The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. 1
Adam Smith
The CBC reports today that Manulife dropped its posted interest rate for a five-year fixed mortgage to 2.89 per cent only to revoke that rate later on in the day after Finance Minister Jim Flaherty called them up and said “oh no you don’t”. I wrote recently about Mr. Flaherty expressing his disapproval over low rates posted at BMO, at that time he said that he was worried about a “race to the bottom” where competition between banks results in even lower rates which in turn could increase the amount of buyers seeking homes in an already expensive housing market. There is a fine line between being concerned and actively persuading a bank to raise it rates. Is Flaherty safe-guarding what is perceived as a weak housing market, or intervening in what is a free market price that potentially saves customers thousands of dollars? If Flaherty was intervening in the cost of a cup of coffee by telling Tim Hortons to raise their prices, people would go crazy. But the housing market is such a volatile issue and people are worried about potential losses, maybe this kind of intervention is necessary?
I read an article this morning criticizing the way the Finance Department under the Conservative government is changing what it sees as its role in the economy. One main indicator of this is that instead of a budget on March 21st we are getting the “Economic Action Plan 2013”. The article by NP commentator Terence Corcoran, was called “A budget by any other name…” and I write ‘was’ because I can no longer find it on the National Post website. Here’s a bit form the article:
Instead of setting the date for the coming year’s federal budget, as has been tradition for decades if not most of a century, Mr. Flaherty announced Thursday that he has set March 21 as the date for “Economic Action Plan 2013.” …The words “Economic Action Plan” imply national economic strategic-planning on a grand scale; great leaps forward; a big government with its hands and feet on the levers of growth and prosperity… In the budget business, the Harper Conservatives have seized the high ground in portraying budgets as key drivers of economic performance.
Corcoran points out that the shift from ‘budget’ to ‘action plan’ is significant, and implies the very opposite of what many fiscal conservatives of the Adam Smith school think of as good governance. Corcoran continues:
Budgets, after all, are not the fuel of growth. They are the government’s plans to take money out of the economy via taxes and spend it on a million different things. And as the United States has learned, government spending does not necessarily create growth, but the tax increases extracted to finance that spending can certainly undermine growth.
We will see how much action the Conservative government is planning on taking on Thursday, but if today’s action by Flaherty is any indication, it may be more than we want or need. But what do I know… I leave the last word to Adam Smith:
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy…What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. 2
Find more great Adam Smith quotes here.
1.The Wealth Of Nations, Book IV, Chapter II, p. 456, para. 1
2.The Wealth Of Nations, Book IV Chapter II, pp. 456-7, paras. 11-12.
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