Episode 3
December 13th 2022

Greedflation and Justinflation

Read the transcript

Max Fawcett: Hi there, and welcome to episode number three of Maxed Out. My name is Max Fawcett.

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I’m the lead columnist for Canada’s National Observer, and a direct descendant of Canada’s worst Prime Minister, if you want to guess who that is, reach out to me on twitter. For those who missed the first two episodes — and may I say, how dare you — this podcast is about having constructive conversations about public policy issues with people I might, or do, disagree with. I want to step outside my silos, and I want to encourage other people to step outside of theirs.

Today, I’ll be talking with Armine Yalnizyan, an economist and columnist with the Toronto Star about greedflation and justinflation. I dare you to say that five times, fast.

But first I’ll begin with a bit of housekeeping, and an acknowledgement of feedback I’ve gotten from some listeners: that I’m being just a little bit too gentle and nice. This is honestly the first time I’ve ever been told that, and it’s obviously a contrast to my persona on Twitter. As it turns out, talking to people instead of tweeting at them elicits a different response.

I think that’s a good thing, and I’m not about to gin up controversy or conflict just for the sake of it. But I am going to push myself in the new year to discuss topics that are a bit more combustible, let’s say.

That means cryptocurrency. That means housing and real estate. And that means politics, whether it’s giving the vote to 16-year-olds or discussing Justin Trudeau’s legacy in Alberta. We’re going to have to some fun. I hope you’ll join me and my guests in the new year.

So on to episode 3 – Greedflation and Justinflation

What has me Maxed Out right now is politicians offering simplistic solutions to complicated problems.

There are any number of flaws in the “Greedflation” thesis as an explanation for inflation - ones that have been unpacked by any number of writers and economists already.

As the University of Calgary’s Trevor Tombe noted in a piece he wrote a few weeks ago, almost all of the excess profits we’re seeing in Canada are coming from the oil and gas industry — one that takes prices rather than making them. As Tombe wrote, outside of energy and mining, “rising profits are entirely due to higher sales volumes rather than rising market power. Profit margins have been fairly steady at around 8 per cent.” In fact, as he noted, food stores and manufacturers had lower margins in the first two quarters of 2022 than they did in 2021.

Max: I invited Armine Yalnizyan to stress test all this. She is a Canadian economist and writer who was a senior economist with the Canadian Centre for Policy Alternatives 2008 to 2017. She's currently a regular columnist with the Toronto Star. And she's a fellow with the Atkinson Foundation, doing collaborative research on the future of workers in a period of technological change. That seems like an especially relevant and interesting area of research right now, given everything that's happening in the world. And that's why I wanted to have Armine on to zero in on one of them inflation. And the’ balance or imbalance between labour and capital in our economy. Armine welcome to Maxed Out. And let me jump right in with a question.

Max: You know, I think we've seen a bit of a vacuum may be created by the federal government around the way they've talked about this or not talked about it. But Pierre Poilievre the leader of the Conservative Party of Canada, has filled that space with this idea of justinflation, that it's all the prime minister's fault that that him and the Bank of Canada recklessly spent too much money during the pandemic. And now it's creating this inflation. That's all his fault. And, you know, I think most people who can look beyond our borders can see that inflation is happening all around the world and that this is sort of a bit of a silly notion. But we also have the NDP and Jagmeet Singh talking about greedflation. Can you walk us through that idea and whether you see any sortof validity to that explanation as to why inflation is happening?

