Aug 24, 2012

Bank of Canada President says to end privatization of gains and socialization of losses


Here in BC Bank of Canada President Mark Carney’s speech to the Canadian Auto Workers convention got less attention than it seemed to get back east.  It deserves more attention.

The biggest news coming out of the event was not in the speech itself but in the question period afterwards. Here Carney told the CAW members that with hundreds of billions of dollars in their bank accounts, Canadian firms aren’t doing enough to drive economic growth and create new jobs. He continued:

“The level of caution could be viewed as excessive,” he said. Referring to corporate managers, he added, “Their job is to put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.”

The CCPA’s Toby Sanger writes more about this issue on the national blog site Behind the Numbers.

However there was a lot more of interest in the speech and it is worth reading as a whole. It can be found here.

Here are some of the points Carney raises.

  • We must address, once and for all, the unfairness of a system that privatises gains and socialises losses. By restoring capitalism to the capitalists, discipline in the system will increase and, with time, systemic risks will be reduced.
  • In general, these trends mean that the demand for unskilled workers in advanced economies is falling relative to that for skilled workers. Some estimates show that by the end of this decade, there will be a shortage of 18 million skilled workers and a surplus of 35 million unskilled workers across advanced countries.
  • These broad shifts in the demand for and supply of labour are contributing to rising inequality. Over the past 20-plus years, incomes in Canada have increased nearly twice as fast for earners in the top 10 per cent as for those in the lowest 10 per cent. The share of the top 1 per cent is now the third highest among member-countries of the Organization for Economic Co-operation and Development (OECD) after the United States and the United Kingdom. The last time inequality in the United States was this severe was during the 1920s. Moreover, labour’s share of national income is now at its lowest level in half a century across most advanced economies, including Canada.
  • As effective as it has been, the limits of this growth model are becoming clear. In particular, we cannot grow indefinitely by relying on Canadian households increasing their borrowing relative to income.

When even the President of the Bank of Canada is talking about inequality and about the unfairness of privatizing gains and socializing losses, we know we have gone badly wrong in our economic thinking.

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