Kevin Carmichael: The failure at the Bank of Canada that likely made inflation worse

Carolyn Rogers celebrated her first year on the job on December 15.

It is difficult for a No. 2 to stand out at the central bank because the governor is always in the news. Rogers knocked down a #metoo question at the House finance committee last month and she has shown that she is a top-notch communicator.

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The Bank of Canada investigated six harassment complaints over the course of two years, according to a report. The central bank wanted to protect the privacy of the people who made the complaint. Rogers didn't like it.

We have 2000 people in our organization. You're talking about a couple of years. If no one came forward, I would be worried. It would suggest to me that we haven't created an environment where people can step forward.

She said that she did her due diligence because she worked in the financial sector. I don't want to work at this place if I think it's a place that tolerates harassment. I wouldn't work at this place if I thought it wasn't trying to be diverse. I'm proud of our record.

Rogers was able to keep a vague idea from turning into a dangerous one. Carolyn Wilkins left the Bank of Canada at the end of 2020 because she was passed over for the top job.

Governor Macklem could have left the benchmark borrowing rate at zero through the second half of the year even though inflation was rising. There is reason to conclude that groupthink set in at the Bank of Canada and other central banks that year, as they vowed in unison to do whatever it took to reverse the COVID-19 recession before extreme long-term-

The most dangerous outbreak of inflation since the early 1980s was caused by them. Rogers was tapped to deliver the first official mea culpa after Macklem acknowledged at the finance committee that he had made a mistake. She told the Financial Post and me that they know they are not getting it right. A lot of the models that our economists have are not designed for some of the strange things that are happening in the economy right now.

Macklem needed someone like Rogers on Governing Council in 2021. The world has found itself in a lot of trouble since the introduction of the computer because the faith elite economists like Macklem have the ability of math to explain human interactions. It takes something that hasn't happened before it makes a difference.

The models that central banks used before the Great Recession were based on a world where big global financial institutions didn't take on massive piles of debt to maximize short-term profits. The models that central banks were using didn't have formulas to cover the global spread of a deadly virus that governments would respond to by shutting their economies for the better part of a year

Macklem said in his year end speech that average can obscure inflationary pressures. Excess demand for goods was bigger than the disinflationary forces in close-contact services. It was difficult for our inflation models to predict the rise in inflation because they focused on average or aggregate balance between demand and supply.

A person who hadn't spent the first decade of adulthood earning a PhD in economics during the late 1970s and early 1980s may have helped the Governing Council.

Better decisions can be made by diverse and inclusive groups.

Macklem is a person.

Rogers has a background in accounting and worked in the private sector before she was appointed to run British Columbia's financial regulator in 2010. She sees the world differently than her peers, all of whom are graduates of the best economics programs in the country. Had she arrived at the Bank of Canada earlier, the debate over how to confront inflation would have been more interesting.

Macklem was dean of the University of Toronto's Rotman School of Management when he was chosen to lead the Bank of Canada. He had a group that reinforced his strengths and did not correct his blind spots. Macklem delivered a speech on the value of diversity while leading an interest-rate setting body made up of five white men.

Macklem said thatverse and inclusive groups made better decisions. One of the least diverse groups of central bankers in the developed world made each of the Bank of Canada's eight policy decisions in 2011.

Macklem promoted Sharon to the position of deputy governor. When former deputy governor Timothy Lane announced his retirement, the Bank of Canada said he would be replaced by an external, non- executive deputy who had no connection to the institution.

The Bank of Canada emphasizes the importance of governance in the wake of the COVID crisis. Lessons were learned from the recession and its aftermath. There is a danger of being lulled into a false sense of security.

The email address is kcarmichael@postmedia.