Armine Yalnizyan: Well, justinflation is a great political trope because it's blaming inflation on what the Government of Canada is doing, which included spending during the pandemic. And they are attributing too much government spending to the inflation that we are seeing now, too much purchasing power by workers, by businesses, to raising prices beyond what the supply of both labour and goods can accommodate right now. O.K., there's some truth to that. But we all know that the root causes of the inflation that we're dealing with right now is almost zero impact of stimulation by the federal government at this stage, though, we do have better purchasing power than a lot of other countries. Canada did bounce back in terms of both GDP largely because we did have really good policies to keep people and businesses as functional as possible during the pandemic closedown and then when it reopened, more people had jobs faster than in the U.S., the UK, and many European countries. So good for us and that isn't a bad thing, it's a good thing. But inflation as we know it right now is being driven by global supply issues in addition to labour shortages. And so, the charge of greedflation, which always exists, by the way, the charge of greedflation, is a little bit hard to swallow, too, because prices will be raised more than what is needed to cover these higher input costs because of labor shortages and less global supply of things. Yeah, those prices are legitimate increases, but some companies will have the ability to set prices because they've got so much market concentration, That's always been the case and it is the case in things like telecom, in energy and in food. So, greedflation has always existed, but, you know, decomposing what part of the price increase is because of greed, inflation versus legitimate increases in input costs versus price discrimination that charge different prices to different market participants based on where you are geographically or shrinkflation where you pay the same, but you're getting less. All of these are true and all of these are corporate behaviours, but that isn't the underlying cause of the inflation we're dealing with right now, which stems from two things less global supply of fuel and the things that make our food and labor shortages that are occurring. Up and down the skill spectrum in the pay spectrum in every country that had a baby boom after the Second World War. These are the main drivers of supply shortages and they will not be fixed anytime soon, by raising interest rates which is the Bank of Canada go-to solution.

Max: My sense of why some politicians are drawn to these sorts of seductive solutions, you know part of it is because it allows them to go and you know, kick the scapegoat; for the conservatives it is Justin Trudeau, for the NDP its more often corporations and the economy, or the private sector. One of the ideas that has been floated as a potential solution here is the idea of an excess profits tax. I know that has been very popular here in Alberta the oil and gas industry and some of the companies here, and it has also been talked about in the context of grocery stores. Galen Weston Jr who is the CEO of Loblaws is a kind of perfect corporate villain so I understand why it is easy to look to him as the boogy-man here but I am not sold on it being a remedy to inflation. What’s your take on it?

Armine: It's a way of a revenue neutral way of both cooling demand from shareholders that are getting windfall dividend dividends and corporations that are seeing windfall profits that are permitting share buybacks and other ways of concentrating their power in the market, as well as addressing by recycling just a fraction of that money that is deemed excess, by recycling it to the people that are literally choosing between heating and eating and food and shelter in a way that could be revenue neutral. So, you're not growing the bottom line of the government's deficit or surplus, but you are recycling some of the money that is pure windfall because of what is happening through global supply shocks. And that was done in Europe, oddly, like 27 nations that do not get along that decided they would tax excess profits of energy companies because it was 100% predictable what was going to happen to their profits as we headed into the winter. And similarly, we are seeing a big windfall in energy companies here and food companies here. And we could be using some of that money to recycle it to, for example, the not-for-profit sector that provides food bank services which are soaring while donations are shrinking. So, it's a way of helping by recycling the excess that nobody did anything, particularly to improve productivity or smarter management or anything. It's just what's happening to global commodity prices. So why not tap into it and ease the pressure? It won't ease inflation. It'll ease the horrible choices that low-income Canadians have to make that most of us don't have to think about.

Max: Yeah, I think that's sort of where the rubber meets the road for me is, governments have and certainly the federal government has said, well we can't do too much to help people because that just fuels the fire. And, you know, you give them give people money to pay these costs and it goes back into the economy. And basically, we're back where we started dealing with inflation. But, you know, in the near term, like you say, people are facing some very unpleasant and kind of unthinkable choices over the next few months. I guess where I struggle with it, certainly on the excess profit side is and maybe this is just a function of me being in Calgary and having Stockholm syndrome’ you know, these companies, you know, didn't make much money for five or six years between 2014 and 2021. And I think they're sort of answer to this is, well, yeah, prices are high through no, no, nothing that we're doing. It's not like we're driving the prices up deliberately, but we’d like to be able to pay down some debt that we incurred. We'd like to be able to pay shareholders and things like that. And oh, by the way, if you implement an excess profits tax, we'll find ways around it. What would your advice be to policymakers?

