"A good economist"

The name of the next Governor of the Bank of Canada was announced this week.  He's Stephen Poloz, currently head of Canada's Export Development Corporation (EDC).  It's a bit of a surprise choice: the job was expected to go to Tiff Macklem, the current senior Deputy Governor, but for the third time in a row, the government of the day has opted for an "outsider" to lead the Bank.  Not that Poloz is any such thing, having spent more than a decade of his career working there.

Once the commentariat had gotten over their initial shock, they were quick to lavish praise on the new man.  The most common encomium: Poloz is "a good economist".  This prompted a question from my wife: "What is a good economist, anyway?"

After reeling momentarily from this low blow -- she's been married to me for all these years and she still has to ask this?? -- I decided to give the matter a bit of thought. A good academic/technical grounding in the subject is obviously essential, but beyond that, what makes an economist "good" depends very much on where he or she is plying the trade.

For example, when I worked in a dealing room,  one of the most important tasks was interpretation of economic data releases, in order to help traders and salespeople to know how the market would react to them.  This required preparation, quick thinking, an understanding of how markets behave, and a loud voice.  The hows and whys of your advice were of little relevance in the heat of battle.

In an earlier incarnation, I was in a bank economics department.  The time pressures here were a great deal less intense.  There was time to carry out in-depth research and to write up lengthy reports. Presentation skills, both written and oral, were the keys to success.  Understanding of financial markets was not essential -- in fact, a good number of the bank economists I have met over the years have been openly contemptuous of markets, seeing them as nothing more than a crapshoot.

In an even earlier life, I briefly worked in a government department in London.  This had some things in common with both of the jobs I've just described.  Most of the time, you had plenty of opportunities for in-depth research, but once in a while, you had to provide snap judgments on economic events for the benefit of people who had more important things to think about.

And then there are the academic economists, who seem to be judged, at least among their peers, mainly by how many academic papers they contrive to get into print.  Most economists in dealing rooms or banks or government departments have been trained by academics at some point, but very few of them spend much time interacting with academe, or even keeping up with the latest research, once they get into their careers.

So when people say Stephen Poloz is "a good economist", what do they mean?  He's certainly well-trained, with a PhD to his credit.  And he's done some important things in his time at EDC, playing a key role in Canada's bailout of the Big Three automakers a few years back.  Mostly, though, what people seem to mean is that he's likely to be a steady hand on the tiller.  He won't take any chances by raising interest rates before the economy is on much firmer ground, and he won't worry unduly about inflationary risks in the near term.  Another Mark Carney, in other words, but maybe with a bit less ego.

Is this what Canada needs right now?  The great global money printing experiment is wearing out its welcome.  It hasn't yet triggered a surge in inflation, as naysayers feared, but it hasn't really got the global economy back on track either.  We're in what Keynes famously called a liquidity trap, a situation in which no amount of monetary stimulus is effective, because of slack aggregate demand and low confidence.  Mark Carney, Ben Bernanke, Mario Draghi, Mervyn King and the rest of them have basically kept the money spigot open and hoped for something to show up to get growth moving again.  So far, no luck.

The failure of monetary policy to gain traction in so many countries is commonly blamed on fiscal austerity.  This can be overstated.  There are a few countries that really have tried to slash spending -- Ireland, Greece and a few more -- but in most others, including the US and the UK, the rhetoric about austerity has far outpaced any actual policy measures.  In Canada, the Federal Government is on a moderate austerity track, despite a relatively favourable debt/GDP ratio.  It would be good to think that Stephen Poloz would quietly suggest to Finance Minister Jim Flaherty that a less restrictive stance might help to gee up growth, but as Flaherty (and PM Stephen Harper) don't take well to criticism, it's unlikely they would have given him the job if they thought he was going to do that.  For sure, though, if Poloz can find a way out of the current policy impasse, there would be very few who would deny that he is indeed a "good economist".

One last thought.  This week, Fed Chairman Bernanke declared that thanks to the sequester, US fiscal policy was now acting as a drag on growth.  Two days later it was announced that the US economy added an unexpectedly large number of jobs in April, which pushed stocks to record highs.  Maybe the key to being a "good economist" has a lot to do with luck.  Bernanke doesn't often seem to have it; Stephen Poloz is surely going to need it.