'The Next Age of Uncertainty' with Stephen Poloz, former Governor of the Bank of Canada

We were extremely excited to have Stephen Poloz, the former Governor of the Bank of Canada, kick off our 2022 Eye of the Executive In-Person Series in partnership with Focus Asset Management, on April 6th, 2022. Stephen is a widely recognized economist with nearly 40 years of experience in financial markets, forecasting, and economic policy, including 35 years in the public sector.

The economic ground is shifting beneath our feet. The world is becoming more volatile, and people are understandably worried about their financial futures. Stephen Poloz maps out the powerful tectonic forces that are shaping our future, and the ideas that will allow us to master them in his new book, The Next Age of Uncertainty: How the World Can Adapt to a Riskier Future. These forces include an aging workforce, mounting debt, and rising income inequality. Technological advances are adding to the pressure, putting people out of work, and climate change is forcing a transition to a lower-carbon economy.
 
The implications of these tectonic tensions will cascade through every dimension of our lives—the job market, the housing market, the investment climate, as well as government and central bank policy, and the role of the corporation within society. The pandemic has added momentum to many of them. 

PEO Leadership provides its business community the ability to leverage its collective knowledge, experience and network; to challenge and be challenged in a high disclosure, objective and trusted environment through a combination of Peer Advisory Boards, One-on-One Coaching, and Thought Leadership Executive Networking Events - all for the purpose of enhancing the personal and professional lives of its members.

Transcript

Leon Goren: 0:00

Hi, I'm Leon Goren, president of PEO leadership, a peer to peer leadership advisory firm. We're an amazing community of CEOs, presidents and senior executives. Ask yourself, are you learning as fast as the world is changing? It's time for Ontario business leaders to band together for counsel and support. It's time for you to tap into the business wisdom of our peer groups and unlock new ways to grow. I want you to come out of this COVID crisis a better leader and your organization ready for what's next, take the first step at PEO-leadership.com. Well, it's good to have everyone out here today. Welcome to our first what we call 'the eye of executives,' it's part of PEO leadership, we run these eye of the executives four times a year. It has been a long two years since we've actually had our last eye of the executive. So once again, thank you for coming today. Obviously, I've got a very special guest sitting beside me. Let me do a quick introduction. And I think everyone already knows very much about Stephen, but there were a few things that I thought I'd share that maybe you didn't know. Well, the first one is- born and raised in Oshawa, Stephen was the first member of his family to attend university. In fact, he went to Queen's University, but- and the elective was economics was the luckiest elective possible. In terms of where you went with your career, on the side what he was doing, because he ended with a scholarship and he had worked three jobs to go to Queens. He was a disc jockey. So I don't know if there's ever been a governor of the Bank of Canada was a disc jockey, or you could call it a Spin Master or something. Anyway, graduated in economics went off to the University of Western Ontario. And then we have you know, the rest is history became a widely recognized economist with nearly 40 years of experience in the financial markets, forecasting and economic policy, including 35 years in the public sector, which ended with his role as the Governor of the Bank of Canada. Prior to that, he spent time with the Export Development Canada starting as their Chief Economist, and later as their president CEO. Stephen is a certified international trade professional and also a graduate of Columbia University's senior executive program. He has been a visiting scholar at the IMF in Washington, DC, and at the economic planning agency in Tokyo. He is a frequent speaker, and has taught economics at Western University Concordia and the Queen School of Business. Today, Steven is at Osler, providing clients on their strategic guidance regarding their financial system, trade and economic policy. This past February, Stephen, as many of you know, and I know you've all picked up the book, he wrote his first book, The next stage of uncertainty and how the world can adapt to a riskier future. And this morning, for those of you that read the news, he was nominated for this Shaughnessy Cohen award. So congratulations, Stephen on that. That's a huge feat. All right. So just from a logistical, I'm going to spend about 30 minutes, we're gonna go back and forth with some q&a. And then I really want to open it up to the audience and let you ask your questions, and really direct them to Stephen, really want to thank focus asset management. And there's a number of you in the crowd, Greg, Ted, James, thank you for helping us put this on today. You're a real part of our PEO leadership community and really allowing us to do what we do. Thank you, again, focus on that. So I'm going to start with an easy question. And then we can really get into this. So anyway, what motivated you to write this book?

Stephen Poloz: 3:32

Well, you're right, that that is easy, I guess. I mean, you know, everybody sort of thinks maybe someday, I wouldn't mind writing a book, you kind of have that in mind. But after the retirement project, I can assure you because there's no time for any of that nonsense when you're on the job. But when I when I retired, I thought yeah, maybe maybe I could write a book. But what would it be about I'd what I wanted to do is contribute to the conversation around long termism for corporate, corporate objective setting, you know, so in this sense that companies are just a very short term focus, get- make the numbers, okay, another quarter, make the numbers. You know, 10 of those does not make a long term plan. So what could I bring to that conversation, and that would be to try and bring a framework that really was long term in nature, that they could use as a framework to have those conversations. That's how I kind of started out. The honest truth is that I didn't tell anybody I was reading a book, not even my wife. She did call asked me a few times, like what are you working on all day? You're supposed to be retired at all, you know, this is a COVID project. So who cares? It's not we're not going to Hawaii or anything. And and so I was working with and I just said, Well, you know, I work I'm giving speeches here and there somewhere. I'm working on a little thing on demographics that I can insert into my talks or, you know, industrial revolutions, that kind of thing because I thought When people say to you Well, now that you're tired, what are you doing to say, Oh, I'm writing a book, it was just sort of sound a little pompous. For some choice, at least, you know, because well, who knows, will forever go anywhere, right? So I never even told Valerie until after. It was basically all done. And Amanda Lang took a look at it and told me, yeah, you can do that. So. So I don't know. The motivation was that, but then when I once I got the bit of my teeth, you needed motivation, because it does take a lot, a lot more time than it looks. I admire writers so much now. Like the people who actually have made their living year after year this way. It's a really hard job. Yeah. But anyway, it's been turned out to be a lot of fun.

Leon Goren: 5:48

No, it's great. Absolutely great. So what you know, you're talking about the longer term and the one thing I did pick up in your book that I'm going to come back to at the end as well was it sort of you wanted to, I got the sense that you want to provide individuals and leaders with a perspective. So we're looking outside the window, we see all these risks in front of our life, our everyday life. And the challenges that we you know, as leaders, you got to start making decisions, you got to create action plans. And I sense from the book and how you wrote it, it was really a tool for us to think about in terms of how do we make those decisions? And what risks are we looking through that window on?

Stephen Poloz: 6:28

That's right.

Leon Goren: 6:30

So before I even jump back to that, let's let's, we're gonna come back to that because you defined it as five tectonic forces, which I'll get you to define. But let's do an economics one on one class. This is probably for me as a refresher, because I think we need the fundamental basics here. Okay, to do so. Growing workflow force plus productivity equals growth. That's right. Okay. Anything more than that any context that we should know more to that point? No. self explanatory.

Stephen Poloz: 6:59

You know, think of it like if you had 1%, labor force growth, that 1% population growth in the economy, yeah, that would mean you'd have 1% more workers every year. And that would put a floor under your growth rate, economically around 1%. And assuming you have some growth in productivity, you'd add that on. So say, if you're lucky, 1% per year, then you'd have 2% economic growth. And then you'd have 2%, let's say inflation. So what we when you look out the window as a company, you'd see around 4% nominal headline growth in your business, unless you're gaining market share, once you have a higher number, if you're losing, it'd be less those the basic framework. And what I you know, what I set out to do this, I thought, well, I've what kind of a framework can i lay out and I realized none of the stuff that I thought was a constant is actually a constant. That's where where the book came from, because I realized it couldn't really assert any of those things. You could hang your hat on them, because we're at a time when they're actually moving a lot. And that means if you're gonna plan, you need to understand that better. Not that you can just figure it out a plan. Exactly. But you need to plan with the with that variability in mind. Yeah.

