Whether it’s access to a government limousine or a cabinet minister's paycheque, there are plenty of perks associated with being in power. The ability to trade in simple answers to complicated questions, however, is not one of them. That’s particularly true for Finance Minister Chrystia Freeland right now, as she tries to contend with an inflationary crisis she didn’t create — and can’t solve.
Any significant attempt right now to help Canadians contend with the rising cost of their mortgages, groceries and gasoline would be like trying to put a fire out with gasoline. The best course of action, at least from a policy perspective, is to simply let it die out — and hope the cold water being dumped on inflation by the Bank of Canada works as quickly as possible.
“We cannot compensate every single Canadian for all of inflation driven by a global pandemic and by Putin’s invasion of Ukraine,” she said recently. “To do so would only make inflation worse, and force the Bank of Canada to raise interest rates even higher.”
Her political opponents, on the other hand, are not nearly as constrained when it comes to their preferred diagnoses of and treatments for Canada’s inflationary fever.
For months now, then-leadership candidate and now Conservative Party of Canada Leader Pierre Poilievre has been trying to make “Justinflation” a thing, with his repeated attacks on the federal government’s spending patterns and the Bank of Canada’s role in abetting them. Never mind that Canada has one of the lower inflation rates among G7 countries, or that the spending Poilievre delights in vilifying helped stave off an outright economic depression. In the minds of many Canadians, Justin Trudeau is now personally responsible for the inflation that’s showing up on their bills.
Jagmeet Singh, the leader of the NDP, has a different theory for all of this: “greedflation.” The moniker is clearly inspired by Poilievre’s portmanteau, and it too draws on his party’s preferred scapegoat. For Singh and the NDP, inflation is a function of corporate greed, an attitude that’s personified by Loblaws CEO Galen Weston Jr. and his empire of grocery stores. “The top 3 grocery stores profited over $900 million in the last quarter,” Singh tweeted on Sept. 26. “We must confront CEO greed with a windfalls tax.”
There are few people in Canada who present as inviting a political target as Weston Jr., the heir to a fortune and the face of rising grocery bills. But as University of Calgary economist Trevor Tombe noted in a recent analysis, a deeper dive into the data shows food stores and food manufacturing have lower profit margins this year than last. Weston Jr.’s own company, for example, reported a net profit margin of 3.04 per cent in the second quarter of 2022, and 3.03 per cent during the same period in 2021. “Their rising profits are due entirely to rising sales,” Tombe writes, “not increasingly uncompetitive behaviour as some suggest.”
Instead, the increase in overall corporate profit margins is being driven by something beyond our borders: soaring oil and gas prices. “The entire increase in average markups in Canada is related to rising global energy and commodity prices,” Tombe writes. And while it’s tempting to suggest our oil and gas companies are engaged in profiteering, Tombe says the evidence doesn’t support that conclusion. “Producers in Canada are largely price takers and while they benefit from high prices, they are not the cause of them.”
This sort of sober-minded analysis will almost certainly fall on deaf ears. Simple solutions, even if they’re incorrect, are the order of the day right now, and that’s especially true for our opposition parties. Witness the ongoing attack on the Bank of Canada, one that’s been joined in recent days by Singh. During a recent appearance on CTV’s Question Period Sunday, he suggested that there was “absolutely no merit to their approach” of raising interest rates to fight inflation.
Rob Gillezeau, an assistant professor of economics at the University of Toronto, doesn’t have a lot of time for this approach. “I understand that politicians are tempted to try to secure votes by appealing to those who face costs associated with rising rates,” he tweeted, “but they're damaging our core institutions in the process and making it more likely that inflation sticks around.”
This is the curse of government, and of governing: there aren’t nearly as many votes to be won by defending institutions as there are in tearing them down. It’s much easier for opposition politicians to destroy than to create, more natural for them to criticize than co-operate. But the hard truth here is that there is no painless or easy way to bring inflation down. If there was, you can be sure the government would have already done it.
