Tags
Bank of Canada, Canada, central banks, dual mandate, exports, Federal Reserve, Financial Crisis, Janet Yellen, manufacturing, monetary policy, recovery, Stephen S. Poloz, Trade, {What's Left of) Our Economy
I know, I know – what could be more boring (except for Canadians or for a trade or manufacturing geek) about a Bloomberg piece on trade and manufacturing in Canada (which just happens to be America’s biggest trade partner)? But here’s the thing: This article and related material speak volumes about how the economic leaders of America’s northern neighbor value the productive sector of their economy, including manufacturing, and how their counterparts in the United States evidently don’t.
The article is highlighted – at least for me – by passages from a December speech by Bank of Canada Governor Stephen S. Poloz that dealt in part with exports, manufacturing, offshoring, and how they affect Canada’s present and future economic performance. Poloz is Canada’s Janet Yellen. Can you imagine the chair of the U.S. Federal Reserve dealing with these subjects in any depth? I can’t either. (As I recently noted, Yellen did write one trade article – in 1998, when she was a White House economist – but it was overwhelmingly theoretical, and pretty stale at that.)
Trade and manufacturing were by no means Poloz’ main subjects. But he did specify that one big reason for Canada’s continuing need for economic stimulus so many years after the global financial crisis struck was that “we saw significant destruction in our export sector….We have been waiting for a resumption of export growth….”
Moreover, thanks to that Bloomberg article, we know that Poloz went into considerably more depth during the question and answer session. For example, he told his New York City audience that during its last period of low global demand and a strong Canadian dollar, his country lost between 8,000 and 10,000 exporting companies. He also acknowledged that the Bank of Canada’s models overestimated how quickly the country’s exports would recover because its model could not recognize the loss of these producers. Indeed, according to Poloz, “When companies downsize, relocate or close their doors, the effects on the economy are permanent.” And he went on to estimate that lost production from underperforming, non-energy exporters cost Canada about C$30 billion ($24 billion) in 2013.
To me, it’s not only inconceivable that Yellen – or any other Federal Reserve board members or regional bank presidents would know the comparable U.S. data. It’s unimaginable that they would even seek it – much less display any ability to talk about these subjects in any meaningful detail.
In fairness, the Canadian economy is much more export-dependent than America’s. Moreover, Poloz has a high level background in Canadian government export promotion. But the story of the financial crisis and its impact in the United States ultimately is the story of how catastrophe was nearly produced by over-reliance on finance – including crackpot innovations and simple over-borrowing and spending – and neglect of the real economy that turns out everyday goods and services.
As a result, America’s only genuine hope for real recovery is a great strengthening of that real economy. And given the economy’s continuing consumption-heaviness and immense debt levels, promoting net exports is a no-brainer. In particular, every success it achieves reduces the need for unaffordable tax cuts and spending increases, and for the super-easy monetary policies that even Fed officials fear will dangerously distort investment incentives.
In fairness to the Fed, it’s not supposed to make policy outside its mandate of fostering full employment and stable prices, and its responsibilities for regulating finance (which are shared with various federal agencies). But its analytical influence is unmatched, and some sign that the central bank recognized the centrality of the real economy just might give President Obama and the Congress the kick in the pants they need to encourage productive activity. It might also just remind the Fed itself of the long-term importance of normalizing its monetary stance as soon as possible.
