Our past success in building a prosperous nation has ironically created the condition for people to forget how prosperity is forged.
If you were stuck on an island with 10 other people, you couldn’t generate any real wealth and prosperity without taking real action.
You and the others around you would have to use your minds to figure out how to transform the resources on the island into tools you could use to survive and eventually thrive.
In short, you would have to become more and more productive if you wanted to first maintain a baseline standard of living, and then increase it.
Of course, things are no different in the broader world, it is simply at a much larger scale.
Without productive human action, our standard of living wouldn’t be possible.
Debt can only be created because of pre-existing wealth, wealth that is – at some level – generated by productive action. (For those who dismiss investment income as ‘fake’, consider that investing means directing money towards productive activities).
A good way to think about it is to consider that our entire economy would collapse without people producing food.
All economic growth is based upon our ability to stay alive, and we can’t stay alive without taking actions that maintain our existence.
You could print all the money in the world, have all the high-powered law firms and tech companies, but without someone producing food there would be no economy in which you could spend money, which would render it and everything else completely worthless.
So, why am I saying all of this?
The reason is that many people in Canada – including our top government officials – appear to have forgotten that true productive action is required for an economy to actually grow.
Productivity is increasingly being restricted with increased taxes and restrictions on development, at the same time as debt surges.
Canada is seemingly in the middle of an experiment in trying to replace productivity growth with debt and expanded money printing.
Of course, that is doomed to fail.
Economic reality cannot be permanently avoided.
If productivity remains weak, a bunch of money is printed, and debt continues going up, then inflation, higher interest rates, and a poorer society will be the result.
And Canada has a serious productivity problem, as noted by Jack Mintz:
“In 2018, Canadians produced US$50 in GDP per hour worked. By contrast, land-locked Switzerland, with its strong internationally competitive manufacturing and service companies, produced US$60 in GDP per working hour. The U.S. produced roughly US$65 in GDP per hour. And the fastest growing OECD country in the past three decades, Ireland, produced US$84 in GDP per hour.
Guess who pays higher wages? U.S. employers pay workers US$23 per hour, Switzerland US$33 (with 30 hour work weeks), Ireland US$26 and Canada, with the lowest productivity, a measly US$19 per hour. So labour productivity really matters to Canadian pocketbooks.”
Keep in mind, this was before the pandemic and lockdowns, and before Canada’s massive surge of debt.
Yet, our housing market and stock market are going up!
Of course, it is simply absurd that the housing market rose this year, and that could only happen with a combination of suppressed interest rates, massive expansion of the money supply, and development restrictions that artificially constrain housing supply.
As for the stock market, it has been juiced by easy money going from central banks to ‘private banks.’
Inflation is already all around us, as much as the government tries to pretend it isn’t happening.
Again, this is inevitable.
If production isn’t going up – or is going up slowly – and you pump a bunch of money into the system through both debt and money printing, you have more and more dollars chasing a supply of goods that isn’t going up nearly as fast, making each individual dollar worth less.
This is a desperate attempt to evade reality, with central banks and governments seeking every possible last-ditch avenue to pump some more money into the economy before people realize it makes no sense.
You can’t have a long-term economy based heavily on growth in housing prices to drive GDP – a lesson the United States already learned, yet which Canada seems to be completely ignoring.
At some point, you have to actually start producing and producing more and more efficiently. That is the only way real economic growth (on a per capita basis), can take place.
The longer we try avoiding this reality, the more brutal the inevitable reckoning will be.