Developing Canadian economic policy during the global financial crisis
By Chris Chipello
Economics Prof. Christopher Ragan returned to McGill this fall after an 18-month appointment as Clifford Clark Visiting Economist at the department of Finance in Ottawa – a role in which he advised the Department on economic issues and took part in policy development at the highest level. Ragan sat down with the McGill Reporter recently to talk about his experience at the centre of Canadian policy-making during one of the most tumultuous periods in modern economic history.
What was it like to participate in top-level policy-making during such a critical time?
I started in January ’09 – three months after the collapse of Lehman Brothers. So I missed the darkest time, when they thought the world was falling completely off the edge and financial markets were melting down. By the time I got there in January, the financial markets had not collapsed – they hadn’t fallen off a cliff; a bunch of policy responses had been at least initialized: the G-20 leaders had met for the first time, as leaders, in Washington in November 2008; they agreed that they would not let any more financial institutions collapse and that they would have a co-ordinated and substantial fiscal response. So when I arrived in January 2009 the government was in the process of creating the 2009 budget. This was going to be a transition from a budget that was basically balanced in the previous few years to a budget that would not only have a deficit because of the slowdown in the economy, but would incorporate huge stimulus measures as well. So, for two reasons, we were going to run something like a $50-billion deficit – the largest in Canadian history.
It was fascinating for me to watch the budget process. I was doing a lot of learning about process, but also re-learning about economics. I was reminded why we shouldn’t place too much emphasis on discretionary fiscal stabilization policy. It has some problems. In Canada’s case, infrastructure spending required co-operation between federal, provincial and municipal governments.
Well, getting three politicians or bureaucrats – one from each level – to sign off on some project that is deemed to be “shovel-ready” and not completely useless, and something that is politically sexy and gets them the ribbon-cutting points is difficult, it takes time. So it was an exercise in re-education for me and others – but at the same time, there was a recognition that this was a significant and synchronized global recession, created by a huge global financial crisis. Business and consumer confidence had been shattered. Monetary policy had been extremely aggressive already. Rates had been basically dropped to zero, or very close. And if you wanted to prevent a serious recession, then expansionary fiscal policy was going to be necessary. I could not imagine a more exciting time as a macroeconomic policy advisor in Ottawa.
What other projects did you work on?
I focused on two longer term projects: one was the fiscal implications of population aging and the other was climate change – trying to help the Department of Finance in its policy development and interactions with other departments, importantly Environment Canada. Remember, Copenhagen was in December 2009, so there was a huge amount of activity in the run-up to Copenhagen in the summer.
And of course, there are 101 things that the Minister is thinking about at any given time, and so I’d also be involved in anything I’d want to get myself involved in that was going on. Because everything that is of economic significance in Ottawa goes through the Department of Finance.
I was this almost independent outsider; I could just do what I wanted. So it’s a wonderful position. It gives you access to what’s going on in Finance; it gives you access to the Minister, to the Deputy Minister. From an educational point of view, for me, it was unbeatable.
What role did you play in advising on issues associated with the aging population?
The fiscal implications of population aging are a problem we’ve known about for some time, but it wasn’t being talked about much in Ottawa. Among elected officials, nobody really wanted to talk about it. Among the civil service, of course, they knew more far more about it in (the Department of) Finance than I did. But things that are known by the civil service don’t necessarily get out to the public, because the civil service doesn’t speak to the public. They need the elected representatives to get those messages out. While most informed Canadians know that there’s a negative side to the aging of the baby boom, I don’t know think they have a very good sense of what the numbers really look like, and therefore what kind of economic challenge this will be. So I ended up crossing the country and giving talks. I probably gave 50 talks during the year and a half; most of them were about this issue. I talked to chambers of commerce and economic societies and government ministries, federal and provincial – just presenting this looming challenge.
And on climate change?
Climate change was more frustrating, and more interesting. Environment Canada is the lead department on climate change in Ottawa. They are the ones that are charged with designing the policy. But anything that is significant either in terms of the effect on the economy or on tax revenues or spending has to come through Finance. So I tried to get involved in that, and kind of push back on Environment Canada where I thought it was necessary. My concern is that the policy that is being developed in Canada is not as effective, and is more costly, than it needs to be.
Even if we take climate change seriously – and I think the current government doesn’t particularly take it seriously – but even if you take it seriously, and you design a serious policy designed to reduce greenhouse gas emissions, there’s no question in my mind that this will inflict a cost on the economy – at least in a transition period which is probably substantial. So we accept that there’s going to be a cost, but it’s then our responsibility to make sure we design a policy that’s going to minimize that inevitable cost. And I don’t think that’s what we’ve got coming out of Environment Canada.
I’m concerned on two fronts: number one, that their policies will not achieve the government’s stated goal of greenhouse gas reductions of a particular amount by a particular time; and I’m concerned that what reductions will be achieved will be at a much higher cost than is necessary. So I found myself fighting that fight and, with others in the Department, providing our Minister with the necessary information, and one might view it as ammunition, to have the discussions he needed to have within Cabinet.
What’s it like to be back in the quiet world of academia?
I love teaching, and I love the flexibility that the academic lifestyle gives you – to think about anything you want, to write about anything you want, anywhere you want, anytime you want… I do miss being in Ottawa; I miss feeling like I’m at or near the centre of things. There is a pulse in that city that I miss. But I can still have this job that is wonderful and that allows me to go to Ottawa and get involved in some of those discussions. I don’t have the same access to information that I had. That’s life. But I’m back to being completely flexible and independent, and that’s wonderful.
What was your first job?
When I was 16, after football season ended in Grade 10, I got a job in a pharmacy and worked there two hours every day. I made $200 a month – and the goal was to buy scuba equipment.
At that time, I was a Jacques Cousteau wannabe. I was absolutely in love with scuba diving. I had just been certified, using rental equipment. After six or seven months of work, I had the six or seven major pieces of equipment. And then my next job was at the scuba shop: the owner decided to give me a job – but only after I had bought everything! And that became the job that I really loved for the next four years. I became an instructor, and that may have actually played a role in getting me into teaching: it became clear to me that teaching was just something that was natural for me. So it may be that working at the pharmacy got me the equipment that got me the scuba-shop job that got me the instructor’s position that then actually brought out my teaching talents. I’ve never actually thought about that before!