Leon Goren: 8:13

So what is the optimum growth?

Stephen Poloz: 8:15

Optimum growth? Well, you know, I mean, when you look at that, you want it to be as much as it can be. And that means since you since population growth is kind of a given you, we can adjust that by having more immigration or something, but let's just assume that away, you're only producing new workers at a certain rate. And so like, it puts the base on your growth, and then productivity is something you'd like to have more and more of, because that means there's more per person or more to divide up more tax revenues, more things you could do. And so that comes from innovating or more efficiency at companies, that kind of thing. So there's nothing optimal about it in a sense, in that sense, but it is kind of a speed limit, if you like. And if you were to try and somehow get more out of the system without generating more productivity or more workers, government policy to try and boost drove? Well, usually it wouldn't work, it would just cause inflation, right, because it'd be too much pressure to try and produce more. And that's a lesson that was learned the hard way in the 1970s. But you know, we've learned it. Yeah.

Leon Goren: 9:28

Okay, and then understand, so got the first to the third one, the role of the central bank. Because I know there's gonna be an issue right when you're talking about government and the central bank and the relationship, but what do you think the role is-

Stephen Poloz: 9:40

So, the role of central bank is to is to provide a the ideal environment in which companies can make optimal decisions without worrying about the context. So one element of the context might be while prices are going up, five or 10% per year while and they don't go off altogether. They're, they're all it's all uncertain. Well, it's a tough planning environment. But imagine if it was predictably, around 2%, which is what we had for the past almost 30 years. Well, that takes more important pieces of uncertainty off the table from a corporate point of view. And that's almost the most of the central bank can do. It as it turns out, by stabilizing inflation around that 2%. Because of the way inflation happens, and happens through excess demand and excess supply, like that fluctuation economy, aiming for a constant inflation rate actually stabilizes the fluctuations in the economy makes them smaller means you have fewer ups and downs and unemployment and stuff or at least smaller one. Because it's actually the other big one that's going to throw inflation off target. So the central bank acts to make that deviation in the economy smaller, and that reduces how much inflation fluctuates later. So what we've shown is that the past 30 years have not just been a more stable inflation environment. They've been on average, throughout the world, a higher productivity environment, companies made better decisions in that low inflation environment. And there's been less variability in employment. Use smaller business cycles. So all good. So that's central bank's role. It's kind of like just making sure the environment is well, there's one other I should mention, and that is, the financial system needs to be safe and you know, reliable. So there's, you know, a couple of times when it wasn't, so you know, the so I'm not claiming that was perfect. But all that to say that central banks are meant to play a role in the background for me, if you've never heard from the central bank, that would have been just fine. You know, that would mean everything's going wow. Not in the news.

Leon Goren: 11:51

Okay. All right. We got we have the base layer here. So in your book, now, we'll start to break it up. You talked about five forces, right? by forces that really, you know, we're all searching, you hear talk? When's normal coming back? When's normal coming back? What's the new normal look like? And from what I've read in your book, the new normals really uncertainty and volatility. That's that's the new normal, and you brought it down into five areas, and aging population, really technology in terms of the progression, growing inequality, rising debt? And the last one was climate change. Okay, we're not going to touch on all the aging population. I think we get really, yeah, we understand the aging part. Because we know you get a year older every year. Yeah, we're good on that. We don't like that part, Stephen. Okay. Give us a context for the technology piece and the impact on the economy. And we're going to try and keep this tight on we'll do that one, the inequality and maybe rising debt, and then I'll come to the My big question.

Stephen Poloz: 12:50

Okay perfect. So the importance of this is, if you want to think of the economy as always being hit by something, you know, it just always is. So think of the economy and much like a bobble head ball doll, you know, like, it's always doing this. And if you leave it alone, it'll settle down. Alright, and so using these forces to identify where will it settle down? So when you say, Well, what does normal look like? Where do we end up? Over? And the answer is, well, some are different, because the forces are actually in motion. So you know, the demographic ones and obvious one, because we are getting older, the whole world is getting older, because 50 years ago, we had the post war baby boom, and now we get the opposite. So we get the exit, folks like me out of the workforce. So we we've had 50 years of stability on the demographic front. And we kind of think of it as normal, or what I'm arguing is not normal, we're going back to normal now after this 50 year thing. So that's a really important for us to understand. But technology is by far the most important. So I'm glad you want to focus on. So we know technology changes every day, there's always something new you're supposed to buy or something new, you're supposed to use it work or fine. But actually in history, there's only been three major waves of what we call general purpose technologies, that's when they invent a new technology that gets used by everybody across the whole economy. And so that they are course the first industrial revolution, or the one that we usually just call the Industrial Revolution was the steam engine. Right? So it replaced all those folks, you know, that were doing hard labor, you know, with with these, these machines. And at the time, everybody said, well, that's just a story for why I lost my job. Right. So there's always this thing about technology, displacing people. That's the first one. The second one was electrification and watch Downton Abbey and it's all for the funny how, you know, now we got a refrigerator, you know, and lights, all that sort of stuff. It's really cool to watch that happening, but that's again, have affect productivity everywhere. And the third one is the computer chip, which went everywhere. And so what happens when you have new technology? Like, how did you get a wave of productivity? Okay, so there's only been three of these. And now we're just entering the fourth one. That's the, that's the digitization of everything. So the AI, artificial intelligence, robotics, biotech, you know, those things that are all feeding on these big databases and stuff. And so that's the next one. And it's only begun, it's been accelerated by the pandemic, you know, everybody bought, you know, overnight, you that's why we're shorter chips. Overnight, everybody ordered truckloads worth of laptops and everything and you bought exercise bikes, they've all got computer chips in them, right. So that's, that was amazing demand for computer chips. And we're still recovering from that surge. The AI revolution, arguably, we were just guessing it could take 10 to 15 years, the computer chip revolution really started in around 1980, there about '78-80. And you remember all during the 80s, that people were talking about should be productivity by now. And the quip that was said then was the productivity seems to be everywhere, except in the statistics. And it took really until around 1995, when the productivity really started to show up in a macro way. What happens is when there's more productivity, there's more capacity in the economy, to produce all kinds of things. And of course, people are losing their jobs, because the technology, you get the rising income inequality, which is part of the side effect. And of course, other new jobs you never heard of being created. And the price of everything starts going down, because you're using the new technology. And if you don't re-lower your price, your competitor well, and they'll steal your lunch. Okay, so that deflation that comes from from productivity is a very common feature. Well, in the first two industrial revolutions, that deflation, happen without central banks, either understanding or even having the ability to provide more money to finance all the new activity. So what we had was a true deflation, run to the gold standard, both of those, and we had the Victorian depression 23 years long, and the Great Depression of the 30s, which was only 10 years long, but it was only that short, because World War Two caused government spending to explode. So the lessons from those, apply them to the mid 90s to the 2000s. Well, you know that remember, the missing inflation? Well, that was what Greenspan was dealing with during his time. And he kept interest rates low for far longer than anybody believed possible. People were screaming at him that he was taking inflation risk. And he said, No, no, I don't see any inflation. So it did did the right thing from a macro point of view, but also caused the global financial crisis. Okay, so little side effect there that we kind of skipped over. But but you know, the the imbalances were building up, and we didn't have the safeguards that we have today. So anyway, lesson learned. So we're heading into that now. And I think that's something we need to understand well from past industrial revolutions, and understand how companies can best deal with that. So that's, that's, I think, is the most important force. And mainly also, it's a force for good. I mean, it's a positive force, even though the dislocations are real.

Leon Goren: 18:38

So what what about so you tied into the growing inequality piece through technology? So let's skip that one. But what about rising debt? As a big force? Because yeah. What can you tell us about that?