If there’s a saving grace, it’s that most economists believe we’re closer to the end of this fight than the beginning. After the Bank of Canada’s latest hike, it will almost certainly pause — and might well begin preparing to move in the other direction.
If that happens, the government will get no credit for showing restraint and holding its fire. And opposition politicians will pay no price for their various attempts to blame a global phenomenon on their domestic scapegoat of choice or undermine our institutions in order to advance their own interests. But as Canadians, and as voters, we should be mindful of how our elected officials treat complicated public policy issues — and whether we want to reward the ones who trade exclusively in simplistic solutions.
- Max Fawcett
- Lead Columnist
- @maxfawcett
Keep reading
It seems Max gets tired
It seems Max gets tired (understandably) of consistently singling out the conservatives when describing the problematic behaviour of "opposition parties," and in this case Singh does deserve some criticism for oversimplifying (although the greed factor IS synonymous with the word "corporate" for a reason), but as usual, the conservatives are ALWAYS, by far and away, every single time, THE WORST, hands down. So pulling your punches on that reality in hopes that they will surely somehow, eventually, "get it" (not unlike our attitude to juvenile delinquent types AND unruly toddlers), patiently and persistently modelling the fair and balanced approach that we all thought had become the norm.....unfortunately only perpetuates the nightmare the right wing has single-handedly created. Created. Deliberately. With malice aforethought. Fox News started it with the blatant trumpeting of "fair and balanced" as their slogan! As the British say, they're "having a laugh" at our expense. Hackers in their mother's basement were another early iteration.
Conservatives have now become entirely comparable to the Kremlin with propaganda because who imagined that anyone would get away with that HERE? I'd say don't ever underestimate the appeal of novelty/entertainment to people. Trump was halfway there simply because of his TV show.
One obvious solution in the context of unruly toddlers is to ignore them for the most part, insofar as that's possible, i.e. the "lamestream media" should simply refuse to "cover" them unless it's within the usual channels, i.e. stop quoting social media, period, since it's the underminer in chief. Those of us who aren't besotted with it, who can take it or leave it, see that as a no-brainer. After all, PP hasn't bothered to have a press conference in 40 days. Remember how they started ducking debates for the first time? Half of what they get away with happens because it's unprecedented so it catches people out, but we should be on to them now. They're circling our institutions and our very democracy, grinning, so we need to treat them accordingly by starting to simply exclude them. And no more bothsidesism, no more false equivalencies when you DO have to include them; we should also be able to dish out "unprecedented."
And we should all give more credit to all the MP's forced to endure the schoolyard bully-boy baiting that Question Period has become. I'd like to see the TV cameras removed.
The main problem here is that
The main problem here is that Max Fawcett thinks he understands inflation, but he does not. He has more or less absorbed and accepted both the basic centre-right economist line on inflation in general, and some relevant facts about inflation right now in specific, but has not noticed that these two things contradict each other. So, the quick reality: Whether you believe the "corporate profits" thesis or not, everyone remotely credible and indeed Max Fawcett himself is saying that the inflation happening right now is not caused by people having too much money. It's caused by supply issues, by the price effects of speculation when supply either is or looks like it might be tight, and although some including Fawcett dispute this, by the pricing power of oligopolies taking advantage of the existence of some inflation to bump prices by a greater amount than their increased costs would actually require (And incidentally, if you look at their corporate reports, CEO phone calls with investors and so forth, many of these companies admit that flat out, if anything gloat about it, only to talk out the other side of their mouths to the press, who they can trust not to dig further than their press releases).
