears the market place of gluts.
2. Believes that money is not neutral. In other words once we introduce money into a barter system something significant changes and gluts become possible.
3. Labour markets do not always clear because of uncertainty, disproportionalities; non-homogeous supplies of labour and the importance of aggregate effective demand for clearing the market.
4. Persistant unemployment is possible despite flexible labour markets.Keynes rejects the second classical postulate that the wage is equal to the marginal disutility of labour. Involuntary unemployment is possible.
5. Keynes rejects the quantity theory of money.
6. Interest rates are not determined by the demand and supply of loanable funds. Rather liquidity preference plays a major role . The central bank's behaviour is also very important in establishing short and medium term rates.
7.Keynes has a sophisticated theory of inflation prior to full employment based on profit push, wage push and savings investment disproportionalities.He elaborates this theory in the Treatise on Money (1930) but refines it and includes it in the Chapter on prices in the General Theory (1936)
8. The decision to invest and the decision to save are separate decisions often taken by very different people. Savings are not automatically and frictionlessly translated into investments.
9. Believes that both monetary and fiscal policy are important. THe scissors effect is operational. One needs an accomodating monetary policy for a stimulative fiscal policy.
10. Deficits are a useful and appropriate tool of fiscal policy to help push an economy out of a slump.There is a multiplier effect on increments in investment. Leakages may exist but their impact is not large enough to overwhelm the multiplier.
11. When one stimulates most of the vector forces are on output but some is on prices. As one approaches lower unemployment more of the vector forces transfer from output to prices.GDP consists of PxO. Hence dI leads to dP as well as dO.
The monetarists:
1.They accept Say's law. They accept Walras's law.(For a more subtle and somewhat dissenting view of this description of the classical school as a caricature see David Laidler Fabricating the Keynesian Revolution. But also see the work of John Hotson, Paul Davidson,Alan Meltzer,R.Clower, Joe Stiglitz,Joan Robinson, , Axel Leijonhufvud, J.A.Trevithick,Harold Chorney and a number of other writers on these questions.)
2. They believe in the loanable funds doctrine for interest rate determination.
3. They privilege monetary policy above fiscal policy. A stable predictable steady growth in the money stock is desirable.
4. Savings are extremely important and automatically beget investment.
5. The quantity theory of money is sound.
6. Labour markets like other markets will clear so long as there are no frictions preventing this. Typical frictions are labour unions, the excessive social wages of the welfare state, inadequate or inefficient job search. Unemployment is therefore voluntary.
7. Laissez-faire is best. Intervention should be minimal. Allow the natural forces of the market to operate and all will be well.
8. Deficits are bad because they facilitate the growth of government which is bad.
9. Uncertainty is not a problem.
10. Inflation is the problem. Unemployment is taken care of by the natural rate approach. It is almost always voluntary.
Keynes:
1. Rejects Say's law of markets that supply creates its own demand; he also doesn't accept Walras's law that says non zero supplies are matched precisely by non zero demands for goods and services.he doesn't believe that the invisible auctioneer eventually clears the market place of gluts.
2. Believes that money is not neutral. In other words once we introduce money into a barter system something significant changes and gluts become possible.
3. Labour markets do not always clear because of uncertainty, disproportionalities; non-homogeous supplies of labour and the importance of aggregate effective demand for clearing the market.
4. Persistant unemployment is possible despite flexible labour markets.Keynes rejects the second classical postulate that the wage is equal to the marginal disutility of labour. Involuntary unemployment is possible.
5. Keynes rejects the quantity theory of money.
6. Interest rates are not determined by the demand and supply of loanable funds. Rather liquidity preference plays a major role . The central bank's behaviour is also very important in establishing short and medium term rates.
7.Keynes has a sophisticated theory of inflation prior to full employment based on profit push, wage push and savings investment disproportionalities.He elaborates this theory in the Treatise on Money (1930) but refines it and includes it in the Chapter on prices in the General Theory (1936)
8. The decision to invest and the decision to save are separate decisions often taken by very different people. Savings are not automatically and frictionlessly translated into investments.
9. Believes that both monetary and fiscal policy are important. THe scissors effect is operational. One needs an accomodating monetary policy for a stimulative fiscal policy.
10. Deficits are a useful and appropriate tool of fiscal policy to help push an economy out of a slump.There is a multiplier effect on increments in investment. Leakages may exist but their impact is not large enough to overwhelm the multiplier.
11. When one stimulates most of the vector forces are on output but some is on prices. As one approaches lower unemployment more of the vector forces transfer from output to prices.GDP consists of PxO. Hence dI leads to dP as well as dO.
The monetarists:
1.They accept Say's law. They accept Walras's law.(For a more subtle and somewhat dissenting view of this description of the classical school as a caricature see David Laidler Fabricating the Keynesian Revolution. But also see the work of John Hotson, Paul Davidson,Alan Meltzer,R.Clower, Joe Stiglitz,Joan Robinson, , Axel Leijonhufvud, J.A.Trevithick,Harold Chorney and a number of other writers on these questions.)
2. They believe in the loanable funds doctrine for interest rate determination.
3. They privilege monetary policy above fiscal policy. A stable predictable steady growth in the money stock is desirable.
4. Savings are extremely important and automatically beget investment.
5. The quantity theory of money is sound.
6. Labour markets like other markets will clear so long as there are no frictions preventing this. Typical frictions are labour unions, the excessive social wages of the welfare state, inadequate or inefficient job search. Unemployment is therefore voluntary.
7. Laissez-faire is best. Intervention should be minimal. Allow the natural forces of the market to operate and all will be well.