Armine: I think you raise and they raise some really important considerations because Alberta in particular, but also Saskatchewan and Newfoundland and Labrador got hammered by global commodity prices for oil and gas dropping about what is it now, seven years ago or so. And sure, there are debts that need to be repaid. But the second part of your sentence was and providing dividends to shareholders. Look, if you're worried about too much stimulus, do not give people that already have tons of money, more money to go and spend it. I mean, the second highest rising price in the CPI and the consumer Price index right now is for traveling, like the money's burning a hole in their pockets. Air travel and traveling accommodation is spiking by over 20%. Why give people that don't need the money, more money to drive prices up so that the Bank of Canada comes in and says we must drive prices down? And how will we do it? We will raise unemployment. So, it just seems to me like I fully understand the incredibly evocative story for energy. But one could say that at any given time for the energy companies that are making a killing and, you know, they're going to always turn around and say, but we won't invest if you take our money. Nobody's saying we're going to take all of your money.. You're still going to have lots of excess profits. No jurisdiction is talking about taxing 100% of the excess profits. So, we can actually reduce the sting of what is happening for some people. Why wouldn't you want that in the community in which you live? I mean, you make the point, Max, that Alberta was hurting for a number of years, but through no government action and through no corporate action, it is now enjoying surpluses. How is it going to use that surplus? Is it going to give taxes back? You want to give taxes back. Like if you do what Scott Moe did in Saskatchewan or what Newfoundland and Labrador did, which is give everybody a check that is pouring fire on inflation, you don't pour fuel on the fire of inflation by helping people have enough to eat and keep in their homes, especially when there aren't any affordable homes left. We keep, you know, gentrifying everything that has affordable housing units. Across the country we have lost 340,000 units of affordable housing between 2016 and 2021. And you know that in 2022 that number went up. So, it's not like there are cheaper places to move to. If you are telling people, yeah, you're going to have to pay more for food and you're going to have to pay more for gas and we're not going to give you a cheaper place to live. Something's got to give here in this equation. And if you think that people aren't going to get, you know, behave themselves and not ask for higher wages. But they're going to get sicker because there aren't any doctors and then they're going to turn to the hospital system and the emergency rooms are closed. Like, this is a perfect storm for people that don't have deep pockets. And the people that have got more financial cushions really need to stop and think about, do you remember the beginning of the pandemic where we were looking out for one another? Because we knew that if you if you didn't get sick, I wouldn't get sick. None of that interdependence, that basic economic interdependence has changed, but we seem to be far more willing to look away when people are struggling with the basics now, because we weren't struggling with the basics at the beginning of the pandemic. We were just struggling with a pandemic and keeping each other safe.

Max: I am not a fan of the theory of greed deflation as being a cause of what we're dealing with. But as you point out, we sort of have a pandemic of greed more broadly in that people are really, I think, losing that sense of us being in it together that we had, like you said, at the beginning of the pandemic and of all, if I'm doing better, my industry, my company, whatever, then maybe I'll give back more because others are really struggling right now that that mentality seems to be lost. Certainly, you know, just to close the loop on the oil and gas stuff. One of the things I've learned being in Alberta over the last ten years is that when prices go up, it's because we're smart. And when prices go down, it's because someone else did it to us. Right.

Armine: That's right. So that's often the case. I just wanted to point out to that the pandemic really taught us some very important lessons about interdependence, which is that I can only be healthy if you're healthy. But that's also true for economics. A business can only do well if they have enough consumers. If we're raising unemployment and if we're making more people who even have a job unable to consider buying anything other than shelter, food and fuel to get to their job, then you are cutting demand for all these businesses. It is a self-fulfilling problem if we can't help people to sustain their purchasing power. And that's why Canada did so well compared to all of the other G7 and most OECD nations in bouncing back, you know, months ahead of the United States because we actually sustained purchasing power for people in the effort to contain the contagion so that we didn't get sick. Now that that all of that feeling is gone Now, people are so tired of this looking out for one another now that any inconvenience registers as I'm not going to do that because why should I? The way the conversation has morphed has is perplexing to me, actually, because we're actually hurting one another at this point. We're making people sicker. And we're reducing economic firepower. So, I don't see how the formula is working.

