A recent study done by C.D. Howe Institute was released yesterday and it holds some pretty interesting ideas on how our financial and political infrastructure should look, and what’s wrong with the way it looks now. Before we delve deeper into the changes the report claims are necessary for Canada’s infrastructures, let’s review what those infrastructures look like now.
Currently, Jim Flaherty is our Finance Minister, the one who implements legislation and government policy, just as he did when the government imposed much stricter lending practices on home equity lines of credit and insured mortgages. Below him is Deputy Finance Minister Michael Horgan, providing Mr. Flaherty with advice on the economy and Canada’s financial matters. Jim Flaherty works closely with the Bank of Canada Governor, Mark Carney. Mr. Carney’s role is to help control the economy and keep it in balance by changing or maintaining Canada’s overnight rate. Mr. Carney is not part of any political circle, although he does sit on the Senior Advisory Committee (SAC.) This committee, while not officially and only loosely formed by its members, advise Mr. Flaherty on certain policy decisions regarding the Canadian economy and our financial system.
It’s this system that Professor Christopher Ragan, a McGill University economist, thinks needs to be changed. Professor Ragan calls for making the SAC official and giving it more resources to influence the Canadian financial system. Professor Ragan thinks that by allowing both Mr. Carney and Mr. Horgan to head the group, it would allow Mr. Carney to have a stronger impact by actually enabling him to create government policy. Prof. Ragan’s argument is that while Mr. Carney can certainly play with the interest rate, he can do little more than that, and therefore doesn’t have the impact on the Canadian economy that he should. According to Prof. Ragan, once the committee meets, the minutes and discussion topics would then be passed onto Mr. Flaherty, who would have the final say over any decisions that needed to be made.
In addition to changes to the committee, Professor Ragan also believes that the Canada Mortgage and Housing Corporation should also be part of the SAC. This falls in line with another report released last month by the International Monetary Fund, which called for a complete review of the government agency.
These very small changes, Prof. Ragan has said, would keep all of Canada’s financial leaders on the same page, help them spot potential disasters like the United States faced, and keep all financial policy in line with each other. But is this reformation of the SAC really necessary, and would it be beneficial?
That depends on who you ask. While Professor Ragan’s plan certainly has its own merits, and could help Canada’s most influential financial experts stay on the same page, the plan also has its downfalls. For instance, Professor Ragan does not currently have a plan for what would happen should Mr. Carney and Mr. Horgan disagree on a point. And, there’s also concern about giving Mr. Carney additional responsibilities. While certainly knowledgeable, and with an in-depth perspective, some are worried that putting Mr. Carney in control of the housing market and other economic sectors that it could be a conflict of interest when it comes to his primary work as the BoC Governor, and that one area could have a serious, and negative, impact on another.
What do you think? Do you think that our financial infrastructure needs an overhaul to get our economy back to pre-recession levels? Or do you think, being one of the countries that fared best in the recession, that our infrastructure is working just fine, and any change would be redundant and unnecessary?
