National Post

PREPARE FOR FISCAL DOMINANCE.

Scary Hours 2

- WILLIAM WATSON

Over the next few months we’re going to have a debate about what economists call “fiscal dominance.”

When I hear that phrase I’m afraid I think of Louise Beaudoin, minister in charge of Quebec’s Office de la langue française when Lucien Bouchard was premier in the late 1990s. Montreal Gazette cartoonist Terry Mosher, better known as Aislin, always depicted her as a leather-clad dominatrix, complete with bull whip and cattle prod. You probably couldn’t depict a female politician that way these days, though Aislin does report on the Gazette website that when Ms. Beaudoin retired from politics she sent him one of his cartoons of her with an inscriptio­n saying she missed him in her life.

In economics, fiscal dominance is about who’s really in charge of monetary policy. Do central bankers run monetary policy in pursuit of the traditiona­l goal of price stability or do they run it to make life easier for heavily indebted finance ministers? The federal debt is now one trillion dollars, headed for a trillion and a half. One per cent of one trillion is 10 billion. So, very roughly, when interest rates go up by a percentage point, as long rates have done over the past few weeks, we’re talking a $10-billion increase in interest payments. (In reality, it depends on exactly how much debt comes due exactly when, but it’s a useful benchmark.) Ten billion dollars ain’t what it used to be. In 1966/67, just before Pierre Trudeau took office, it equalled total federal revenues. But it’s not nothing, either.

With government debt looming so large, will central bankers have the courage to impose the cost of higher interest rates on the presidents, prime ministers, finance ministers and treasury secretarie­s who appointed them? Or will they hold off on increases in interest rates and other monetary actions that, were there no effect on government budgets, they wouldn’t think twice about enacting?

This is all part of a vigorous debate within the liberal policy establishm­ent in the U.S. about the appropriat­e size of fiscal stimulus and the dangers of inflation. A sign

DO CENTRAL BANKERS RUN MONETARY POLICY IN PURSUIT OF THE TRADITIONA­L GOAL OF PRICE STABILITY ...?

of how bitter it could become was a recent comment by Alan Blinder, Princeton economics prof and former Fed governor, about how those arguing for a smaller stimulus package were “nominally Democratic economists” led by former Treasury Secretary Larry Summers. “Nominally Democratic?” Summers was Treasury Secretary for Bill Clinton, twice the successful Democratic candidate for president. It’s true, Summers worries about deficits, tax rates and work incentives but does that mean he’s only nominally a Democrat?

Steven Rattner is another nominally Democratic commentato­r, I guess. He is an investment banker, which probably counts against him, but he comments for MSNBC and writes a column in The New York Times, where he was once a journalist. He was also Barack Obama’s point man in the bailout of the auto industry in 2009 (Obama being another two-term Democratic president). Rattner had a piece in the Times last week whose title and “deck” told the story: “Too many smart people are being too dismissive of inflation: Fears were overblown for years. But let’s not be blasé about how hard it could be to halt high prices if they haunt us again.”

To the centre-left worriers, one could add Olivier Blanchard of MIT and the IMF, one of the world’s most respected macroecono­mists, who recently expressed his concerns that the Biden package was too big and inflation couldn’t be dismissed. Rattner (age 68), Summers (66) and Blanchard (72) are all old white males (or at least oldish, 70 being the new 50) so what they say counts much less than it used to. But the advantage of being old is that they actually lived through a time when both inflation and debt got out of hand. Starting out as a Times reporter in the 1970s, Rattner says, his beat was inflation and he reminds us: “Forty years ago, curbing the painful hike in prices took the Fed raising interest rates to 20 per cent, forcing the economy into a brutal recession.”

No one who lived through that time wants to repeat it, which is why many of us are cautious about excessive stimulus even if inflation seems still under control. Every generation has to make its own way but seeing the hardearned lessons of the 1970s and 1980s ignored or forgotten is distressin­g. Distress is certainly the reaction in many circles to the U.K. government’s decision, which Jack Mintz writes about elsewhere on this page, to de-index its tax system, supposedly temporaril­y. It was a long, hard slog to get politician­s to agree that if they wanted to raise taxes, they should do it openly and explicitly, rather than through the anti-democratic, stealth taxation of inflation-generated bracket creep. But now, pffft!, all that hard work is undone.

A crunch is ahead on the stimulus/inflation front. If politician­s come at them wielding bull whips and cattle prods, will polite, reasonable, mild-mannered central bankers really be able to resist, do the right thing and keep prices stable, even if it that does mean raising interest rates?

Drake first announced he would be dropping his “sixth studio album” back in April and confirmed on OVO Sound Radio recently that the album was still “being cheffed up,” but almost done.

Scary Hours 2 is the next best thing. Consisting of three songs — What’s Next, Wants and Needs, featuring Lil Baby, and Lemon Pepper Freestyle, featuring Rick Ross — the EP delivers Drake’s patented flavours and re-establishe­s that, like the student-of-the-game that he is, he works well with others. What’s Next is a perfect song to usher in the return of day parties when the world eventually opens again. Drake falls into one of his favourite pockets, making an earworm of a hook by simply talking about doing all of the things we also likely did this year. Or that some of us did, anyway: the accompanyi­ng music video depicts Drizzy and friends showing off some of the best tourist attraction­s in their native Toronto.

Lil Baby steals the show on Wants and Needs, with Drake taking a back seat after delivering a verse with a purposeful­ly offbeat flow as Lil Baby takes over in the second act and absolutely bodies his guest appearance.

Lemon Pepper Freestyle is easily the most impressive song out of the three, lyrically, with Rick Ross and Drake doing what they do best over a sample of Quadron’s 2010 song Pressure.

Named after the Big Boss’s favourite chicken-wing seasoning, the song has Ross stepping aside after the opening to let Drake go an hour on the beat and deliver one of his most mature verses in recent memory. There are fewer bars about being the “petty king” and buying his foes’ personal belongings when they go up for auction; more about how he manoeuvres picking up his son from school, parent-teacher conference­s, and what he imagines his funeral at the Scotiabank Arena might be like.

We’ve heard this side of Drake before, but it’s refreshing to receive it again. Eleven years in, talk that Drake is “slowing down” needs to end. He’s still in peak form. Each song on Scary Hours 2 is different and reflective of Drake’s rap-kaleidosco­pe nature. If this EP is any indication of what Certified Lover Boy might sound like, then we might be in for one of the rapper’s most introspect­ively jarring and anthem-heavy projects in a long time.

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