Interview with Stephen Poloz | Buckle up, it’s gonna stir!

Forces in motion will make the future economy more volatile than the past has accustomed us to, warns a former Bank of Canada governor, Stephen Poloz, in a recent book. Attention ! danger ahead…

Posted at 5:00 am

Andre Dubuc

Andre Dubuc
The press

The world of tomorrow, according to Stephen Poloz

There will be no shortage of risks for households and businesses in the coming years as indebted governments are weakened by the pandemic. Consequence: It will be necessary to prepare for hard blows, because the state will not be able to come and save everyone.

This is the thesis proposed by former Bank of Canada Governor Stephen Poloz in his latest book: The Next Age of Uncertainty How the world can adapt to a riskier future, published by Penguin Random House. Rest assured, the book is a much better read than a monetary policy report!


The world of tomorrow according to Stephen Poloz? The former Bank of Canada governor is urging households and businesses to prepare for inevitable economic shocks without relying too heavily on the support of tax and monetary authorities to protect them.

The title is reminiscent of the 1977 book by John Kenneth Galbraith. The Age of UncertaintyWritten in a turbulent time that we often compare ourselves to today.

The five tectonic plates that Mr. Poloz is referring to are population ageing, technological advances, rising inequality, debt and climate change.

Of the five, only technological advances, fueled by applications of artificial intelligence, the digitization of the economy, and advances in life sciences, are having a positive impact on economic growth.

The world of tomorrow, according to Poloz? The interaction between these forces will inevitably cause tremors. She urges households and businesses to prepare accordingly without relying too much on the support of tax and monetary authorities.

“The possibility that even a modest rise in interest rates could lead to a series of unusual corporate failures and job losses can seriously limit central banks’ ability to meet their inflation targets,” writes as an example, who headed central bank Canada from June 2013 to June 2020.

In this dangerous world, people should expect to lose their jobs more often, he warns.

Despite its good points, technology will make professions obsolete: driver, farm machine operator, financial advisor, call center agent and salesman. The author does not rule out an increase in trade union organization.

living under pressure

Mr. Poloz also expects sharp changes in interest rates. The pace of the Bank of Canada’s current rate hike appears to be proving its former governor right.

This explosive mix of rising unemployment – ​​a bold expectation given the shrinking labor force – and sharp interest rate fluctuations will put pressure on housing construction.

“Expectations of constantly rising real estate prices are disappointed,” says the author. Times of falling prices become more noticeable and memorable. This will have consequences for people’s attitudes towards housing,” he says in his chapter on the future of housing.

He advocates more innovations in the financing of houses. In particular, he is calling for a system of co-investment in homes between borrowers and lenders, a way to encourage home ownership for the youngest, he said.

According to Poloz, the state must adapt to the situation by offering automatic membership in social programs despite its limited options due to its debt. He is positive about the conversion of labor insurance into a guaranteed minimum income program, the rules of which must ensure that negative effects on the employment rate are minimized.

He also commends Quebec’s childcare centers for their benefits in terms of women’s participation in the labor market.

Stephen Poloz intimate

Each of the 13 chapters begins with two or three pages of more personal content, in which we learn, in small portions, snippets of the life of the great mandarin. Raised in a humble veterans’ home on Quebec Street in Oshawa where three generations lived together, Mr. Poloz was not born with a golden spoon in his mouth. As a father of Polish and Ukrainian descent, the renowned economist is an example of the “Canadian miracle”.

His efforts on the school desks were rewarded with diplomas from Queen’s and then Western, which opened the doors for him to federal institutions such as the Bank of Canada, Export Development Canada and then the Bank of Canada again, this time as a bill signer.

In this regard, he broke with tradition by signing the tickets with his full first name instead of just his initials. The reason ? Stephen is also his mother’s maiden name. By signing the first and last name, the governor honored his parents’ memory to the best of his ability.

The author devotes a chapter to the hectic days he experienced in February and March 2020, when the spread of COVID-19 brought the economies of OECD member countries to a standstill, and a coordinated response by central banks.

The book is not yet available in French.