Stephen Poloz: 18:50

Well, so rising debt, we're all familiar with how households have accumulated all kinds of debt. Every every year, it's a new record. And it's, you know, the chickens are gonna come home to roost and all those kinds of statements. But the fact is that we've we've innovated enough in our financial system that people can carry higher debt interest rates of track lower for the past 30 years. So the ability to service debt has improved throughout that period. So households out I mean, of course, it's a vulnerability. If you're if you got a lot of debt and you lose your job, well, then you'll see, you know, like they say, when the tide goes out, you see who's swimming without without a bathing suit on. And so that, of course, is a risk, but fact is the system can carry more debt now. But the big one that people are more concerned about now is the government debt, which has ratcheted steadily higher, and of course, during the pandemic has exploded higher. And something like 20% of global GDP was borrowed in the last two years by governments and we now are at a position where it's very similar to where we were after World War II terms of government in debt, so how we get from here to a more resilient, you know how we pay that back, you know, without just taxing future generations? You know, I'd feel guilty about that. That's how we did it. Well, you know, yeah, exactly. So somehow or other, we need to get there. So when people say, Well, same as after World War II, oh, he's during the 50s and 60s, I, when I was a kid, when I was a kid, my dad never said, you know, there's an awful lot of debt from World War. I never heard discussion of that at the kitchen table. But the economy was growing really fast, right, we had the baby boom, people were getting jobs. And of course, the debt to GDP ratio was just collapsing. Government's never had to pay that money back. It just it just kind of eroded as the economy got bigger. But now, that won't happen. Because we're not having a baby, boom, we're having the opposite of the baby boom, you're gonna have slower economic growth. The only good part of that is that we'll also have perpetually really low real rates of interest to the ability to serve as debt is there. And as long as governments have a sustainable plan, where debt is falling relative to the economy, just like a company, you know, no, no, no major company goes around with any without any debt in their capital structure. Nor should the government you shouldn't be worried if the government's using debt to finance long term investments, like infrastructure and that sort of thing. That's perfectly fine. You just don't want them to throw the money away.

Leon Goren: 21:31

So let's look at in the context. And you and I talked about this a couple of months ago. So it's free, COVID. Free, and you would you'd say just say January 2020. The Canadian economy is in pretty good shape. You got buffers? Yes. You would say I got room to maneuver. Yeah. Then we go. Post COVID. That's when you and I set in January 2022. Actually, there was no war at the time. And you're like, all right, the buffers have kind of eliminated, but I'm still optimistic in terms of where we're going. We got inflation and stuff. Yeah. To where we are today. Yeah. And we got a budget coming out tomorrow, too, which we can we can come back to Right. Right. So I'm a business leader. Actually. We're all business leaders. Were looking out the window right now. Right statement. So what do I see? We got a war. So we got D globalization going, right. We got rising inflation, which when we talked about two months ago, we thought second half, not so bad anymore, Supply Logistics would work its way out, right. And it's not necessarily happening that way. For most of the businesses here today, right. And we got commodity prices. So we got rising by people. We're looking out the window here, and we're thinking about our own talent. wages are rising, people are quitting. They're not as motivated. At least we don't feel that way. And unemployment is really low. And there's tons of Open Door job openings. So that's what's I see out the window, too. And we're in the fourth technology, rebel industrial revolution right now. So all of us are looking through this window right now. Where do we go? Like, what actions because what you talk about is, in the book is giving guidance, right, seeing the risks, so we're seeing these risks, right. But how do we actually plan for anything in terms of especially for business leaders? Right, you need to plan out for a year or two years or make decisions? Yes. Any advice? Like where do we go on and throw that in? Are we going now into a recession in the second quarter? Because that would be helpful and under or into the back end of this year? Or 2023? Okay, I'll leave it at that. I touched a lot there.

Stephen Poloz: 23:36

Yeah, you did. Yeah. Why don't we just move on to the next question? Okay, so, yeah, so of course, as you described, the situation is incredibly complex. And it would be nice to be able to say, well, you know, the bobblehead doll was like this, but here's what it's gonna look like six months or a year from now. And, and the truth that truthful answer is we don't know that the the uncertainty that we face is probably historic. We've never had the, the, all these forces acting all the same time and getting bigger at the same time. And so that means the underlying equilibrium is vastly disturbed and not predictable. And what I'm arguing in the book is that actually, many of the tools that economists use to try to make sense of all that also will not be able to cope with that. We those some of those things that are moving or things we assume are constant, you know, and when in our models, making them all so they can move is just impossible to do, you know, model the way economists do. So the way I see it is it's like this, you say an economist says, Well, I've analyzed all Look at all the stuff you've just mentioned. And, look, it's okay, it's going to be 2% growth, on average, over the next four years. So go ahead and make your plan around that. And inflation should come down, you know, progressively, maybe not as fast as you and I talked about before because of the war. But it'll get it'll come down, because it's just gonna mathematically come down. And the central banks are back are on the job. So, okay, so it gives you that as just as forecasts is, what's the best I can do is there's a lot of uncertainty around it. That's the best I can do. So that's very similar to asking an economist, can I walk across that river? And he says, yeah, absolutely. It's only 12 inches deep on average. Okay, turns out is 60 feet deep in the middle. Okay. So when I, one of my advice is take swimming lessons, because chances are, you might have some 60 foot water in front of you right now. It's a bit of a metaphor for that. And that is, it's not conceivable that you can create the perfect path and say, I figured it all out. And that's where it's going to be. Because the range of possibilities around that path will be enormous compared to in the past. Now boards, and management, often, they get this stage of their planning, and they're like, Okay, well, let's, let's analyze some, some other scenarios. Like, what if this happens, or what if the war becomes true? What World War you know, okay, bad scenario, right? So that, you know, that kind of thing. So they do a really bad scenario. And our company is like, Okay, well, we do well, we, we conserve cash, and we do this and that the other thing, okay, if that happens, we know you do. I don't know if we can survive it. But least we know we do. A lot of things are really great. Oh, things are really great. We do this, that and the other thing. Okay. So you have these two scenarios, one of the opposite of the board, the board goes, Okay, I think the base scenario is about right. They fall in love with it, because they've seen these extreme ideas, and they don't believe them. And the problem is that our normal concept of a bell curve with the most likely thing being that main scenario is gone. This is what actually, Taleb argued in the Black Swan, his book. So the distribution of possibilities is much wider. And we need to be prepared for more extremes. And that means saying, I don't know what's going to happen, but I've got a buffer, so that I can defend myself if I'm wrong on that side. But I also if I'm wrong on the other side, I got that buffer, too, that allows me to capitalize on good news. And we know that good luck outweighs bad luck on average. Okay, so it's really important to remember, a lot of companies prepare themselves for downside risk, but don't really think about, well, what if something good happens, they're not really ready to pounce on it, or willing. So all I had to say, it's about risk management. And it's not about making it up in the boardroom. It's about dedicating actual resources. Having a team or his management team, that's always looking for new opportunities, or re optimizing the plan as the data unfold, so that you're no more nimble. I think that's kind of the where we're headed for. I think companies that look at a really risky situation, most of them are going to be like, well, the return on that investment that you're offering me is looks okay, except it's if I adjusted for risk, it's too low. So I'm just not going to do it. Not worth it. I think that's where the mistakes will be made, that people should think of high risk opportunities as an opportunity to manage the risks down to enhance the return to convert the risk to returns for the shareholder. And we don't really think of risk that way these days. Okay, if we let those opportunities go by somebody who thinks longer term, it's going to snap them up.

Leon Goren: 28:56

Makes sense. What do you do with them? So what about the government though? Oh, what do you tell the government about that in terms of a buffer and how they look at?

