Macklem ready to let the economy run hot
BoC boss makes inequality focus of policy to grow workforce, Kevin Carmichael says.
Sadie Tanner Mossell Alexander, the first African-American to earn a PhD in economics, in 1944 observed that Black workers would be the “last to be hired and the first to be fired” unless the economy was at full employment.
The economics profession is finally catching up, as policy-makers such as Bank of Canada governor Tiff Macklem and U.S. Federal Reserve chairman Jerome Powell are as focused on levelling the playing field for marginalized groups as they are on traditional worries such as inflation.
Systemic racism still blocks ethnic minorities from fully participating in the economy unless white bosses are forced to choose between either confronting their prejudices or missing an order due to a lack of staff.
Ancient gender roles force women to choose between careers and children. The longterm unemployed become victims of both atrophy and those managers who are conditioned to prefer poaching active workers to fill open positions, rather than taking a chance on someone who has been on the sidelines for six months.
History and our own stupid human behaviour mean we continue to leave considerable talent on the bench — or in the stands. As a result, the economy is less productive than it could be, which makes balancing budgets, closing output gaps and hitting inflation targets that much harder.
Macklem, who took over as Bank of Canada governor in June, is making inequality the focus of policy, as Powell in the United States and Christine Lagarde at the European Central Bank have also done.
On Tuesday, Macklem made it clear that he intends to let the economy run hotter for longer than most mainstream economists would have thought safe only a few years ago, reinforcing both the likelihood that interest rates will remain extremely low for at least another couple of years and that more people will potentially get to participate in the recovery.
The reason: to test the bounds of full employment in order to crowd more people into the workforce.
Macklem noted that the unemployment rate had been unusually low for an extended period of time before the pandemic, and yet inflation never took off. It could have been a fluke. But in case it wasn't, Macklem indicated that he and his deputies on the Governing Council agreed to probe the limits of their previous understanding of the relationship between employment and inflation. The pre-pandemic experience suggests the central bank needn't fear inflation quite as much as it has in the past, which would allow policy-makers a freer hand to stoke economic growth.
“Based on past economic cycles, we would have expected inflationary pressure to begin to rise,” the governor said in a virtual speech hosted by the Calgary and Edmonton chambers of commerce. “But inflation wasn't threatening to take off. As the pandemic recedes and the recovery continues, we will keep that experience in mind.”
The unemployment rate dropped below six per cent at the end of 2017 and averaged 5.8 per cent until the governments shut down most of the economy in March 2020 to fight COVID-19.
That level is essentially full employment, according to the Bank of Canada's understanding of how the economy works. That is, when the jobless rate drops that low, economists at the central bank have long assumed that everyone who wants a job would have one and, therefore, growth would be such that inflationary pressures start to build.
But inflation never became a major concern during that entire period. The Consumer Price Index (CPI) averaged annual growth rates of about two per cent, which is what the Bank of Canada is obligated to achieve. The relationship between the unemployment rate and prices appears to have changed, so why not try for fuller employment?
“There's a shared responsibility and monetary policy has a role to play,” Macklem said on a call with reporters after his remarks. “If we can all play that part, we can get Canadians back to work, we can grow the labour force and we can achieve a complete, shared recovery. If we don't do that, it's going to be an even more protracted recovery. It won't be as shared, and there will be less potential to grow going forward.”
The Bank of Canada is benefiting from a path cleared by the Federal Reserve. The American central bank cut interest rates three times in 2019, even as the economy continued to grow. Powell was accused of courting trouble, and he may yet have to contend with a collapse of the stock-market bubble. But the jobless rate had dropped to 3.5 per cent by the eve of the pandemic, the lowest since the late 1960s. Millions of Blacks and other marginalized workers found jobs, and inflation remained dormant.
Inequality isn't as acute in Canada as it is in the U.S., but it's still an issue. “Some measures suggest that Canada is among the top jurisdictions for inclusion and equity in the distribution of education and skills attainment,” a new report by the Brookfield Institute for Innovation and Entrepreneurship said, “but troubling inequities persist, and many face barriers to the use of their skills in the labour market, leading to stubbornly high levels of income and wealth inequality.”
Women in Canada are 17.5 percentage points more likely to have a post-secondary credential than men, and yet the gender-pay gap has barely changed in decades, according to Brookfield's study. Some 71 per cent of non-Indigenous Canadians aged 25 to 34 have earned a certificate or a degree beyond high school, compared with 29 per cent for Blacks and 40 per cent for First Nations.
