Whoever takes the reins will have to live up to a rock star image that has little to do with monetary policy, writes Stephen Gordon
Bank of Canada Governor Mark Carney, right, looks towards, the Bank of Canada’s new Senior Deputy Governor Tiff Macklem as they hold a press conference at the National Press Theatre following the release of the Monetary Policy Report in Ottawa on Thursday July 22, 2010. THE CANADIAN PRESS/Sean Kilpatrick
Going into the economic and financial crisis of 2008-09, Mark Carney had several advantages that most other central bankers did not:
This is not to say that Canada’s relatively rapid recovery was a foregone conclusion: there was ample room for the Bank of Canada – and the federal government – to make mistakes. But they didn’t. So Mark Carney can fairly claim not to have botched the task that was given him, with the caveat that the task he was given was easier than those facing his counterparts in Washington, Frankfurt and London.
Even so, Carney’s departure shouldn’t be accompanied with triumphant fanfare and “Mission Accomplished” banners. Inflation has been running below target, recent economic growth has been sluggish, and the housing sector has been tapped out as a source of growth. The current strategy – counting on a renewed surge in business investment and a stronger recovery in the U.S. and elsewhere – may be enough to get us through this rough patch. Or maybe not. Either way, the new Governor will be facing some interesting challenges in the near term.
But that’s as it should be: a prudent central banker will always have something to be worried about. There are a couple of other areas where Carney’s legacy is somewhat mixed:
As for who will succeed Carney, there are many good reasons for thinking that Tiff Macklem, the senior deputy governor, is a prohibitive favourite: he established a strong reputation as he rose through the ranks at the Bank, and he played a crucial role during his short stint at the the Department of Finance during the financial crisis. But there’s another reason why Macklem’s odds look very good: the last time a senior deputy governor was appointed Governor was in 1994, when Gordon Thiessen succeeded John Crow. Since then, the post has been filled by two outsiders: David Dodge in 2001 and Mark Carney in 2008. These were arguably good choices – probably the best choices. But there comes a point where you have to worry about the signal that the repeated recruitment of external candidates sends to the next generation of potential central bankers. We don’t want smart, ambitious economists to start thinking that taking a job at the Bank of Canada is a dead end. As Mark Carney once said, monetary policy is a team sport: the new governor will want the A team working inside the Bank, not waiting in the stands for their shot at the top job.