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‘We’re not getting it perfect’: Carolyn Rogers says the Bank of Canada is learning from its mistakes

Kevin Carmichael: With the benefit of hindsight, it’s apparent central banks overdid it; their willingness to admit their mistake is no small thing

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For the record, Carolyn Rogers, the Bank of Canada’s new senior deputy governor, wasn’t thinking about the Conservative leadership candidate who set up outside the central bank’s doors late last month when she decided to give a speech about trust and credibility.

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“I’d love to tell you I could write a speech in four days,” Rogers said in an interview, her first since joining the central bank in December. “We got working on it a while ago. It just happened to be timely.”

The Bank of Canada’s leaders dislike how they’ve been dragged into a partisan political contest. But they didn’t need Pierre Poilievre’s emergence as Canada’s answer to former United States congressman Ron Paul to know that a segment of the population has lost faith in them.

Conservative MP and leadership candidate Pierre Poilievre speaks during a press conference outside the Bank of Canada in Ottawa.
Conservative MP and leadership candidate Pierre Poilievre speaks during a press conference outside the Bank of Canada in Ottawa. Photo by Justin Tang/The Canadian Press

“We are acutely aware that, with some of the extraordinary actions we have taken during the pandemic and with inflation well above our target, some people are questioning that trust,” Rogers told an audience in Toronto assembled by Women in Capital Markets on May 3. “Tough questions, added scrutiny and informed debate are entirely appropriate in the current environment. We welcome them as an opportunity to engage with Canadians about what we do, how we do it and how we can improve.”

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Paul mounted a competitive grassroots campaign for the Republican presidential nomination in 2012 on the back of a libertarian critique of the U.S. Federal Reserve’s aggressive use of its powers while confronting the Great Recession. If Poilievre’s promise on April 28 to audit the Bank of Canada sounded familiar, it’s because Paul has been trying to “audit the Fed” since 2009. His son, Rand Paul, a Republican senator from Kentucky, has taken up the cause, introducing numerous bills that would increase oversight of the Fed, including the Federal Reserve Transparency Act of 2021, which was referred to the Senate banking committee last year.

Canada was spared much of the political upset that immediately followed the Great Recession in the U.S., but the Bank of Canada’s leaders knew they could be next. In 2018, the central bank launched The Economy, Plain and Simple, an effort to supply an increasingly partisan dialogue over economic policy with a baseline of neutral articles and videos on key economic themes.

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Tiff Macklem, the governor, in the summer of 2020 pledged to do a better job communicating with the general public, acknowledging that central banks had become overly focused on making sure traders and economists understood what they were doing at the expense of securing the broader population’s trust. The new policy mandate the Bank of Canada received from the federal government at the end of last year was informed by several years of research and consultations, which, unlike previous reviews, the central bank conducted out in the open.

Bank of Canada governor Tiff Macklem.
Bank of Canada governor Tiff Macklem. Photo by Blair Gable/Reuters

‘They’re voicing their concern’

For much of its existence, the Bank of Canada, like most central banks, was something of a black box, but that’s no longer the case. Central bankers recognized that the public mood changed with the Great Recession and they could no longer take their credibility for granted. Rogers, a former financial regulator, said she decided to make her first speech as senior deputy governor about trust a couple of months ago, spotting an opportunity to discuss an issue she’s been thinking about for years.

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“It’s not just the last couple of weeks, it’s not just central banks,” Rogers said in the interview. “People are questioning public institutions, experts. Why? I don’t know. There are way more sources of information now and so there’s a lot of different voices out there. We can’t control the narrative, we can’t say, ‘No, this is the only source of truth.’ There’s a lot of different places that people can get their information, a lot of different people that they’ll listen to.”

Rogers added: “Inequality gets raised a lot. It’s something that central banks are looking at. I think there’s some disaffected people out there who don’t think the economy is working well for a segment of the population. And they’re voicing their concern.”

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The Bank of Canada building in Ottawa.
The Bank of Canada building in Ottawa. Photo by Patrick Doyle/Bloomberg

A lesson policymakers around the world drew from the Great Recession is that governments and central banks withdrew stimulus too soon. The runaway inflation they feared they would create by breaking all the rules in their economics textbooks never arrived. Instead, they got a painfully slow recovery that came with elevated levels of long-term unemployment; widening income disparities; the slow spread of opioid addiction from the southern United States to parts of Canada; and the return of protectionist trade policies, which former Bank of Canada governor Stephen Poloz thinks derailed Canada’s progress by creating so much uncertainty that companies stopped investing. Confronted with an epic recession in the late winter of 2020, policymakers shelved the playbook from the Great Recession and vowed to err on the side of growth instead of prudence.

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“I wasn’t here when those initial decisions were made,” Rogers said. “But in the job I was in, I had this really great vantage point. I was in the room, or in the virtual room, when central banks from around the world were staring down March 2020. It was dark. There are decades and decades and decades of experience and wisdom in that room. And they were all, I think, in shock. The idea that the entire global economy could get switched off indefinitely, overnight, was not in anybody’s playbook. What I remember taking from those conversations was the degree of this overwhelming sense of responsibility they felt, and this is a bunch of people that are generally pretty cautious and they’ll usually debate something and really analyze it before they make a move.”

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‘We’re not getting it perfect’

With the benefit of hindsight, it’s apparent the central banks overdid it. In the aftermath of the Great Recession, monetary policy and fiscal policy were often working at cross purposes, whereas central banks and governments unleashed extraordinary levels of stimulus in unison during the pandemic.

I don’t think we ever intended to present an image that we had it all figured out, (that) we had a flawless track record

Carolyn Rogers

Data released on May 11 showed the U.S. consumer price index increased 8.3 per cent in April, one of the biggest gains in decades. Most other rich countries are experiencing similar bursts of inflation, including Canada. Central banks initially dismissed the price pressure as the result of supply disruptions related to the pandemic, a reasonable conclusion, but probably one that distracted them from what was going on with demand. Macklem acknowledged during testimony at the House finance committee last month that the central bank had misjudged inflation, and Rogers reiterated that “there were some things we got wrong” in her speech in Toronto.

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“I don’t think we ever intended to present an image that we had it all figured out, (that) we had a flawless track record,” Rogers said in the interview when asked about admitting mistakes. “I think what we were doing is communicating that humility and telling people, ‘Look, we know there’s a really, really difficult environment and we know we’re not getting it perfect.’”

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The decision of Macklem, Rogers and some of their international peers to admit they made a mistake is no small thing. As journalist Katherine Schulz documented over a few hundred pages in her book Being Wrong, humans are biologically resistant to conceding error, and generally terrible at course correcting even when the facts change. Alan Greenspan, the former Fed chair, needed the Great Recession to convince him his worldview that the fear of bankruptcy would prompt bankers to self-regulate was wrong.

Greenspan’s heirs appear to be less trapped by their ideologies. That makes them more trustworthy, especially if they learn from their mistakes. Rogers insists that at the Bank of Canada, they have.

“We have a big team of really smart economists who have a bunch of really complex models, many of which were not designed for some of the really strange things that are happening in the economy right now,” she said in the interview. “A lot of what we do is based on history. When you’ve got a present set of circumstances that look nothing like what you’ve seen in the past, it’s difficult. If you’re asking, ‘Are we adjusting sort of in the mechanical or technical way, as well as in our messaging?’ Absolutely.”

• Email: [email protected] | Twitter: carmichaelkevin


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