Stephen Poloz: 29:04

Yeah, so the government is saying, Look, we here in Canada, we were, you mentioned before the economy was in great shape just before this happened in, we think of I always call it home, you know, home is at the intersection of 2% inflation and full employment, where else would you rather be? Right? And try and try to move neighborhoods and just mess it up? Okay, so that's it's a neighborhood, though, it's not an exact address, but we were there before this happens. So there's no better place to be when something big is coming your way that requires you to react. So like a healthy individual can shake off COVID The way a healthy economy can shake off COVID. And from the beginning, I have a lot of faith in the resilience for that reason, and economy. At the time, they said oh, there's sunny Steve again. You know, and the headlines were, oh, this will be the worst recession since the Great Depression and All that kind of stuff. And none of that happened, right? None of that happened. That's really good news. And we shouldn't lose sight of that, you know. So we now we are now in a stage where, of course we're not on but we're heading back home again. And the government was in such a well placed place because of past successes, fiscal consolidation, the debt to income ratio in Canada federally was about 30%. So just to remind you that in 1994, when we had a little, not quite a crisis, but a lot of tension in international markets, the Canada's debt to income ratio was way way over 60% was more than double that. And the debt service ratio was eating up all kinds of money every every day. So that's when we were called the northern peso, the Canadian dollar was called the northern pay. So by The Wall Street Journal, well, we've come a long way since then, we've had lots of leaders that we should give credit for, for getting there. They're well placed for this. And so when this happened, and they put the programs in place that people said, Well, how much is that going to cost, sir? Well, it costs what it costs, we're putting it there and the number of people who are unemployed and apply for serve, they'll get the money. When they get the job back, they won't get the money. We don't know how much it'll cost. But we're allowing for at least this much in our budget, because there's the government spending all that money, well, no, they were just making it available. So at the time, people thought we were gonna go back more or less to where we were back in the mid 90s, like 60 something percent of GDP as a as a debt ratio. As it turned out, because the economy was much more resilient, we used far less of that capacity than expected. That's been a persistent pattern, or all the budgets since the pandemic, and we'll see it again tomorrow. Okay, the economy has outperformed expectations, and the government has borrowed far less than they provision for question is, what are they do with the capacity? That's the question, but it means that the debt ratio, I don't really know what it'll be in the budget, of course, but I can, I can guess that, it's gonna be like, under 50, you know, like, there's going to be 40, something, be nice to get back down to the 30 Sure, 30, something you know, so that we're more prepared for the next, whatever happens. So that's what I mean by rebuilding your buffers. So that we're able to respond just as we just did, whatever happens next. Because if it happened again, tomorrow, we're not actually prepared. There's other ways in which we're not prepared, right? We know, like the medical system was not prepared, there just is no excess capacity at all. So as soon as something like this happens, all the surgeries get cancelled for a long time. So there are a lot of downside costs there to pay to ordinary people. And that's regrettable. So that's another place where we need more buffers to be built, this will cost money. But in companies need buffers, households need buffers, they've got a lot of savings from the pandemic, because they couldn't spend a lot of their money. I think they're gonna keep bunch of it.

Leon Goren: 33:05

So so if I'm just gonna come back to the corporate world for one sec, because what you described about risk management, I understand but your time it up from a very large perspective, right, those that have those boards in place. Yeah, corporate Canada, the majority of businesses in Canada, small midsize businesses are not setting up risk management teams to do this. Yes. You know, again, you're looking out the window, you see all this stuff today. What is the SME do like if you're in their position today? Are you building your cash reserves here?

Stephen Poloz: 33:36

Yes. So the, so the SME needs to think in exactly the same way. I mean, I know they can't have a big staff of risk management people or anything like this, but they need to have reserves, they can't spend all their capital on their plan and then be caught naked when the tide goes out. Okay? And they have to assume the tide is gonna go out a lot more often. And maybe bigger than in the past. So they need to be more prepared. Either financial intermediaries may be in a position to help their audit firm may be in a position to help analyze some of the risks that they face. So that's a good resource and the audit firm anyway. You know, a little extra money to them can go a long ways because they're exposed to such a wide range of companies and could give you that kind of insight into what what might be faced and how would you deal with it. But I don't see an alternative to preparing yourself for more volatility. And, and knowing what you would do and but But bear in mind. There's just as much good luck out there as bad luck. That's a really important thing to remember from history. And, in fact, good luck is vastly outweighed bad luck. Okay. So so being ready doesn't just mean having a bunch of cash that you can just throw it out the door. You know, to keep the company going. It means being ready to pounce opportunities to be being opportunistic. So you need a chief risk officer, but you also need a chief opportunities officer, kind of like that idea. And, and if there's other ways of, you know, there are ways for small companies to manage some of the other risks that they'd be presented with, like HR risks or things related to HR. You know, there are insurance companies around, you know, you can you can work with in order to cover some of those risks. Some might say, well, that's kind of an expense, I say, yeah. But that's, you know, it's like when you insure your car, that's an expense. But when it comes for renewal time, do you go, oh, shoot, I shouldn't have insured my car, because I didn't have a claim. No. Right. So I think you mentioned deglobalization. It's another example like people are worried about their supply chains now, like they weren't before. Well, that's good. So what will they do? Well, they won't necessarily just bring everything domestically, they'll look for ways to reduce the risk in their supply chain, having more than one company be their supplier, different countries, that will cost a little bit more money, but it's just money well spent in an insurance. So I think we'll see a lot of that there are many different ways of managing risks, I can only talk about the broad kinds of issues, every company is going to be different.

Leon Goren: 36:24

So it's interesting because I look at the ultra high net worth today. And if I look at their asset allocation, their buffer today is they're holding about 11 to 12% of cash. opportunistic. Yeah. Right. So they sit on their cash understood, you're a betting man today, and you're running an SME, what percentage of cash like what type of debt equity? Or what type of cash would you be holding today?

Stephen Poloz: 36:45

Well, I don't know. I mean, 10% or more sounds like a lot, doesn't it? Location sense. But in a in the real life of a company, a company is a small company is almost always start, start for cash. So there, there may be other ways, for example, you know, you've got a deep pocketed investor that's there and says, you know, look, I think, you know, don't worry, we've got if you needed 5% injection, I'm still here, because I believe in this long term play. That's one form that could take but I just think in general, it's gonna vary from company to company, what are you actually exposed to? Like, I really can't give you a number of that. But but that's that's the kind of behavior that we're talking about. Yeah.

Les Mandelbaum: 37:34

At PEO leadership, I'm surrounded by other business leaders who challenged me to become better

unknown: 37:40

Les Mandelbaum, founder and CEO of Umbra

Les Mandelbaum: 37:43

leaders really needs to step outside their world and get new perspectives.

unknown: 37:47

PEO leadership is more than peer to peer advisory. It's a community of top executives with global experience,

Les Mandelbaum: 37:53

our retail landscape is rapidly changing. PEO leadership has been vital in helping us navigate through this

unknown: 37:59

good time to step up and lead is now go to PEO-leadership.com.

Leon Goren: 38:05

Okay, well, why don't we open it up to the audience? And maybe I'll kick it off, Greg, over at Focus. We'll just take somebody

Greg: 38:15

maybe a bit off, maybe a bit off the fairway? I guess we have played golf question. But you talked about accumulated government debt. And one of the tools in your world is more around interest rates and controlling the central bank rate. We don't hear much about immigration policy in terms of stimulating economic growth, you know, above that 1% that would come from immigration growth, which I think is about 1%. Right now. And you know, you just don't hear about it much yet. We hear all this about interest rates and, and government spending. And does this just happen by accident? Or who? Who really is on the ball in terms of what are we doing deliberately there? And why don't we hear about it a whole lot? And could we could we actually go to 2% growth in our population annually to hit a target on reducing our debt to GDP? Just you never hear about it? I'm curious in your thoughts, a couple of

