To make an effective argument against Liberal policies, the focus must be on the danger of inflation and the devaluation of Canada’s currency.
Following the release of the 2021 federal budget, some have been saying things like ‘Canada is bankrupt,’ and ‘the cupboard is bare.’
“The Liberal budget has left the cupboard bare – because they can’t manage money.”
The Liberal budget has left the cupboard bare – because they can’t manage money. pic.twitter.com/64A9ByRjUS
— Erin O'Toole (@erinotoole) April 20, 2021
The issue with this messaging is that it distracts from the real danger of Liberal policy, and makes it easier for the Liberals to refute.
When the Conservatives say ‘the cupboard is bare,’ they are implying that Canada is out of money.
All the Liberals have to do in order to counter that message is keep sending cheques out to people, keep spreading money around, and keep spending.
On one hand, people see the Conservatives say Canada has no money left, and on the other they are seeing the Liberals throwing money all over the place.
This lets the Liberals get away with their policies, and makes the Conservatives look out of touch.
Canada can’t ‘run out of money’
Those who push Modern Monetary Theory (AKA endless money printing) are 100% correct about one thing:
A country like Canada that controls our own currency – through the Bank of Canada – can never ‘run out of money.’
That is absolutely true.
There is no scenario in which one day we’ll wake up and we ‘run out’ of Canadian dollars.
But that’s not the danger with rising debt and deficits.
The danger is that our money loses all value.
Money can ‘run out of value’
Weimar Germany never ran out of government-printed money.
Zimbabwe never ran out of government-printed money.
There was no shortage of money whatsoever.
In fact, just the opposite.
Money was all over the place.
There were wheelbarrows full of money.
Everyone had a bunch of government-currency on them.
The problem wasn’t a shortage of money, the problem was a shortage of money with value.
Fiat currencies aren’t backed by anything except our willingness to believe they have value.
It’s a society-wide mental agreement.
And when people start to feel (first slowly, then rapidly), that fiat currency is being debased and devalued, the system starts to crumble.
It has happened repeatedly throughout history, and every time governments think ‘this time it’s different.’
That’s what Modern Monetary Theory is all about, giving a new name to the same failed idea that debt and deficits can be ignored.
The Inflation Tax
By saying the ‘cupboard’ is bare, the Conservatives are ignoring the strongest line of attack against the Liberals.
The fact is, by embracing endless debt increases and massive deficits, the Liberals are hitting you and every Canadian with the Inflation Tax.
The Inflation Tax is a tax on everything, a tax on your money itself.
Imagine if every month we saw a tax on every purchase called the Inflation Tax, first starting at 1%, then 2%, then 3%, going up and up every month.
People would rightfully be outraged, saying “why are robbing my hard-earned money of value,” and “why are you making everything more expensive?”
The Inflation Tax would be widely-hated, and people would demand it be repealed immediately.
And yet, we are all being hit with the Inflation Tax, and it’s only going to get worse.
The Liberals have embraced the politics of ‘obvious benefits,’ and ‘hidden harms’
The ‘obvious benefits’ are the programs and spending increases they dole out, which seem to be ‘magically’ available without the cost of taxation.
Program spending and government transfers are obvious forms of government action, making people feel they are getting something.
Meanwhile, the ‘hidden harms’ are the way inflation eats away at our earnings and our purchasing power.
What the government gives publicly on one hand with increased spending, they take away with inflation.
Now, some may be thinking “well Spencer, the Liberal government doesn’t control the Bank of Canada, so how can you blame them for inflation.”
The answer is that the Bank of Canada – along with many other central banks – have made clear that rather than discourage endless deficits by raising interest rates, they will instead enable deficit spending. Knowing this, the Liberals know they will in effect be ‘bailed out’ of short-term consequences (though the medium-term and long-term consequences will be significant).
The Liberals know they can keep spending massively, and that the damage will be perniciously hidden through the Inflation Tax, something they are counting on people not attributing directly to Liberal spending and debt increases.
Reality can be evaded temporarily, but not forever
Countries like Canada generate so much excess output – output beyond subsistence – that it is easy to evade reality for a time.
We can live off the productivity of past generations, and we can ‘redistribute the wealth’ generated by that excess output for a while, making it seem as if ‘things really are different this time.’
But they’re not.
All true purchasing power is based at some level on real productivity, which is why simply creating money can’t create wealth, but only drains it from the entire economy while moving it into the hands of some at the expense of others, giving the appearance that wealth has been created when it has really just been moved and subtly depleted.
Without actual increases in productivity, without real economic value being generated, Canada will not become more prosperous.
And, if we continue to go down the path of printing money, generating further inflation, devaluing our currency, and relying on bubbles like the housing market to generate ‘growth,’ the weaknesses and vulnerabilities in our system will mount up, and we know where that ends.
Canadians work hard for their money, and debasing it is an assault on that hard work
The Inflation Tax is a direct assault on the hard work of Canadians, because it dishonestly robs people of the value generated by their work.
Further, those who save – and savings are a true generator of productive investment – are punished by inflation, leaving our society even less able to plan for the future and think long-term, with people instead desperate to spend their money before its value further erodes.
Finally, the Inflation Tax is despicable because precisely because it is hidden. There isn’t even the honesty of being upfront about what is being taken, it instead takes away from people in the most subtle and sneaky way possible
This is the argument that we must make against the Liberals big-spending policies.
The danger isn’t that Canada will run out of money, the danger is that Canada’s money will run out of value.