The ghost Maynard present

The Keynesian paradigm views the role of the central bank like that of a driver carefully steering a vehicle across a very narrow steep, with the looming abysses of inflation on one hand and unemployment on the other.  Despite the unsound theoretical basis for this view, as well as the economic history which disputes it (stagflation, anyone?) the ghost of Keynes is still alive and well and centrally planning Western economies.  The reason for this is simple; prior to Keynes the role of economists was that of iconoclast, ever smashing the erroneous and self serving post hoc rationalizations of state power.  But armed with the Keynesian paradigm this profession was perverted, no longer at war with Big Brother but now safely in his embrace, serving not to challenge state power but to aggrandize it.  Whereas the classical economists mostly enunciated what the state could not do the new school were filled with ideas about what the state could do; mercantilism revisited.  While their ideas were not true, they were useful to those in power.

The Bank of Canada under the omniscient guidance of Stephen Poloz has maintained a 1% interest rate throughout his term.  This low rate is certain to trigger a future recession.  When the central bank keeps interest rates artificially low (artificial compared to the market rate, which is determined by overall consumer saving vs consumption) this triggers malinvestment in capital goods industries. Entrepreneurs are fooled into believing that consumers time preferences have lengthened.  Resources are erroneously diverted into long term production; enter the boom.  But consumer time preferences have not lengthened and these investments are eventually found to be uneconomic and liquidated; enter the bust.  It is telling that the bust occurs primarily not in consumer goods industries, as is predicted by the 'overproduction view' (a view disproved long ago by Saye's law), but in capital goods industries.  Like a hung over drunk, desperate to escape the consequences of their poor decisions the night before, central banks often prolong artificially low interest rates, perhaps for political considerations (to get past the next election) but the end result is simply a deeper recession when the time for reckoning comes.

So should the Bank of Canada raise interest rates?  I suppose, but far better still to smash the central bank entirely and it's fiat currency, to return to commodity backed currency (or bitcoin!) and allow the market to determine interest rates.  This would end forever the boom bust business cycle (as well as being a powerful check on the imperialist tendencies of the executive branch) and usher into a golden of unprecedented prosperity, the likes of which modern developed nations have never seen.