Max: Well, it feels like the most sort of immediate wave of the pandemic is behind us. But we're now dealing with this kind of society wide, long COVID, where we're all kind of struggling and suffering to some extent with what, you know, what the pandemic has done to our workplaces. Our budgets are our health, you name it. I do want to get into the sort of conversation around monetary policy, economics, and workers, because I think that touches on what you're doing right now with the Atkinson Foundation. How do we how do we elevate the role and the presence of workers in the conversations we have in the business pages with each other about monetary policy? Because it feels like the needs of workers are kind of an afterthought, or at the very least they don't come at the beginning of the conversation. It feels like, well, if we're going to lose some jobs, that's a necessary evil. We need to have that pain. And it's like, well, hold on a second. Why do we need to have that pain? Why is it that workers who are most sort of on the margins right now are the ones who are going to feel the pinch the most?

Armine: You know, we could even do it that way because if monetary policy is what's going to stabilize prices, which it has done since 1935 in Canada, then that's the formula. That's the only tool that the Bank of Canada has is to cool demand so that supply has a chance to catch up with it. And what that means, by and large, is more unemployment. It is very, very important for people to understand unemployment rates are now at half century lows. And this is after a couple like the Bank of Canada has been raising rates since March and we haven't seen anything like this since the 1990s in terms of month after month.. But the background conditions could not be more different. Back then we had double digit unemployment and now we have record low unemployment because of population ageing primarily. And so maybe that's in part what the Bank of Canada means, is if we can cool demand enough to lower job vacancies, that you will see a little bit of an increase in unemployment. But it might just give people enough chance to match what people want to buy with the people to do that job. I think it's more it actually more centers on workers than almost any other factor that the Bank of Canada can affect with its higher interest rates, which seems cruel if we think that the only decision maker in this system is the Bank of Canada. But it's true that fiscal policies, like I mentioned before, excess profit taxes recycle to help those who are getting the worst out of this bargain. Maybe improving employment insurance instead of reverting to what we had prior to the pandemic, which was less than four people unemployed out of ten got access to job jobless benefits. That's crazy. Why would we wind the clock back to them after we went through CERB? There's something we could be doing to improving access jobless benefits that has got nothing to do with the monetary policies got everything to do with what the Government of Canada can do, both in terms of taxation and then how do we spend it. So, I think there are ways of having a Bank of Canada policy that might slow demand and then having fiscal policy that eases the pinch of that for the people that are getting hurt the hardest, which wouldn't pour fuel on the fire of inflation, it just wouldn't make people unnecessarily suffer.

Max: It feels to me like, you know, the way that inflation kind of snuck up on everyone's assumptions and we know we had this long period of basically inflation seemed like it was gone and this stuff was relegated to the history books. And now it is back with a vengeance. It seems like it's an opportunity to test a bunch of our assumptions around the relationship between labor, capital, government really sort of throw everything out into the middle and reassess how we grow in economy and how we share the spoils of that growth. How do we how do we advance that conversation, do you think, in the current political climate?

Armine: I think we have to challenge the assumption that monetary policy is the way we're going to get through this moment. That without anything else, we're going to crash. If that's the case, and I don't see why we need to do that. Given that population aging presents to us not only labor shortages that are perceived as being hugely problematic for the continuance of a healthy economy, but also present the opportunity to make every job a good job. Right now, the only solution coming out of the monetary policy world is just add people and stir. Immigration in this time of like higher demand will help meet your labor shortages and won't inflate prices. Well, yeah, but this is also an opportunity for making every job a good job. So, these crappy jobs that nobody wants to do that we can only fill with temporary foreign workers because not even immigrants who are permanent citizens want to do these jobs. We could be making every job a good job, and that will necessitate some wage growth. It is extremely challenging to tackle this conversation about workers are the problem in inflation when wage growth has been trailing inflation right from the beginning, wage growth has not been the trigger for inflation. It has been the war, the invasion of Ukraine by Russia. It has been droughts, floods, fires, hurricanes. It has been all sorts of issues that are not unique to how we run our economy. And 57% of our economy is propelled by household purchasing power. You slow down the economy by containing purchasing power, and that's harder to build back up. We could actually have our cake and eat it too, if we just helped those that are at the very bottom of the economic pie by making every job a good job, by making sure that we're not losing the stock of affordable housing because of rising rates, you know, the government could have stepped in with their fall economic statement and said, we recognize interest rates are going up and that means affordable housing, which we are going to desperately need because we're inviting half a million more people in every year to deal with our labor shortages have a million plus because that's just the immigrant part of it. We recognize that some affordable housing projects will be stalled because of higher costs due to the Bank of Canada's rising interest rate policy. And we are going to fill in that breach because we cannot afford to lose one unit of affordable housing. And instead of doing that, hands off the wheel. Like that's the sort of thing I'm talking about, right? Like there's so much we could be doing to make sure that people aren't spending more than they need to in the market for the basics - food, fuel, and shelter. You know, businesses don't create jobs, customers create jobs. And so, if you're actively trying to cut purchasing power because you're trying to tame inflation, you might be actually inflaming inflation on some of the basics. And so, I'm really worried that we're kind of locked into this. Oh, the Bank of Canada is doing it wrong when it's doing the only thing it knows how to do, but it needs a partner in fiscal policy who is M.I.A. Right now.

