Stephen Poloz gets another chance to offer some friendly guidance: Don Pittis

In March of 2014, the daybefore Joe Oliver took over as the federal finance minister,Stephen Polozoffered the country a thoughtful speech that worked perfectly well as a recommendation for what the new minister should do in his new job.

Later today, in his first Monetary Policy Report after this week's federal election, the governor of the Bank of Canadawill once again have a chance to offer some guidanceabout the direction of the Canadian and globaleconomy.

Maybe this time, his political audience will be more open to accepting some friendly guidance.

• Stephen Poloz says Bank of Canada not responsible for record debt
• New finance minister gets some wise economic guidance

Poloz has never been in a better position to speak frankly. Rightly cautious during the election, the governor has largely kept to technicalities in his speeches and releases. Hehas not submitted to questions from the media.

Blank slate

Polozwill no longer be under the watchful eye of the prime minister who appointed him.The new Liberalfinancial ministries of a government under incoming prime minister Justin Trudeauare as yeta blank slate. Poloz has an opportunity to offerhismost honest and transparent appraisal of the Canadian economy yet.

Polozcertainly has lots to tell. The problems he foresawa year ago last March have not gone away and severalnew ones have have arisen since.

Back then, Poloz warned of an aging, shrinking, labour force that would have an increasingly severe impact on the economy.

One way of calculating economic activity, Poloz remindedus, is to multiply productivity per worker times the number of workers.

As the number of active workers declines, thereforeso does the economy.

New immigration could help. But so would better access to daycare, releasing more Canadian-educated women into the workforce. Income splitting, by rewarding underemployed spouses of high-income husbands or wives, could have the opposite effect.

Another impact of an aging workforce is an increase in savings as older workers tuck away nesteggs for what could be a long retirement.

Someof those savings are going into passive or foreign investments instead of going into the economy as consumption spending.

Poloz also warned that a combination of high savings rates and cheap borrowing was sending more and more money into real estate, which does even less to add to the productive potential of the economy.

Scarily overpriced

That is a problem that certainly has not gone away. Not only do housingvalues in Vancouver and Toronto continue to soar far above inflation, but there are also signs the trend is spreading beyond the normal urban radius.

• House prices in GTA suburbs rising faster than Toronto says report

Not only that, but this week there was a new round of international warnings about high levels of Canadian consumer debt, with both Moody's and The Economist magazine weighing in on the danger of a bubble.

• Moody's, The Economist warn of high Canadian debt, housing prices

The Economist suggested house prices were "scarily overpriced," which might have a bigger effect on Canadians if previous similar warnings had come true.

Just last week,Polozdiscussed the difficulty he faced using interest rates to slow house priceinflation. In fact, as the late former Conservative finance minister Jim Flaherty recognized when he was in the job, restraining property prices when inflation otherwise remains lowshould be the job of the government, not the Bank of Canada.

Fresh problems

Those are all old problems that Oliver and the Conservative government never got around to solving. Since last March, there are a new set of problemsthat Poloz will remind usand the governmentabout today.

It was just after Oliver took the job in finance that oil and commodities began to crater. By latesummer of that year, a glut of production and a collapse of demand from China hadput a squeeze on the most active parts of the Canadian economy. It may be that the full impact of that squeeze is just hitting now.

Since then, the economy has remained well below capacity. Job creation has been weak. Inflation has remained below the bank's two per cent target.Economic growth has been negative or flat. Hopes of a sharp rebound in the U.S. economyare fading.Emerging markets, saddled by debt, are buying less. There are doubts aboutan immediate commodities rebound.

If the new Liberal government goes ahead with its election promiseto invest in infrastructure spending, if more money were found to pour into aboriginal education,that could suck up the economy's overcapacity, reducing the need for further interest rate cuts.

A young and vigorous cabinet, allowed to use their brains rather than just doing as they'retold, may find activist solutions the previous government could not imagine.

The outgoing government was in principle anti-activist. Offered low taxes andleft to its own devices, the free market foundered. The economy wasshrinking andthe rich were enriched. From the government,there seemed to be no planB.

As a central banker andwith his experience ashead of Export Development Canada, Poloz knows that government can be economically useful inways other than just stepping out of the way. Maybe this time, Polozhasgovernment masters whowill be more inclined to listen.

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More analysisby Don Pittis