Stephen Poloz: 39:09

good questions in there. So let me start with the last part first, which is that the government was has been pretty clear about what they call it, their fiscal guardrails that, for them, the single measure of that is the debt government debt to GDP ratio that I mentioned, you know, could have been as high as 60%. When the crisis first happened. I think it was planned to be in the mid 50s. And the first the fall update that year, I forget exactly those numbers. But as I said, we've done probably, you know, 5,6,7 percentage points better than this. And that's a big saving compared to what it could have been like. So So those guardrails are there and they'll be that'll be a centerpiece again and the tables tomorrow like what's the four counts for that ratio. And and I know that the government is committed to being clear about that. And hopefully having it come down through time, as I said, build and rebuild the buffers. So we'll see tomorrow now, but get beginning back to the demographics side, it actually has been a centerpiece, this government recognized, actually, both the previous government did too. And so we had increases in population, immigration allowances under the Harper government, and then again, under the Trudeau Government, and then yet again, under the Trudeau Government, so like, they're, they're basically 400. And I get the number out 440,000 Is the target, I think, for this year. So that's a good, you know, 5060 70,000, more than, say, 10 years ago. And and I think it's kind of judged by how much can the system handle I was just at a conference, the Globe and Mail put on this afternoon on the role of emigration and innovation and productivity. And, you know, there's some basic facts here that we know, like, immigration is not just people that do work gives us that 1%, you talk about immigrants, on average, create more businesses than then the rest of us. There, they come from usually a situation which is less than ideal. So they're like, Wow, new opportunity. They're hard working, and all this. So so they're highly productive. And so they are part of that productivity generating scheme. And so we should be facilitating as much as we can, or as much as we think the system can handle. Now, one Cuthbert has been to that Congress said that he estimates there's 1.8 million people waiting in line, to immigrate to Canada, that, in fact, we're what we're what we're bad at is the execution, you know, actually getting the paperwork done getting them approved getting the man. And I think that's probably true. So we, it's we put out numbers, but we don't necessarily give the resources to the department that's in charge of approving everybody. They did expand that budget for them a bit. But I think it sounds like they need to do some more there. I'm not an expert on it. But I get that impression. But I'll tell you just this week, they announced they're expanding the temporary foreign worker program. Even when I was governor, the bank, we use that a lot to get a PhD in economics. It there aren't, there aren't that many. In Canada, we are the biggest employer of PhDs in economics. And once you do fine want to go be professors and stuff, so you're always trying to compete to get them. And lots of really high quality students in our universities from afar. By you get them in under the temporary foreign worker program, they get a couple of years, they love it here. You know, then they're in the queue, the 1.8 million queue. So it's again about execution. That's our most important channel of immigration, actually. And so it's the wrong time to be nickel and diming. Our universities right to think that's the most important attraction channel for people. So anyway, it is a live issue. I think you'll hear stuff about it tomorrow. I mean, they'll least remind us how much they've increased, you know, the targets. And if we're lucky, though, give more resources to those who are trying to deal with that high flow. And of course, we now are welcoming an extra bunch of folks from Ukraine, which is great. I mean, my, my grandfather came from Ukraine and in between the two wars, and talked to a construction company this week. And they said, well, we'll hire we're shorter workers. We long as they got a little bit of exposure trades were, we'll train them. That's the kind of attitude like my grandfather were he was a shoemaker. But he's from East firm, sorry, Western Ukraine. And but he worked in the mines and Sudbury for I guess, three years or so and then made the big move down to Oshawa to open up his own shoe repair shop, you know, as entrepreneurial. There you go. So his story, thank you.

Leon Goren: 44:29

Next question will go right to the backward or we'll go over there and then to the back.

Stephen Poloz: 44:35

Always a[inaudible]. Sorry, Joanne.

David: 44:40

I always find it interesting how, you know, we got the macro environment where you're kind of dwelling live in and then as a business owner and multiple business owner. I find that whenever I hear from you, it's not exactly aligning with what the reality is for me. And there's the gap is good. Bigger instead of smaller. Yeah, much more. So Ontario, and I find it so frustrating because it's like, you know, you know, inflation, you're talking maybe five, whatever percent? Well, my reality my own business is 20-30%. And how do you recover that money? Then you say, Okay, well, your margins, you can go and get this insurance and this and you can do that all the strategies that you spoke of. But if you're not bringing in the same amount of money as you used to, I'd like to know, I don't have an angel investor. I'm my own angel investor. Right. Okay. So I'm limited with opportunities. And then Canadian banks, on the overall are so risk adverse for Canadian business that has, it's just that joke. So I like to know how you guys can kind of get your narrative and be so different to where I think it is. Okay.

Stephen Poloz: 45:51

Well, you mentioned a lot of things there. And this is why when I was governor and before that, when I was with EDC, spend as much time as I could, actually talking to companies, okay, every time I was in to give a speech are always out either breakfast or lunch or dinner with, you know, a dozen or- Well, there you go. There we go. That's what I'm talking about. So. So I mean, of course, I don't have that quick answer for for your specific situation. And I know like right now, the gap between reality and what is actually going on? seems big. You mentioned inflation in particular. Okay, so, so let's spend a minute on that. Okay, because that's, I'm fairly sure everybody's wondering about inflation, and sure they should be. So I know, when you when you see the price, let's say the price of oil doubles. Well, I mean, I mean, of course, that's that's inflation, right? But But no, that's seriously the price of pricing, something doubles. That's inflation, isn't it? Yeah, of course it is. But actually, it isn't not an economist sense. It just means the price went up. Okay, I'm gonna be totally blunt with you, it just means the price went up, you really think it's gonna go up another $100 Next year, and another $100. A year after that, it's literally impossible, because the economy would cave in and oil will be $10. Okay, so we know that oil prices are never a source of actual inflation. Inflation is something that goes on, you know, forever. That's, you know, so you got to change your whole business model, and you got to pay people in extra 5% per year or something to cope with it. So that's what we're trying to avoid that kind of inflation. Factor prices go up. The economists say, exogenous Lee are literally by themselves. There's nothing you can do about that. Now, let's say you wanted to do something about it, we have a 2% inflation target, and the price of oil doubles. So inflation goes up to 5%. Because of that, well, two things are important here. First is, if I was religious about keeping inflation at 2%, I would raise interest rates really fast, and crushed the rest of the economy. So there was deflation and your company and every other company in the room. Except for Suncor. Right? And so those prices would go down enough to offset the higher oil price. Oh, that's just nonsense. No one would no one would ever advocate doing that. So all it's really going on right now is an attempt to try to keep you to still believe that inflation can be around two or a little above percent, when this is all over. And if you can, if you can believe that expectation stays solid, then we don't have to change the whole world in order to get there. And so what are the ingredients there, in fact, is that if the price of oil doubles, it takes for 12 months, the inflation rate looks like it's five or 6%. But when the 12 months are done, the tail end of that 12 month calculation has popped up to a doubling. And inflation looks flat again. Unless you're okay with me, because the price goes up from 150 to 100. So it looks like 50 100% inflation until the base of the calculation becomes 100. That is 100 Compared to 100. Now at zero, so oil stops being a source of inflation after 12 months. That's a lot of that going on right now. So, example hotel rooms for the pandemic, just the day before the shutdown. I was here in Toronto, women's capital market women and capital markets at the Royal York and it was $449 for the hotel room. Okay, I stayed there last night. $300 is that inflation? Well, it's twice what it was 12 months ago. So the price of a hotel room has doubled over the last year and that's in your inflation comic, right? But it's still below what it was before the pandemic. So it's kind of like deflation and inflation all at the same time. It's understandable that it's confusing. So there's a lot of that in the numbers. And what I'm telling you is that over the next 612 months, that's just going to keep drifting down as the base keeps coming up. What's underneath that, though, is there's excess demand in the economy. So you could be seeing the real deal. And that's the part the Bank of Canada will be very interested to try to prevent. Same thing with the Fed. Jay Powell says, well, there's 10 million next excess demand and jobs, 10 million positions open, I got to raise rates enough so that it gets back gets down closer to equal, and then you're taking the excess demand or the economy, or the economy is still fine. Okay, so we don't have to have a bad cycle, a big recession, not necessarily still could happen. But you have to try to, I know, it's not easy, we have to try to see through all that. And somehow you're juggling what your employees are demanding. And I get it, it's not easy. And I'm saying in the book is, if you think that's hard. Five years from now, it's going to feel a lot harder. So find ways to prepare yourself for a lot less predictability and what you do. And everybody will have their own way of doing that. And it might be harder to make money.