Max: Yeah. If you were if you were giving advice to obviously the current government, but any federal government right now of any partisan stripe, what would your biggest suggestion to them be in terms of doing the right thing for workers, doing the right thing for inflation, and helping kind of create 21st century answers to 21st century problems?

Armine: Excellent question. And it's not an easy I don't have a sound bite for it, so I'll start with the basics. Continue to build the stock of affordable housing. We're building at a rate that is roughly one fifth of the rate we were building at in the 1970s. The last time we went through a bout of inflation like this was in the 1970s. We were adding about 300,000 people a year back then, and we are adding about 300, 400, 500,000 people today, depending on how you're counting population growth by births as well as newcomers. And we are building at one fifth the pace. We need more deliberately built affordable housing to keep costs manageable, and to keep the economy humming. We also need to make it absolutely clear that in an era like we are in, we have three sources of pressure to increase the number of jobs in the gig economy. Consumers want on demand everything. Employers want just in time. Labor and workers want side hustle to deal with the rising costs of everything. So, here's three different factors that are coming in and saying, basically, let's just do more gigs to be able to meet the need and we don't regulate that part of the economy, so we can improve labor laws so that people are not misclassified as independent contractors rather than workers for these platforms and consequently denied every labor law and every labor standard there is on the books. We could be absolutely improving the way we recycle the wealth that is being generated by this windfall in commodity prices. And, whereas I recognize that no company wants to pay more taxes, they are making more profits, sometimes from sheer sales, like in grocery stores, sometimes from because of underlying commodity global commodity prices, like in energy, and sometimes through sheer market forces of market concentration like in telecom. And the banks already have an excess profit tacked onto them from the last budget. We could be extending that modality. Any company that has over a billion dollars in net in profits, net income and that that amount, whatever it is, over a billion dollars is 20, 30% more than it has been over the last few years. You have to give some of it back. The Canadian formulation is 15%. In Europe, it's 33%. There are so many things we can do with that little amount of money that could transform the next chapter of economic growth, because the next chapter is absolutely inevitable. We will get through this phase and then what are we left with? How have we maximised the potential for the next chapter? And that's what drives me crazy about the moment is it seems like we've given up trying to help one another. It seems like this is the moment that we could be starting to do that, build back better part of it and inflation can T-boned us and it's like inflation is helping us forget the underlying reality, which is that the economy is constantly being built by those who are there to build it. We've got more people exiting the labour market than entering it. We need all hands-on deck. We absolutely need to make sure that everybody's got the best chance they can to deploy their talents. And that's how we're going to get through the next ten, 15, 20 years. But we don't seem to be thinking beyond, I need to pay that bill at the grocery store and I don't want to wear a mask.

Max: Well, and I think a big part of it is that we seem to have a political class. And I again, I include all partisan stripes in this. No one is no one is exempt from this description. We have a political class that does not seem to want to embrace complicated answers. They want they want the simple solution. They want the press this button and the problem will disappear. And I understand the appeal of that to them and to the public. But, you know, certainly sounds from what you're saying, like you think that we need politicians in government to embrace risk taking again and embrace their role in the conversation. They can't simply just be there to write checks and send money to people and point to the Bank of Canada. They have to present solutions that are actually fit for the problem rather than just a good way to dump on their opponents.

