Bank of Canada Governor Stephen Poloz started 2015 with a surprise interest-rate cut. He followed with a second quarter-point reduction six months later. For some, that might have been enough noise-making for one year. Not Poloz. He used his final speech of the year to take a shot at Harvard University’s Lawrence Summers, one the world’s most prominent thought leaders.
In unusually aggressive fashion, Poloz attacked Summers’s pet theory that structural changes in the global economy have triggered a period of “secular stagnation” that exhausted central banks will struggle to reverse. He noted that the economist, Alvin Hansen, who coined the phrase, turned out to be spectacularly wrong. Hansen, another Harvard professor, introduced the idea in 1938, during the Great Depression. “Soon after Hansen published his views, US growth took off amid a burst of spending and demand related to the Second World War,” Poloz said at an event hosted by the Empire Club of Canada in Toronto this week. “And stagnation did not return after the war ended; instead, the United States experienced one of the strongest and longest-lasting expansions on record.” Poloz stated explicitly that he disagreed with Summers’s assessment of the current state of developed economies. He said he thinks sluggish global economic growth is “cyclical,” and that demand and investment will improve as soon as consumer and business confidence recovers from the blow of the Great Recession. “I take issue with the word ‘stagnation,’” Poloz said. “Growth has been slow, but it hasn’t been non-existent.”
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