Why Stephen Poloz can't fix a weak economy: Don Pittis
Bank of Canada governor to present his Monetary Policy Report later this week
Everyone knows the bit of folk wisdom "If it ain't broke, don't fix it."
But as the economies of China, Japan, Europe and North America coast in neutral, that may be part of the problem.
The latest employment numbers from Canada and the U.S. showed job growth is OK, but not great. Last week, the OECD – the rich-country think tank – released new statistics that, as the Wall Street Journal reported, "suggest the global economy once again faces a patchy, and therefore relatively weak, recovery."
As global economies limp from crisis to crisis – never breaking but never really recovering, either – does something serious have to go wrong before the world can return to growth?
This is a question that must keep Bank of Canada Governor Stephen Poloz awake nights. And yet keeping destructive forces at bay will be one of Poloz's jobs when he presents his Monetary Policy Report later this week.
Economy stalled
In his newly published book, Stalled, business commentator Michael Hlinka examines why the Canadian economy seems stuck in low gear.
His prescriptions, including a low minimum wage, less welfare, smaller government and low taxes, seem to come right out of a conservative playbook.
And yet after nearly a decade of Conservative government rule, the last term of which with a strong parliamentary majority, there are few signs that the Canadian economy is about to burst into life.
Hlinka says that in a democracy, governments can't force change down people's throats. The electorate has to be convinced. And he says that's a good thing. But it means that change may need an outside stimulus.
"I think there's going to have to be some kind of [economic] shock, and I'm not quite sure what that shock is," said Hlinka in an interview.
That sounds a bit like the "crisis theory" recently outlined by Canadian political economist Daniel Drache as it applied to the as-yet unresolved economic imbroglio in Greece.
But as Drache warned, the danger of counting on such a strategy is that one crisis can lead to another and no one knows where it will end. And that is why central bankers from Poloz to U.S. Federal Reserve Chair Janet Yellen to Europe's Mario Draghi are so anxious to thread their way between the potential abyss of deflation on one side and the unknown jungle of inflation on the other.
The courage to act
This is why the title of former Fed chairman Ben Bernanke's new memoir, The Courage to Act, is earning raspberries from many quarters. Instead of doing something radical that would set the U.S. and world economy on a new track, imply the comments on Twitter, Bernanke bailed out the banks and perpetuated the status quo.
The fact of the matter is, perpetuating the status quo was his job. Whether you think the world economy needs some serious discipline (similar to Hlinka's advice for Canada) or that recovery demands some other radical rethink (as the Occupy protestors did in 2011), you are unlikely to get it from central bankers or incumbent politicians.
Their role is to keep the machine running – with wire and bits of string if necessary – as long as possible, in the hope that the global economy will once again find its footing in the traditional way. In a democracy, the only ones qualified to demand radical change are voters.
And even they can get it wrong, as The Atlantic Monthly reported last week. Last year, Kansas re-elected tax-cutting Governor Sam Brownback, who offered "a real live experiment" to get the state's economy back on track. But whether through a failed strategy or poor execution, the tax cuts did more harm than good and the experiment failed.
Pressures build
There are enormous pressures coming to bear on developed economies. Populations are aging, with fewer workers to support the retired and pay for their health care. Economic growth may be moving to the poorer countries of the developing world as they cry out for a fairer share.
But fear of creating a worse crisis prevents governments from intervening. That is, until the machine actually breaks. Only then will our elected representatives and the officials they appoint be permitted to try more radical experiments to fix it.
Hlinka is not optimistic.
"I think what's more likely, however, than the shock," says Hlinka, "is just a kind of downward drift over the next five or 10 years."
Or as the poet T.S. Eliot said in his poem The Hollow Men, this is the way change happens: "Not with a bang, but a whimper."
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