Armine: Look, everybody loves a good villain. It makes it easier to, you know, not think about what can I do to fix the situation. And thus far, we've been thinking about the federal level. But I think about the disaster that is happening across the country in health care and in particularly in health care, which is a uniquely provincial jurisdiction to fix. Yeah, the feds can offer more money, but the fix comes from the provinces and they've all dropped the ball. So, I think there is this kind of contagion that is happening where we want the power, but it's not clear what we want the power to do other than to be powerful. It seems to me that there is a rewrite in the mix somewhere in the next few years to help us remember what democracy is, what it means to have elected representatives, what it means to delegate power to a handful of us, to be able to help us get through the next phase. And whether that's left, right or centre doesn't matter. It's just that these are jobs that need to be done. There are there is work that needs to be done that markets can't do and that central banks can't do. So, there's this kind of breach in between that at the moment nobody is filling and businesses aren't. Businesses can't create affordable housing. Businesses won't create all businesses. Some businesses can create good jobs, but not all businesses will. Unless the rules are written in the sandbox for that. So, we could be writing better rules so that everybody is closer to being on a playing field. We could be actually maximising the potential of the working age population we have. We could be making sure that every child that is born matters and that we are bringing them ready to become full human beings as they enter school and move through school. So, we're supporting their learning of not only skills but humanity as they grow up so that they can be fully. You know, the 20th century lodestar was full employment. We've got full employment right now because of demographics. The challenge right now is full engagement so that you can be the best person you can be, both in terms of paid work and unpaid work, because there's so much work to be done right in in the course of our lives, to care for one another, to care for ourselves, and to improve ourselves so that we can give the most to the world around us. And it just feels like everything's so tired right now. Everybody's so worn out. This is much easier to blame one another than it is to try and work together. But I, I can't imagine that lasting. I mean, maybe. Initially, the solution will be continued polarization to a place where we can't agree at all. I would hate to think that that's the case, because I think geopolitically that will mean war. And we've been down this path before. And I'm not talking about civil war in Canada or anything like that, but civil war in the United States seems possible. People are just so angry all of the time and there's so much money being poured into making people enraged. That that might be where we head. But it seems to me that there's a real opportunity here for us to talk about how we could work together to make things better for all of us, not just for some of us, but for all of us.

Max: Yeah. I mean, I think you mentioned that there's a rewrite coming. I, I look forward to that. I really hope it comes sooner rather than later. And I know that you will be there playing a crucial role in helping people who hold the pen, put the right things down on paper. So, I appreciate you taking time to talk with me today. It was. Wasn't quite as disagreeable as maybe my listeners keep hoping for, but I promise I'll have someone on this podcast at some point who actively disagrees with me. And then we can have some active disagreement. But I really loved agreeing with you. I thought it was fantastic and kind of makes me more optimistic than I than I was going in. So. So thank you so much, Armin.

Armine: I don't know where you find the optimism. I'm Armenian, so I'm, like, chronically and genetically disposed to being pessimistic. But when I look factually at the situation, there is so much room for better outcomes that we're just not seizing Right now, though I recognize we know how to shoot ourselves in the foot.

Max: Well, hopefully we seize those opportunities and, you know, get to a place where we have a better conversation. That's certainly what I'm in my own tiny little, small way trying to do on this podcast. So, I appreciate you spending an hour of your time with us and sharing your wisdom.

Armine: Thank you. Thank you very much for having me on your show, Max.

Max: Just a reminder that we need your help to continue our podcasts. Every donation helps. And please rate us a 5 on Apple and tell your friends. We want everyone to find us.

Maxed Out is produced by Canada’s National Observer. Our Managing Producer for podcasts is Sandra Bartlett. Associate producer Zahra Khozema. The Executive Editor of Canada’s National Observer is Karen Pugliese. Our publisher is Linda Solomon Wood. I’m Max Fawcett. Next Tuesday it’s Hot Politics with David McKie. I’ll see you in 2023.

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Greedflation, justinflation, even shrinkflation are the newest terms to describe what we have all been going through financially for the past two years. And on top of this we have rising interest rates. Is there anything that can be done to ease the pressure?

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