Leon Goren: 51:22

Well, that's the challenge. I think, I know, David's business, but it resembles a lot of business here, you have oil prices that go up and well, that's part of your cost of goods, right? So there's 12 months while it's been 18 months of essentially being squeezed on margin, right? So if you didn't have any buffers as a company, whether it be cash or anything, yeah, it is very, very difficult right now. So that's why we're sit there and you say, Okay, what's inflation? Next year? Will the oil can? Will it go up even 25%? Next year, right? How do I plan for that? Because my margins are going to continue to be squeezed to the point where we don't have a business anymore understood?

Stephen Poloz: 51:59

I understand it perfectly. But I don't have an answer for it. No, but I mean, so So you have to figure out, you know, do do a scenario and say, well, let's just assume it stays on $100 forever. For example, how would I manage my company? Okay, now I've done that. I think I can manage. But I have to do this and that the other thing to manage it. Now, just to be safe. Let's try 150. Just, you know, and of course, at a certain point, you think I couldn't survive it? Okay, well, that's, that's your last contingency plan. But understanding what that looks like, is what I'm talking about. It's not like pretending it can't happen. Because that's,

David: 52:43

we're in a place where we have to, it's not that we get a choice. It's like, it's want to survive. Another year. Yeah, in under these kinds of situations. And like you said, well, we'll put a higher range. Where are we going to be at if that happens at this level? Where are we going to be at if it gets better? So we're actually considering all those things. Okay. I mean, that's just the nature of being a business owner, entrepreneur.

Leon Goren: 53:09

Yeah. I guess the difference though, David is also you know, pricing. Right. So you got to maintain the mark. So, yeah, being reactive versus proactive, right. So a lot of businesses were very reactive over the last 12 months around pricing increases, yes, right. Now they're thinking, I don't want to go through being reactive again. So let's think about the next 12 months and the rest of their should I already be thinking about price increases over the in the next six months, right?

Stephen Poloz: 53:34

So so if there's a permanent rise in your cost, and you adjust your pricing in order to account for that, and let's say just keep your margin, like it was small as it might have been, alright, just so and you talk to your customers, I'm not talking about creating some price spiral with you here, I'm just trying to, you know, share the risk about these oil prices are really important part of my business and the customer led me to whatever so he worked out. That's one thing, but But what we're concerned about is that it becomes a spiral, you know, and if it becomes a spiral, then the whole game changes big time. And that then we really are back to the to the 70s. So that's, that's what we call a supply chain issue. You know, if you're coming down the DVP to get here today, and somebody has a flat tire or whatever, it takes you an hour and a half to get here instead of the usual 30 minutes. Well, it's just what happened to the global system. Okay, so there's bunching up problems and people pay a price. But you have to ask yourself are supply chain issues likely to get twice as bad next year? If they said literally impossible, because there are people in the business of moving that stuff that are making a fortune, okay? And so they'll invest around that and they're gonna like, Okay, now we're through the traffic jam and it's gonna cost this much. So So again, it's It can't actually be a spiral, otherwise, everything just stops. All right, and then there's excess supply and no demand, and the economy falls off a cliff. You know, that's not a scenario, that's very likely. So it's usually not a source of inflation, what happens is you, but look, I want I want something else I want to say, which is that the situation that we're headed for, is one in which I believe on a lot of the power that exists to the extent that you have it now, it's going to shift from the employer to the employee. So a vast shortages of workers, especially the skilled ones, the technological revolution will make it more acuteness in the, in the skilled space. And so you're going to be faced with, like, if you got a profit margin, you're gonna give some of that away, I think that's that's kind of what's an actually an aggregate sense. The share of total income in the world going to labor has never ever in the history of economics been as low as it is today. So it's the sort of stuff that in other industrial revolutions has literally led to revolutions. Okay. And so that when you see, you know, Amazon losing a vote, or Walmart, anticipating a vote and giving people higher reservation wage, those kinds of the you're seeing companies trying to prevent unionization and and that while they're given away profit margin in order to do that, that I think is going to be a trend, not just a one time thing. And the income inequality will just get worse, over the next five to 10 years. And so the pressure for that will just keep growing. That's part of your reality. I don't have the answer for you. Next question.

Unknown: 56:53

I thanks so much for your your remarks tonight. I know we're gonna hear the budget tomorrow. And I feel like when I'm reading, whether, you know, I read the globe or the post, you're kind of whipsawed by how the think about this kind of expansion of government spending, you know, on the one hand, it's, we need universal daycare and childcare. There's no debt has never been cheaper. On the other hand, it's, you know, we've abandoned the fiscal guardrails, you know, the era of big government, you know, no one is talking that this is an issue, how should we think about it, you know, have the world like modern monetary policy hips has how we should think about debt fundamentally change? Or should we be concerned with the massive expansion of government spending now that the pandemic is waning?

Stephen Poloz: 57:39

Just as a general, a general proposition, let's just all agree that pretty well, everything you read, is going to be exaggerated. Okay. So that's just the way it is. Okay. So I think, pay attention to the numbers tomorrow, as I indicated, I think there's been a lot of good news in the economy. So it should be reflected in the fiscal framework. And the guardrails should look respectable. But, boy, I don't know no one really knows till tomorrow, will this fiscal dividend all be spent on new initiatives? Or will some of it be put in the bank to rebuild our resilience? That's a, that's a for me a key question. For tomorrow. We know that there's pressures to do some new things like, oh, not childcare, we get that finally signed up, right. So that's in the baseline now. And by the way, I was an avid supporter of that, because we proved in Quebec, that it increases the capacity of the economy, it brings more women into the workforce, it did an amazing job over the past 20 years. And if we replicate that, in for the rest of Canada, we're talking about maybe a percentage point of productivity growth, if you like, forever, right? You think about taking a $2 trillion economy and adding 1% to it every year, forever, just by investing in a social gap, a social infrastructure gap, such as childcare. So I think that thing will pay for itself. I have no issues with that at all. And give me some more of that, you know, if you're going to invest in infrastructure that's going to pay for itself. Whether it's digital or physical or other social. Now, there's going to be pressure on defense, we know there's going to be a big bump in the defense line. And you Canadians gonna vote against that, you know, maybe but I kind of think people were like, wow, look what's going on. We're, we're caught flat footed here. So, you know, we're not prepared. So it's again, we're not resilient on that front. So let's get that up. And new thing dental I guess I don't really know what that might look like. So there are things that need to be fit in there somehow politically? How does it end up looking? Well, we'll see tomorrow, but provided the guardrail is still there front and center and is demonstrating a downtrend. I will say well, though, least they've satisfied what I call the sustainability. Minimum, that was long as declining. What that means is that we were able to service our debt, just ordinarily. And that the indebtedness is falling through time all by itself. So it is kind of a minimum sustainability criterion, you might wish it goes faster. And that would represent if they take some of the dividend and actually put it in the bank to make it go down faster. Kind of, you know, we'll have to see. But anyway, that's, that's I think the things to watch for tomorrow. Do that they'll have room to maneuver, they'll have choices to make. And I don't really know what choices they will make and therefore I'll watch it will add up to but but I'm pretty confident that they will they still believe in and will respect those guardrails that they've set set up.

Unknown: 1:01:13

So I know you touched on the innovation technology, we're just about to start another, like the next evolution of that. And definitely over the past couple of years that I'm in the tech space, you know, Amazon, Microsoft, they're talking about AI, artificial intelligence, augmented reality, everything to do with that. So productivity is going to go through the roof, output and production is going to go through it autonomous checkouts, everything in the sense of I've even seen now going to McDonald's is going to be like completely autonomous, you won't even need a teller anymore. They've got a new Alexa version of ordering your drive thru now. So with that happening, and then at the same time we have an aging population, the crosshairs is going to be the production capability is going to be three to 5x. But yet the demand potentially is going to be half over the next five years or seven years, as people are also exiting the workforce. And they're not having the same demands on the economy. And you can emigrate to offset the amount of people that we're talking about here from what I've seen numbers wise across North America. Okay?

