Poloz won’t be another ‘rock star’ banker
The new Bank of Canada governor takes over at a time of high expectations but limited possibilities.
When Stephen Poloz is officially handed the reins of the central bank next month from its outgoing head, Mark Carney, he will be replacing a man lionized as the rock star of international finance and the saviour of Canada’s economy.
Indeed Carney does deserve praise for his decisions, taken at the beginning of this slump, to push interest rates down and keep credit flowing.
But with its benchmark interest rate already hovering near zero, there’s not much more the Bank of Canada can do on its own to spur Canada’s still floundering economy, regardless of who is governor.
As Carney found, no matter how low the cost of borrowing, businesses won’t invest in new jobcreating capacity unless they expect a market for their products.
Carney’s much vaunted attempt to persuade corporations to stop sitting on their profits (what he called “dead money”) fell on equally deaf ears — and for the same reason.
Why should business invest to produce more if people don’t have enough money to buy?
This is the conundrum 57-yearold Poloz faces.
He can’t lower interest rates because they won’t go any lower. That means he can’t encourage private business investment.
It also means he can’t use interest rates to push down the value of the Canadian dollar and thereby boost exports.
He could follow Japan’s lead and print money for the government to spend on social needs such as health, poverty relief and infrastructure.
In fact, that might be a useful thing for the Bank of Canada to do.
But this practice, sometimes referred to as monetizing the debt, has been frowned on in Canada for decades. It would also require a very different kind of federal government from the one currently sitting in Ottawa, a government not fixated on deficits that is willing, in the short run, to spend whatever is necessary to put the jobless back to work. So what will Poloz do? Those who know him say one thing he can do is talk effectively. The son of an Oshawa auto worker, he is said to have a knack — not always common among economists — of being able to explain complicated monetary questions in a manner that most people can understand. As chief economist and then president of the government’s Export Development Canada, this ability to communicate was apparently one of his strengths. He is also reputed to be a whipsmart economist. But he may find the ability to explain what he can and can’t do more useful than any capacity to master multiple regression analysis. The second thing Poloz will have to do is not talk too much. Associates say he is a larger-thanlife personality who likes to have the last word. But rumblings from Ottawa’s political circles suggest that the Conservatives — and particularly Finance Minister Jim Flaherty — were irked by Carney’s ability to capture the limelight. To put it another way, Flaherty and Prime Minister Stephen Harper want to be seen as the rock stars. Poloz will be under pressure to present himself as merely the warm-up act or perhaps a humble roadie. It is said he will find this difficult.
Those who know Poloz say what most endears him to the government is his adherence to Harper’s conservative agenda. Carney famously flirted with the Liberals. In spite of his denials, his name repeatedly surfaced as a potential Liberal leadership candidate.
There is expected to be no such nonsense from Poloz.
Harper’s view of the economy is essentially that its problems are structural — caused by labour unions that keep wages high, social programs that dissuade the jobless from seeking whatever work they can find and government regulations that impinge on business.
In the Prime Minister’s world, there isn’t much for a central banker to do other than maintain a steady course and support the government in all its works.
If Poloz does that, he’ll probably get along fine in Harper’s Ottawa. Thomas Walkom’s column appears Wednesday, Thursday and Saturday.