But again, whether or not you admit that corporate pricing strategies in a context of very limited competition is a factor, you are still left with the basic point: Inflation has been caused by supply issues and by the pricing of goods, NOT by increased wages, which have lagged behind. What Fawcett has apparently not noticed is that the Bank of Canada, and many central banks around the world, are setting their policy based on the idea of the normal economist explanation for inflation: That it is caused by a spiral of increased wages in an overheated economy with tight labour markets. The idea is that they will stop inflation by making it more expensive to do business, causing businesses to go under or at least stop hiring and lay people off, thus increasing unemployment and decreasing labour's bargaining power, and reducing wages. It's clear that the Bank of Canada is indeed pretending that this is the problem, since the head of the BoC has addressed Canadian industry admonishing them not to allow wage increases, but NOT admonishing them to keep prices down. Fawcett has not noticed the disconnect between the problem that actually exists and the problem the Bank of Canada is trying to solve. Of course, the Bank of Canada can't solve the problem that actually exists, so it's a classic case of the drunk looking for his car keys where the light is instead of where he dropped them. Ironically, given that the article claims to be about avoiding simplistic solutions, the central bank solution is about the most simplistic one proposed--increasing interest rates until the economy crashes, unemployment goes up and demand craters. If we weren't used to this notion as received wisdom nobody would take it seriously.
Now if, as is the case, the inflation is caused by supply and pricing issues, not by wages (or other sources of purchasing power), then it's clear that in fact, giving the middle class money will NOT significantly fuel inflation. So Fawcett is simply wrong when he says, "Any significant attempt right now to help Canadians contend with the rising cost of their mortgages, groceries and gasoline would be like trying to put a fire out with gasoline." This would be true if inflation were being caused by a spiral of higher wages and purchasing power, but it isn't. Another implication is that to control inflation, a better approach would be to look at prices directly. This would take an agency capable of more fine-grained interventions than a central bank can do; the central bank fights inflation by taking a sledgehammer to the economy because a sledgehammer is all it has. But it can be done and has been done, in the US even. And it makes basic sense: When there's a natural disaster and some bastard starts charging $300 for a case of bottled water, the thing to do is stop them, not take the disaster victims' money away until they can't afford the water.
Now it's true that even though inflation hasn't been caused by increased wages, still, if you dump people's wages enough that they can't afford to buy food, then I suppose they will buy less food and go hungry and maybe the price of food will decrease? If supply issues are the problem and you crash the economy hard enough that demand goes down even for goods where demand is quite inelastic, then yeah, the lower supply will be sufficient and inflation will go down. But it takes a lot of economy-crashing to do that. Overall, it's an insane solution, especially since the supply issues are gradually sorting themselves out and so the inflation would go away by itself.
(Another problem here is that Fawcett believes analyses by University of Calgary economists. Tomb's facts do not match other facts I've seen from more labour-oriented economists, and I've seen too many right wing economists distort statistics or outright lie about the figures to trust a damn thing they say. I suppose at least it's not the Fraser Institute, but come on. If you're going to be small-l "liberal", at least balance your look at someone like Tombs with a look at someone like the Canadian Centre for Policy Alternatives, Armine Yalnizyan, people like that)
Well if there are right wing
Well if there are right wing and left wing economists like everything else which means diametrically opposed views then what's the point of looking at both of them?!
Which is MY point, which is why can't our side stop paying so much attention to the crap from the right when that's exactly what they count on? And why on earth are we even including social media when everyone agrees it's the main facilitator for all this, and despite everyone agreeing that it's also a distracting sewer that has brought out the absolute worst in people?
The mere fact that the likes of Elon Musk, "MR. LOOK AT ME because I'M THE RICHEST MAN IN THE WORLD" is a central figure in it who is going to just buy Twitter, er, no, IS NOT but ah, maybe IS and will then fire 75% of the employees......look at the guy's face, he's like a kid......WHY is the media feeding his neurotic need and outlandish ego?!
It's exactly like Trump and Bannon who have literally TOLD us what they're doing with the media for example ("flooding that zone with bullshit") but still the media lines up like sheep.
We have got to stop according even a shred of attention (which implies a modicum of respect) to these conservatives when they have less than none for us, NONE, starting by refusing to take the bait, day in and day out, which is as crazy, dangerous and irresponsible as they are.
Never in my life have I ever wanted everyone, and I mean everyone, to just sit down and shut up for awhile, just to try something else...
This may be the most successful part of the right-wing strategy, completely alienating people from politics until they turn away in despair. But THEIR psycho supporters will hang in and keep the horns going.
