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Title: Why federal fiscal spending could change the rules for the Bank of Canada: Don Pittis
Category: Economics
Posted By: andyt
Date: 2016-03-10 06:04:51
Canadian

   

Remember when we were all afraid of inflation? Now we're begging for it,

Seems to me businesses aren't investing in more output is because consumers are tapped out. Wages are stagnant because jobs have been shipped out of the country and consumer debt is overwhelming. Meanwhile the low interest rates have contributed to insane housing costs in parts of the country.

So if the govt primes the pump by injecting money into the economy, how much of that money just gets shipped out of the country as people purchase outsourced goods?

BC was criticized by going on an austerity kick in the 1980's because it was the only jurisdiction to to so. Economists said the benefits were basically flowing to those other jurisdictions, as inflation was reduced (very) slightly. Wonder if the reverse is true - if Canada is the only country to apply fiscal stimulus, will the benefits just leak out to other countries.

   

No, we're not begging for inflation. Inflation is the worst economic problem we can have. We don't want it. It's true that inflation devalues debt, but in sum, we don't want it; creates too many problems.

As for your hypothesis that jobs being "shipped out" has had a detrimental effect on wages, no. Jobs aren't being "shipped out". There are more jobs in Canada than ever, so you're basing your hypothesis on an incorrect assumption. And why would there be a causal relationship between consumer debt and wages? I've never seen a model of the demand for labour that has consumer debt as a variable. I'm not following your logic.

   

Consumer debt prevents people from buying more crap the business is supposed to be making to stimulate the economy.

We are begging for inflation, since deflation seems pretty bad too. Just not hyper inflation.

Really? We haven't lost jobs to outsourcing?

   

No, no one is begging for inflation. Asking for inflation is likely wishing for cancer as a weight-loss solution.


Not in total, net, no. Sure we've lost jobs to outsourcing. We've lost jobs to robots. We've lost jobs to changing demand and changing technology. We've lost jobs to all sorts of things. But you're ignoring the job creation that has more than offset the losses.

   

We're also adding 500,000 plus people to Canada's population every year. Our unemployment rate is pretty poor.

Wages have been stagnant for a long time. We've traded good manufacturing jobs to poorly paid, insecure service jobs. That's no way to have a healthy economy, especially now we don't have the magic oil anymore to make things OK.

   

You're speaking in anecdotes that aren't supported by facts. "Pretty poor" is not a measure of unemployment rate...a rate which has fluctuated only slightly over the past 20 years. Service jobs are better than manufacturing jobs for lots of reasons. Job security of any kind is a myth in the modern economy, for manufacturing jobs too.

Wages being stagnant is a good thing. It indicates low inflation and means businesses enjoy some cost certainty. We like steady statistics and wages and unemployment have been that for a long time. I'd also argue that losing oil jobs is a good thing in the long run, but that is another discussion.

   

I have this feeling you're out in left field playing by yourself on this this one, while most economists are clustered around home plate. Never heard the spin you're giving it.

   

Why do you insist on getting involved in topics when you're so ill-prepared to discuss them?

I'm not one to defend Lemmy, but you don't have a clue what you're talking about.

   

Oh, sure, stagnant wages and outsourcing are a good thing. Everyone but me understands that. And central banks, including Canada's have not been trying to stop deflation and start inflation, because all economists think any inflation is bad.

   

No, stagnant wages and outsourcing are BOTH good things and bad things. Stagnant wages is an indication of price stability, which is a good thing. Outsourcing means specializing and trading, which means lower prices which is a benefit to consumers. Outsourcing is also good for businesses if it makes them more competitive.


Deflation is as bad as inflation. It's, likewise, a sign of uncertainty and uncertainty is bad. Uncertainty creates big swings in the economy, which we don't like.

Your problem, andy, is that you look at economic issues as either good or bad, instead of seeing the whole picture. There are two sides to every coin and economic variables are that way too. You're seeing either all the bad and none of the good or all the good and none of the bad.

   

No, you just want to cast me that way. Banks are trying to boost inflation to around 2% and saying maybe even a bit higher. It's you who came out with the inflation is always bad.

Stagnant wages where people have less money to spend is not a good thing. Inflation didn't stop. It's recognized that our wages are not following the expected trend where they should have increased as the economy improved again. I think this is because of outsourcing and immigration. Businesses aren't paying more because there is no pressure on it to do so.

Trading manufacturing jobs for poor service jobs, as we have been is not a good thing, not matter the spin you want to put on it. As I say, you seem to be the only one casting things in this light.

   

Banks are following their profit motive. Higher inflation means more uncertainty, which means higher risk premiums on loans, which means higher revenues. It's not me who came out with "inflation is always bad". I already said that it's good in that it eats away at debt. What I said is, of all the economic problems we could face, inflation is a bad one. And if we're making a list of economic problems and ranking them in order from worst to least worrisome, inflation would be at the top. You'd be hard-pressed to find an economist anywhere who wouldn't concur with that.


I never said stagnant wages were a good thing. I said that stagnant wages are an indication of something that is very good: price stability. There are other reasons why stagnant wages, in particular in certain types of jobs, are also good. Clearly, it's not great for a person doing any job to not be rewarded more for their work. But from the economy's perspective, as a whole, we need to look at overall health, sometimes at the expense of certain stakeholders. That's just reality. There's very little we can do in terms of economic policy that doesn't have "winners" and "losers" as a result.


I'm hardly the only one saying this because it's one of the major reasons we entered into the Can-USFTA/NAFTA. We PURPOSELY shipped dirty manufacturing jobs out of the country and replaced them with service work. You understand that not all service work is retail and foodservice, right? Service jobs include a higher percentage of high-salaried positions than manufacturing ever did. And we haven't even mentioned the mental and physical tolls manufacturing jobs take on people nor the environmental impacts of a manufacturing economy. So no, I'm not the only one casting things in this light. None of what I've said is controversial. Maybe you just don't hang out with enough economists! You're refusing to see that, for just about any aspect of the economy, there's good and bad.

   

Deflation is far worse than Inflation. No one wants Deflation, everyone wants Low Inflation. The reason is that Inflation can be controlled, Deflation is extremely difficult to control, because it is a disincentive for consumers to Spend. Which further decreases Demand and causes more Deflation.

   

For someone who's supposed to be a labor economist, you're either deliberately bullshitting or should resign your position:




http://www.theglobeandmail.com/report-o ... e23303996/

   

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