8. Deficits are bad because they facilitate the growth of government which is bad.
9. Uncertainty is not a problem.
10. Inflation is the problem. Unemployment is taken care of by the natural rate approach. It is almost always voluntary.
Stimulus works
Stimulus works
May 26, 2010
The independent non partisan Congressional Budget Office has released an excellent detailed analysis of the American stimulus which shows that through the first quarter of this year the stimulus has created and saved more jobs than it was expected to and also increased the GDP by more than was expected. The multiplier for the stimulus turns out to be as much as 2.5 if one takes the best assumptions. Using very pessimistic assumptions about possible leakages and crowding out the multiplier is still one.The highest multiplier appears to occur when the program monies were spent directly by the Federal government on infrastructure.
Total employment was boosted by between 1.3 and 2.8 million additional jobs which would not have existed without the stimulus. This amounts to 1/4 to 1/2 as many jobs as were expected. The GDP was between 1.7 and 4.1 percentage points higher than it would have been in the absence of the stimulus.So contrary to conservative claims the stimulus was effective but clearly not large enough to dramatically lower unemployment except in a slow and gradual fashion. It needs to be supplemented and the sooner this happens the better because stimulus works. With proper central banking and appropriate monetary policy crowding out is a myth.
May 26, 2010
The independent non partisan Congressional Budget Office has released an excellent detailed analysis of the American stimulus which shows that through the first quarter of this year the stimulus has created and saved more jobs than it was expected to and also increased the GDP by more than was expected. The multiplier for the stimulus turns out to be as much as 2.5 if one takes the best assumptions. Using very pessimistic assumptions about possible leakages and crowding out the multiplier is still one.The highest multiplier appears to occur when the program monies were spent directly by the Federal government on infrastructure.
Total employment was boosted by between 1.3 and 2.8 million additional jobs which would not have existed without the stimulus. This amounts to 1/4 to 1/2 as many jobs as were expected. The GDP was between 1.7 and 4.1 percentage points higher than it would have been in the absence of the stimulus.So contrary to conservative claims the stimulus was effective but clearly not large enough to dramatically lower unemployment except in a slow and gradual fashion. It needs to be supplemented and the sooner this happens the better because stimulus works. With proper central banking and appropriate monetary policy crowding out is a myth.
The myth of a British structural deficit
July 27, 2010
The hot summer weather continues in Montréal. The economic news is mixed. Most people, at least those who are employed, are probably focused on the summer holidays and their family vacation plans.The unemployed have no such opportunity.
But there are some interesting recent developments. American growth remains disappointing and the data slightly below expectations. It is clear from my recent expedition to buy a new fridge that manufacturers continue to undersupply inventories preferring to delay deliveries rather than employ more people and produce more product despite rising demand.
On the public finance front the Financial Times has run an excellent series of articles on austerity versus stimulus with contributions from Larry Summers,Brad DeLong, Jean Claude Trichet the head of the European Central Bank, Martin Wolf of the FT,Martin Feldstein,,Jeffrey Sachs, David Miliband,Andy Xie,Montek Singh, Robert Skidelsky, Michael Kennedy among others with comments from a large number of readers including myself , most of which are worth reading and thinking about.I urge you to have a look at the series. Simply go to their site and search for it under the heading ''austerity versus stimulus".
It comes as no surprise to me but even after the debacle of the 2008 collapse and the clear role which deficit spending played in preventing a total disaster, the Treasury fiscal conservative view remains strongly held by a number of economists and central bankers.
It remains in my view a dysfunctional and damaging approach to fiscal policy but it is tenaciously defended by some.
On the central banking front the Bank of Canada has raised the bank rate another 25 basis points. So long as this does not indicate a return to a policy of jacking rates up substantially over the next year the damage that it will do to the recovery is probably minimal. But Canadian growth and employment gains while superior to those in the U.S. still remains questionable for the next 2 quarters.There is no threat of inflation and still plenty of underutilization of capacity. The Bank should avoid becoming trigger happy on rates. Mark Carney should take a walk on the golf course and relax at the lake and forget about raising rates for some time.
The hot summer weather continues in Montréal. The economic news is mixed. Most people, at least those who are employed, are probably focused on the summer holidays and their family vacation plans.The unemployed have no such opportunity.
But there are some interesting recent developments. American growth remains disappointing and the data slightly below expectations. It is clear from my recent expedition to buy a new fridge that manufacturers continue to undersupply inventories preferring to delay deliveries rather than employ more people and produce more product despite rising demand.
On the public finance front the Financial Times has run an excellent series of articles on austerity versus stimulus with contributions from Larry Summers,Brad DeLong, Jean Claude Trichet the head of the European Central Bank, Martin Wolf of the FT,Martin Feldstein,,Jeffrey Sachs, David Miliband,Andy Xie,Montek Singh, Robert Skidelsky, Michael Kennedy among others with comments from a large number of readers including myself , most of which are worth reading and thinking about.I urge you to have a look at the series. Simply go to their site and search for it under the heading ''austerity versus stimulus".
It comes as no surprise to me but even after the debacle of the 2008 collapse and the clear role which deficit spending played in preventing a total disaster, the Treasury fiscal conservative view remains strongly held by a number of economists and central bankers.
It remains in my view a dysfunctional and damaging approach to fiscal policy but it is tenaciously defended by some.
On the central banking front the Bank of Canada has raised the bank rate another 25 basis points. So long as this does not indicate a return to a policy of jacking rates up substantially over the next year the damage that it will do to the recovery is probably minimal. But Canadian growth and employment gains while superior to those in the U.S. still remains questionable for the next 2 quarters.There is no threat of inflation and still plenty of underutilization of capacity. The Bank should avoid becoming trigger happy on rates. Mark Carney should take a walk on the golf course and relax at the lake and forget about raising rates for some time.
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