The Next Age of Uncertainty - How the world can adapt to a riskier future

The Next Age of Uncertainty – How the world can adapt to a riskier future

Penguin Random House

Three quotes from the book

To climate change

“Around 80% of the world’s energy needs are now covered by fossil fuels. It is simply not possible to suddenly stop the production and use of fossil fuels, as some idealists advocate, without traumatic consequences for living standards. »

On the Bank of Canada’s quantitative easing during the pandemic

“Basically, it’s about making money out of nothing. This is because borrowers need more liquidity to be confident that they can meet their day-to-day obligations without risking default. This is by no means the same as creating money out of thin air and forcing it into the economy so that there is too much money for too few goods. If the demand for cash increases in times of stress, there is a risk that there is not enough money for too many goods. »

On the future of living

“Net growth in house prices will continue, albeit at a slower pace due to the aging of the population. Immigration is expected to increase. Inflation-adjusted interest rates are expected to remain very low for the foreseeable future, providing a solid base for overall housing construction. »


Stephen Poloz, former Governor of the Bank of Canada, in November 2017

Questions to a renowned economist

mid-July, The press joined the special counsel for the law firm of Osler, Hoskin & Harcourt at his cottage on Lake Louisa north of Lachute. Among the topics discussed with Stephen Poloz in French were issues of household behavior, methods of housing finance, price and wage control.

What can households do to deal with this more risky environment that you describe in your book?

For households, the change is to adopt a more prudent, conservative fiscal plan with room to maneuver as unemployment will be more frequent, likely shorter, but not necessarily. The turnover rate in the labor market will be higher.

The impact of unemployment on the household’s ability to pay off mortgage debt is the most important uncertainty factor. I don’t think households will buy the largest possible house like in the past. They have a higher safety cushion and higher savings level to ensure greater financial flexibility.

Perhaps we will also see higher participation rates than today because having two incomes in the same household, even if one only works part-time, is a different form of risk management.

According to your chapter on the future of housing, you seem to find merit in extending mortgage amortization beyond 25 years. Why ?

Our attitude towards debt has never really changed. Conventionally, the mortgage has to be paid off in 25 years. This is the conventional plan. Today, mortgage lenders offer home equity lines of credit even to retirees. It is considered good financial flexibility. However, it corresponds perfectly to a mortgage balance at retirement on a loan amortized over 50 years.

I don’t necessarily recommend taking out a 50-year mortgage. A more flexible financial system is needed in order to manage higher risks in the future, for example through co-investment models, which are currently still rare. Eventually I think it will happen.

How would your co-investment model work?

When it comes time to buy a home, it’s expensive. First-time buyers may consider buying a half house (a semi-detached house), it’s less expensive. With co-investment, you buy a house but only buy half from an investor [comme un prêteur hypothécaire]who owns the other half. It would have the benefit of lowering the cost of living for everyone.

Why do you worry in your book about the diversification of the monetary authorities’ mandates?

Central bank mandates are real mandates, but there are no good policies for the current inflation situation. It’s about minimizing the problems and finding the path that takes us back to the 2% inflation target. In general, a central bank has only one instrument, so there need only be one mandate. Adding targets opens the door to debate and disagreement within the institution itself, and also provides an opportunity to politicize monetary policy.

What do you think of freezing prices and wages as a measure to combat inflation?

This is a difficult question. We are currently observing price changes in oil and commodities that will temporarily affect the inflation rate. If you think the rise in oil prices is only temporary, it may make sense to deliberately reverse that rise and once oil prices start falling, we could restore taxes, for example.

About two-thirds of the inflation we see comes from external sources such as rising commodity prices. It is a temporary increase in the price level, not permanent inflation. It looks like inflation for 12 to 18 months, but the base effect will dissipate itself over the next six months. The question for central banks is how to manage the permanent part of inflation, the domestic part.

The preferred course seems to be stagflation, ie a slowdown in economic activity coupled with high but steadily declining inflation. Stagnation cannot be avoided, but we want it to last as little as possible. But we don’t know. It’s risky.

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