Confidence is key to weather economic storm
We listen to pessimists over optimists at our own peril, Kevin Carmichael writes.
Leona Alleslev, the Toronto-area member of Parliament who left Justin Trudeau’s government for Andrew Scheer’s opposition in September, said the desperate state of the country justified her treachery.
“For the first time in many years, Canadians don’t believe that tomorrow will be better than today,” she said in the written statement that accompanied her walk across the floor of the House of Commons. “This is not a strong economy.”
Dave Mckay, the chief executive of Royal Bank of Canada, sees things differently.
“We’re building the future, but we’re not really tearing down the past,” Mckay told reporters in Montreal on Tuesday, at the official opening of an Rbc-sponsored artificial intelligence lab.
“You’ve seen enormous job creation, without the threat of real job destruction, yet,” he continued.
“We’re creating a lot of jobs and a lot of research jobs. We’re in this exciting world of transformation probably for at least a decade or two before we see a threat to traditional jobs in the economy.”
I know what some are thinking: Easy for the plutocrat to say! Mckay’s salary was $12.4 million in 2017, a nearly eight per cent increase from the previous year at a time when the average pay gain of us mortals barely kept up with inflation. What could someone like Mckay know about what’s going on in the real economy?
And I know what some others are thinking: Who cares what that turncoat Alleslev has to say about anything! She ran down Stephen Harper’s economy when she was a Liberal, and now she’s only talking the book of her new boss, Scheer.
What could someone like that know about what’s going on the real economy?
Let’s try to do better than this. Mckay’s salary is tied to the fortunes of his bank, which means he has a strong incentive to understand what’s going on in the economy. And while it’s true that Scheer and most of his front bench prefer the shallow end of the rhetorical pool, Alleslev presumably formed her opinion of the economy while still under the influence of the prime minister. Both views deserve to to be taken seriously.
So who’s right? That’s a bigger question than you might think.
When the Great Recession was finished, it left us to confront a textbook case of creative destruction.
Digitalization is reshaping the global economy and almost everything is going to change. Mckay is focused on the creative part of what’s happening, confident that technological disruption will lead to better days, just like it always has.
Alleslev appears to have been consumed by the destruction. “Canada faces a perfect storm of challenges at home and abroad,” she said in her departure statement.
Those are two very different narratives. The one that prevails matters because confidence matters.
If Alleslev’s dark view wins, disgruntled job seekers could stop seeking and executives could start hoarding profits. But if those job seekers see the world through Mckay’s eyes, they could feel inspired to take out a loan to go back to school; the prospect of future demand could persuade companies to expand.
Stephen Poloz, the Bank of Canada governor, last month alluded to the risk of us talking ourselves into a funk, and indicated concern that too many of us have come to believe a story that isn’t true.
There were more than 500,000 job vacancies in the second quarter, according to Statistics Canada’s latest estimate. That’s a problem, but overall a good one because it shows the economy has potential to grow.
“Unfortunately, the skills gap is often portrayed in exaggerated terms — how can a long-term factory worker be trained to write computer code, for example,” the governor said. “This only serves to discourage people.”
Poloz’s speech didn’t get
We’re building the future, but we’re not really tearing down the past. You’ve seen enormous job creation, without the threat of real job destruction, yet.
a lot of attention because it arrived when the only thing people wanted to talk about was whether Trudeau would agree to a trade deal with Trump by the president’s deadline of Sept. 30. That’s unfortunate, because his remarks in Moncton were in some ways a critique of our 13-month obsession with the future of the North American Free Trade Agreement.
The legal infrastructure of Canada’s commercial relationship with the United States is a big deal, but a dispute over automobile imports and dairy exports never was existential. Companies in the industry that Statcan describes as “computer system design and related services” now represent some two per cent of gross domestic product — more than autos and aerospace combined. The industry has grown more than five per cent each year for the past half decade, and the number of people working in computer design surged 20 per cent over the past 24 months, according to the Bank of Canada.
No doubt, Canada has problems. The country’s oil trades at a steep discount to the international benchmark, Trump’s tax cuts have tipped the competitive balance in the U.S.’S favour, and elevated household debt is an anchor on consumption.
Yet despite all of that, the unemployment rate rarely has been this low, wages are starting to rise, the value of exports touched records this summer, and business investment still is growing.
So maybe the economy isn’t strong, but it is a long way from weak. Change is stressful; don’t make it worse by focusing only on the bad stuff.
Bank of Canada governor Stephen Poloz gave a recent speech in which he lamented how perception about the state of the economy failed to match the reality that times are pretty good.