Elephant in the room re
Elephant in the room re inflation: we take for granted the economic & moral right of firms to charge "whatever the market will bear": even during global health crisis & war. Instead of squeezing workers, maybe time to question that? My take for (from Jim Stanford, Economist & Director, Centre for Future Work. He/him. Also Economics Dept. McMaster U.; Hon. Prof. of Political-Economy Sydney U.; author Economics for Everyone
@CBCNews
: https://cbc.ca/radio/thecurrent/canada-food-price-profits-1.6629854
Jim's position is that grocery stores have seen bigger profits in this last year than ever before. It's profit margins are up, while wages are flat.
Exactly. There are several
Exactly. There are several elephants in the room, with capitalism being a very big one, how we are all supposed to automatically defer to profiteering and the unalloyed greed of business owners despite knowing that a disproportionate number are bona fide psychopaths. But that ingrained assumption is one of those triumphs of marketing because it's actually the conservative narrative. There isn't really a comparable "liberal narrative" except to make life more fair for more people. Gee, which of those is the superior attitude to take to human society and its government?
Even on "The Handmaid's Tale" Bradley Whitford's character talks about the nightmarish "Gilead" being devised to save society from the chaotic mess of "end-stage capitalism." He also admits that the religious nutbars he thought would serve as useful and fervent facilitators have kind of gotten away on him.....
That con narrative, that it's the economic and moral (moral, there's religion again) right of businesses to charge whatever they want, whatever the market will bear, is destroying society, Suzuki is right, and yet the salient factor in that, the GREED, somehow remains just another topic for debate. I also heard Jim Stanford a couple of times now on CBC and know he's a left wing economist while Trevor Tombe leans right, so here we are again, pretending that even LEANING right at this point is acceptable when it clearly no longer is. That ship has sailed; how about we start THERE?
Environmental disasters cause
Environmental disasters cause costs to increase and prices to rise. They are locked in and are increasing in impact. The 2% inflation target is out the window until we eliminate or significantly reduce the negative impacts from humans mistreating the environment. Environmental costs are significant and growing. Politicians don't often talk about these costs.
Orthodox Cure for Inflation
Orthodox Cure for Inflation Will Be Worse than the Disease
https://centreforfuturework.ca/2022/10/19/orthodox-cure-for-inflation-wi...
"Dramatic increases in interest rates around the world, motivated by a desire to clamp down inflation that broke out after the COVID pandemic, is undermining investment, job creation, and household spending power."
Even super-tight policy is
Even super-tight policy is not bringing down prices
Welcome to Hikelandia, where inflation just won’t budge
https://www.economist.com/finance-and-economics/2022/10/23/even-super-ti...
The Economist has gathered data on Chile and seven other countries in which the central bank started a tightening cycle at least a year ago, and did so after having slashed interest rates to an all-time low early in the covid-19 pandemic. The group includes Brazil, Hungary, New Zealand, Norway, South Korea, Peru and Poland..Call the unlikely gang “Hikelandia”. In the year to October 2022 the median economy in Hikelandia raised rates by about six percentage points.
***
Unsurprisingly, turning the monetary screws has slowed Hikelandia’s economy..Goldman Sachs, a bank, produces a “current-activity indicator”, a real-time measure of economic strength. Using its data, we find that Hikelandia’s economy is weakening relative to the global average..In September core inflation in Hikelandia’s economy hit 9.5%, year on year, up 3.5 percentage points from March. Worse still, the gap between global core inflation and Hikelandia’s reading seems to be widening, not shrinking. Dig into the national statistics of Hikelandia, and the trends become even more concerning.. Across the club, inflation is becoming more “dispersed”, affecting a wider range of goods and services.
Tired of Max's loyalty to
Tired of Max's loyalty to Crystia, especially as it blinds him to the recent reactions of the global south in response to Ukraine and other proxy wars. But everytime I think the empire can't do something even more stupid to hasten its demise, it finds a way, thanks in part to people like Freeland.
Comments