Stephen Poloz: 1:02:23

So you're suggesting that this juxtaposition gives us a deficient demand kind of scenario. There's just so, you know, to extent that happens in every industrial revolution. So when it first happens, we have this old parable, this was an economist called Arnold Harberger, and is really important economist because he developed what we call the Harberger triangle. So as a tool that economists use, nevermind that point is he gave a speech once and he says, you know, when there's, when there's technological progress, as economists, what we imagine is that the productivity goes out there, like yeast, everybody gets some, like, it just fills all the cracks, everybody gets some. And that's what we have in our models. productivity goes up, everybody feels it, everybody's feeling good. They have more money to spend, right? That's what productivity would be like. And he says, but the thing is, in the real world, it's actually more like mushrooms. Productivity pops up here and there. And of course, who gets it, Amazon or Google or somebody like the big the big companies pluck the mushrooms. And that's why income inequality goes up so much during these industrial revolutions, because you get left out who's your job? You know, people protest against new technology, they, they decide they're going to have a union again, prevent, prevent Alexa from taking the orders at McDonald's, or whatever they all do. So this is what happens in every Industrial Revolution was tensions come up and political polarization erupts. Right, because especially now with a social media YuLing at all, it means that politicians are no, no, their job was hard enough before, but now it's impossible to reconcile all these loud voices. So I'm adding it up to be quite a mass. But what happens in the next stage, which is only not long, they this is like a continuous process what you're describing. So you know, these, the tech workers did, you know like, the great, amazing job growth right in that sector? What are they doing with all that money? Are they spending it on iPads or? No, they're spending it on clothes and houses and furniture, cars, ordinary stuff, renovating their new house, you name it, okay. That's where it gets met. So what happens is they're creating jobs across the entire economy. And you know, if you Is your job at McDonald's because it Alexa is doing the ordering now. And you think, Oh, now I have to learn how to write code in order to get a job. No, you just have to learn how to hang drywall or, you know, a very good driverless truck comes along and you lose your job as a truck driver while you have to learn how to write code in order to get back in the workforce. Now, you can pick up some trades type skill, you can be an electricians apprentice, or, or do furnace maintenance. I mean, you know, it's not, there's a lot more furnaces because of what I've described. So the point is that this is the part that nobody ever talks about. They talk about the displacement of workers and all these. That's absolutely true. It's been true every time. But through history, I mean, we've thought about it back in 1867 50%, of Canadians were working in farms. How did we get from there to here? I mean, they aren't still out there looking for jobs on farms. Okay, we got here because of the general improvement and living standards that came from the technology. And, okay, China, much more recent example, land reform, big farms, that a little farms, you'd like, no, I lost my job, I lost my farms, because all day I'm moving to the city. Now I'm gonna make iPads, you know, and make them really cheap, because this is huge for man get making a great living now. And for us, it was very inexpensive labor. But so that's, that's the continuous process that we're gonna go through. And it's always there to a degree, but as well had these major ways three times, and this is going to be a really big one. Think about the one for the computer computer chip. And the book, I estimate that this, this gave us about 10 percentage points of GDP out of thin air. That's a big number to then to receive every year from then on. And that money is spread everywhere, and creates livelihoods in all kinds of sectors. I know that sounds like a little bit of hocus pocus. That's, that's why economists are always-

Leon Goren: 1:07:07

-no, but I read about that in your book talked about the k, right? It's the time it just takes time to track the jump-

Stephen Poloz: 1:07:13

we need to be ready to buffer those folks, as they go through it. Help them make those transitions. If necessary, give them a guaranteed basic income, you know, the universal basic income or something are you serve like, kind of thing. And so help them tap into training, if that's what they need, and so on, and help them move if they have to move. We don't do a lot of those things. We have programs, but they're kind of like, you know, they're there, you got to take all the rest of yourself. I think society owes it to these folks, you know, to do a better job than we did through globalization. I mean, we got this whole generation that kind of feels like well, I got left out of that, you know, the desert, what Harper in his book calls, you know, the somewheres versus the anywheres. Mobile professional can be anywhere but the person where the mill close is still living in that town and no work for them. So they need to be able to move. And some of the risks can be borne by society, because when they match with a new job, then we all benefit. Right? So anyway, talking kind of abstractly to you. But I think it's an it's hard for people to be convinced that let's let's do it the opposite, right? Let's let's de globalize and or Let's prevent technology from doing what it can do in order to preserve jobs, right? People find it hard to believe that that means there's fewer jobs for people to renovate your kitchen. But that's exactly what happens. They don't see a connection between those things. Well, there's just less income. So one of the things that doesn't happen is you don't renovate your kitchen. And there's fewer jobs for the people that you know, destroy your kitchen and then rebuild your kitchen, right? So these are not jobs that you have to go to university for years and years in order to train up for and we can make those transitions. We will we have in the past, but not as quickly as we should be able to. Yeah, the central bank plays an important role. Let me just finish with this. Because providing a relaxed monetary policy at a time when that's happening was what exactly what Greenspan did, intuitively. And as I said, one of the byproducts was the build up and pressures and that was an unfortunate side effect, but you'd still say as a macro thing that was the right thing like to accommodate it. So you didn't get deflation people. You know, the economy grew fast, and we were able to fill in all those jobs. Remember, unemployment was the record low. That's what should happen this time, except we've got more safeguards to protect us from financial excesses than we had back in the mid 90s.

Leon Goren: 1:10:01

One last question, then I'll go over to James. Oh, okay. Are you okay with that?

Stephen Poloz: 1:10:06

Well, I'm fine. I'm here. I'm here I go, I go to surgery. We're gonna start drinking wine. And that's a good deal.

Unknown: 1:10:13

First of all, thank you, Steven, for your insights. You've got my mind racing. And I'm sure a lot of us in here with the opportunities and the possibilities of the future and things. Question for you. This is a little global because the impact the global world has on Canada can be pretty significant as well. And Ray Dalio re wrote something greatly lately called the New World Order. Now, if you're familiar with that work,

Stephen Poloz: 1:10:34

you know, and you'll look at my book it says, on Amazon, it says, often purchased with Ray Dalio. Ray Dalio. I know I know, Ray, and I'm an admirer of his book. But of course, I didn't buy my own book on Amazon. But I look to see how I'll get some of the reviews from people, which is kind of cool. You have to click on it to see what the reviews say. And it's often purchased with [inaudible] pretty cool.

Unknown: 1:11:06

I could see why is too brilliant pieces of work, by the way. But you know, in the New World Order, you know, he goes back, and it's the Dutch and then the British and the Americans and ties the financial, to the social parts of how they all rose and everything. And the one key element that really kind of hit me was that so often the change was driven by internal division, right? Yes. And what we're seeing stateside more than anywhere else in the world right now is a significant amount of that. Yes. And, you know, are we is there going to be what's the impact going to be globally? Do you think we're going to have a change there? You know, from a US perspective? And are we looking at significant changes in Canada, right? Because, you know, a lot of people don't realize it, you know, the total population in Canada is actually less than the state of California. But we've got a global imprint and personality that is huge, you know, globally, and how do you think that's going to play itself out?

