David Dodge, former Governor of the Bank of Canada and former deputy ministers in a bunch of different ministries in Ottawa, gave a great speech to the Canadian Association for Business Economics (CABE) on Tuesday, March 29th at the Chateau Laurier in Ottawa. VERY CANDID. What’s on his mind these days?
For one thing, he’s big on reform of some big economic financial institutions. It’s unclear if this notion stems from his time at the Bank of Canada, or if it’s more recent (he retired from the B of C in February 2008). But it was interesting to hear him call for some changes. Apparently the old models of financial institutions (particularly the IMF) are no longer working that well. He also mentioned that “second tier” countries such as South Africa, Australia, and Canada must play a big role in pushing for this reform.
Secondly, Dodge is concerned about the state of financial innovation. "For the moment, stability and regulation (in financial markets) has trumped innovation." That comment was probably meant more as an observation than a criticism, but it does point to his clear sense that more innovation is required in the way global economic players conduct themselves financially.
Thirdly, he remains an optimist about the role of the US economy—and particularly the US dollar, suggesting that it will remain the global reserve currency in the years to come. He concedes that American fiscal policy has been a bit of a mess, and that the current situation doesn’t do much to give credibility to the idea that they’ll get out of this. But America is amazingly resilient. "In the end, the US will get it right and the US dollar will remain the reserve currency."
Finally, during the question-and-answer segment of his speech, Mr. Dodge spoke candidly about the growing gap between the have’s and the have-not’s in the global economy. "There is something going on with global income inequality that, as policy makers, we should be alert," he said. That was a big sobering, particularly when the world is currently seeing uprisings all around the planet by young, disenfranchised citizens who are fed up with their governments. Dodge also pointed to the situation in Canada, especially the federal governments system of equalization payments. It sounded like he thinks it’s in trouble. The gist of his comments was that the big player [Ontario] can’t pay... and the little players [Alberta, BC, Saskatchewan] won’t pay.
The subtext here is pretty clear: it spells bad news for federal policy makers going forward!