Macklem's latest remarks suggest policy-makers are prepared to take these sorts of divisions at least as seriously as inflation. The jobless rate was 9.4 per cent in January, a long way from full employment, no matter how you measure it. “The economy will need support for quite some time, and the bank will continue to do its part,” he said.
If we can all play that part, we can get Canadians back to work, we can grow the labour force and we can achieve a complete, shared recovery.
Reaction came swiftly after the world learned that superstar golfer Tiger Woods was injured in a single-vehicle rollover accident in California on Tuesday morning near Los Angeles.
Woods underwent surgery and later reports said both legs were broken and an ankle was shattered.
Reaction from across the world:
PGA GOLFER AND GOOD FRIEND JUSTIN THOMAS:
“I am sick to my stomach. It hurts to see one of your ... closest friends get in an accident and I just hope he's all right. Just worried for his kids. I'm sure they are struggling.”
PGA GOLFER PHIL MICKELSON ON TWITTER:
“We are all pulling for you, Tiger. We are so sorry that you and your family are going through this tough time. Everyone hopes and prays for your full and speedy recovery.”
BRYSON DECHAMBEAU ON TWITTER:
Heartbroken and shocked to hear about @TigerWoods accident today. My thoughts and prayers are with him for a full recovery.
PGA GOLFER ADAM SCOTT:
“It's sickening. He's our hero out here. You think guys like Tiger and Kobe Bryant are untouchable, but they're not. I just hope he's all right.”
PGA GOLFER XANDER SCHAUFFELE:
“Everyone I've talked to has been in a strange mood due to the news. I was talking to my caddy about the impact (Tiger's) had on the game. It's not good for us, not good for the game of golf. All we can do is hope that he's fine and has a speedy recovery.”
JACK NICKLAUS AND HIS WIFE, BARBARA:
“We want to offer him our heartfelt support and prayers at this difficult time. Please join us in wishing Tiger a successful surgery and all the best for a full recovery.”
AUGUSTA NATIONAL CHAIRMAN FRED RIDLEY'S STATEMENT:
“Tiger Woods is part of the Augusta National Family, and the news of his accident is upsetting to all of us. We pray for him, for his full recovery and for his family during this difficult time.”
THE PGA TOUR'S STATEMENT:
“We have been made aware of Tiger Woods' car accident today. We are awaiting further information when he comes out of surgery. On behalf of the PGA Tour and our players, Tiger is in our prayers and will have our full support as he recovers.”
FORMER OLYMPIC SKIER LINDSEY VONN, WHOM WOODS DATED FROM 201315, TWEETED:
“Praying for TW right now.”
MAGIC JOHNSON ON TWITTER:
“Everyone send your prayers out to Tiger Woods . ... Let us all pray for his speedy recovery.”
PATRIOTS RECEIVER JULIAN EDELMAN ON TWITTER:
“Thinking of @TigerWoods this afternoon ... prayers this is just the beginning of another major comeback.”
PGA GOLFER TONY FINAU:
“When I saw the condition of his car, for me, I just hoped that he's OK, that's the biggest reaction really. Also a little bit of shock because we had something crazy happen in our sports world last year with Kobe (Bryant). I wouldn't say that dramatic of feelings, but you just hope Tiger is all right.”
RETIRED MLB PLAYER ALEX RODRIGUEZ ON TWITTER:
“Praying for my brother @TigerWoods as we all anxiously await more news. Thinking of him and his entire family.”
STATEMENT FROM LONGTIME WOODS SPONSOR NIKE:
“We are following the news around Tiger and our thoughts and heart are with him and his family at this time.”
Other athletes such as Karl-Anthony Towns, Isaiah Thomas, Trae Young, Myles Garrett, Reggie Bush, Tim Brown and Michael Phelps were just a few who raised up prayers to Woods on Twitter.
Woods hosted the most recent PGA Tour event, the Genesis Open at Riviera Country Club in Pacific Palisades, Calif., though he didn't play in the tournament because of recent back surgery.
According to Golf Digest, he was scheduled to take part in the second day of a Golf Digest/GolfTV shoot in which he gave lessons to various celebrities.
Speaking with CBS's Jim Nantz during the Genesis TV broadcast on Sunday, Woods said he hoped to play in this year's Masters in about seven weeks. Woods, 45, underwent his fourth microdiscectomy procedure — his fifth back surgery — to lessen nerve pain Dec. 23. He had the same procedure in 2014 and twice the following year.
“God, I hope so, but I've got to get there first,” Woods told Nantz of playing in the Masters. “A lot of it is based on my surgeons and my doctors and my therapists, and making sure I do it correctly because this is the only back I got, so I don't have much more wiggle room left here.”