Stephen Poloz: 1:12:05

Yeah, so you're onto something that, in fact, in Canada, it matters a lot more in the sense because we're, we're exposed to the international side, we can't be who we are without that exposure, right. And so whereas the US could be the US could shut itself off from the world. I mean, of course, there'd be downsides, D globalization and Trump style, you know, would be would reduce the standard of living significantly in the United States, but at least they'd have still a big, self contained market. And hopefully, we could still tap into it all manage, but we wouldn't manage as well, as we do. And we were particularly exposed. Getting to your political is really a political question that you're asking. And, and, and, you know, Ray, as is touched on this thing, so what I what I do in here is I talk mainly that, to me, the the both globalization and technological progress has caused this K shaped the K shaped trajectory for the economy. So the folks who lose out end up in the bottom part and of the K. And the top part of the K just accelerates, that's, you know, the tech tech space, but it's all the peripheral, like, during the pandemic, we've had tremendous growth in the top part of the K, which is one of the reasons why we have shortage of workers, because folks in the bottom part of the K, you know, maybe students that were waiting on tables, they've graduated there. Now they're lawyers, they're Chartered Accountants, they're engineers, whatever they are. So So we've had that, and we need the immigration side of pickup speed. So we have people for that, for that lower part of the K, because it still exists, it just won't grow fast. Right, but it still needs people. The what I what I think is going to happen, is that that growing sense of disenchantment, which is very obvious, so obvious enough that there's lots of books written about it. And you know, we think that's why someone like Trump could tap into that discontent. So I'll fix you up, you know, we saw the same thing, not just in the UK, but in Europe, you know, shift towards a more populist kind of framework. Maybe that momentum is eased off a little, maybe because of geopolitical tensions. I'm not sure. But point is, it's still there. And we're not immune to that. I mean, we're culturally, we're got some similarities there. And we can certainly put our fingers on folks who feel like they've been left out, you know, and so we need to be aware of that. But Canada has done a better job than most on the income inequality front. Remember, the very first thing that the Trudeau Government did right, was they they tax the high income earners and they gave a tax cut to the low income earners before they even had a budget. Right. And, and so in the OECD, you know, when you say things like well, the income inequality has worsened in All these countries, the one exception is Canada. Now, that's not to say that it won't worsen from here, because we'll have the same tech thing probably will cause to resume deterioration. So we have to remain attentive to that. Well, as that's happening, it gives rise to this sense of disenchantment, and therefore, political alliances get more divisive, you know, more polarized. And I think that social media may makes facilitates that, it just makes it seem like a higher volume, and makes it tremendously difficult for politicians to gather a consensus around and, okay, here's the policy we've all agreed on, we're gonna do this, you know, look, what Biden's going through, you know, to try and try to address the income inequality issue like he's negotiating, and not getting very much progress on it. All right, just as politically really hard than to suggest to me, I get kind of this dismal conclusion, which is, I don't think politics is going to become more effective, I think it's even become less effective through time. And so to add on top of that, off the public debt is a is a legacy of the pandemic, so not much room to maneuver fiscally. And interest rates will remain really well, because of the demographic or maybe four. So central banks don't have a lot of room to maneuver. So who's supposed to take care of all the rest that shows up, and it could destroy our businesses? Not those folks. That's why I'm saying the bottom line of the book, that it's a new age of uncertainty, or the next stage of uncertainty is going to wash up on your doorstep. And therefore you need to be thinking about how you will manage it. And it's, it's not just companies when we're talking mostly to companies tonight. But that's when I realized things weren't sitting still, I realize this is going to matter a lot to households to write the decision to buy a home, have a big mortgage, there'll be so much more volatility and employment, and lots of churn and searching for new jobs, and you know, all that kind of stuff that is going to make all those decisions much riskier than in the past. How will they react? So that's what the other half of the book is, is about adapting? And what sort of directions would it take? So I've gone along too long with your question, he prompted, you know, basically a stream that allows me to summarize the but but I think it means that companies will need to be more of the kind of social leaders in this respect. And I think, and it'll be in your interest to do so if you have you're going to have a shortage of workers, especially the skilled ones, how do you how do you ever attract and retain? Oh, I know, the biggest risk you face is that you might lose your job, because I've got a volatile business. So I got your back. I know there's ei programs and all that stuff. But I'm going to make sure you get a little extra because I want you to be there after the after the downturns over, I want to keep here. Or I know the biggest decision you face is designed to own a home instead of renting a home. How about if I have a word with the bank, and you know, I'm there in case we go through six months where you are constrained? I think those there'll be this broader sense of we're in this together from companies and their employees. And that's what I meant about the power shifting to the employee from the employer. And I think your shareholders will reward you if you can maintain a stable and productive and loyal workforce. So that'll be another way in which you get paid. More of a partnership. Yeah. Yes. And if you want, you can just sit on your hands and wait till the unionize, which I think would be a less desirable path, at least based on history. I mean, it's not necessarily enough, less desirable, but, but I think historically, it shows that that kind of confrontational thing it can work has worked for long periods. But of course, it has not worked in certain key periods. I'm an actual boy, I grew up with, you know, people like Bob white and Buzz Hardgrove. And watch my town get laid waste by what I thought was, I call the generous motors in my book, because that's what we call it when I was a kid. And I think it kind of got overdone, you know, it was and it made them very vulnerable. And well, now we see now, of course, the rejuvenated but that's a lot has happened between, you know, the 1980s and today and so we shouldn't have to have all of that in order to survive this next industrial revolution. Thank you great.

Leon Goren: 1:19:47

James. You want to close this out?

James: 1:19:51

I did buy the book.

Stephen Poloz: 1:19:52

Oh, well, thank you, James.

James: 1:19:57

I'm gonna wait for the movie to come out on Ray Dalio.

Stephen Poloz: 1:19:59

Okay. It is a lot bigger and heavier. I'm working on it myself.

Leon Goren: 1:20:06

There were no economic models in here. That's what I loved about no economic- What was it this statistical modeling with all the different variables?

Stephen Poloz: 1:20:13

Not a single footnote? There were a lot of phenomena single acknowledgments always wants. Yeah, but no footnote. No.

Leon Goren: 1:20:20

True. Okay. Yeah, there were no footnotes-

Stephen Poloz: 1:20:22

If it's worth writing, it's worth writing in the texts.

Leon Goren: 1:20:26

All right, James, we've been handed over

James: 1:20:27

I'll keep this brief, I should say, I'll keep it transitory to bear for a couple of people. Paraphrase a good friend of Stephens. As Leon alluded to Focus Asset Management is a proud sponsor of PEO. And we're proud and we're humbled that a growing number of members in the PEO community trust us to manage the wealth that they predict that they've built into protect their families, prosperity through this environment of volatility and uncertainty that we heard about this afternoon. So I just like to say on behalf of our partners, thank you very much to the dynamic PEO team for putting on this spectacular event this afternoon. And of course, thank you so much to Stephen Poloz for being here as our our special keynote and sharing your unique perspectives on some of the the risks and the uncertainties that we're all seeing in our businesses and financial markets and, and the world at large, really. And even as these risks are daunting, I thought you made a very interesting admonition which is almost to say, hey, don't forget about the opportunities. And in an environment of risk, there are always going to be opportunities to be had. And I think hearing the discussion we heard this afternoon and hearing the insights and perspectives of somebody with your level of knowledge and experience. We're all better equipped now to meet those challenges and to go out and find some of those opportunities. Finally, thank you all everyone in attendance for joining us this afternoon. We hope you enjoy the evening and you'll stay a little while with us longer to maybe discuss and debate what we heard or at least have a glass of wine maybe. On that topic. I'm not saying that we might have gone a little over budget on the food and beverage spent. But if you are you know if you're thinking that used car prices and gasoline are showing signs of inflation, you should see what tempura shrimp and shrimp coutries going for this place.

Leon Goren: 1:22:27

I am hungry. Do you have a flight till 11 o'clock time?

James: 1:22:36

To the no leftovers tonight that's perfect. please avail yourself for the refreshments. And with that we hope you have a great evening and we look forward to seeing you again soon. Okay.

Focus Asset Management: 1:22:51

Focus Asset Management is a progressive wealth management firm. We strike a fine balance between embracing new investment ideas, while holding firm to the principles which have resulted in long term success. trust and reputation are central to everything we do. We're employee owned, we have investing in our DNA, and we invest exclusively alongside our clients. We offer investment strategies across multiple asset classes including public and private options, which gives us the ability to meet your investment objectives. Our relationship with clients ranges from a single investment strategy mandate all the way to a comprehensive family office approach. We look forward to starting the conversation with you