If we had a government that could get out of the way and allow our energy sector to expand, would get rid of the carbon tax, and restrain spending, we could combat inflation while still strengthening the economy. In the absence of that, taming inflation can only be done through destroying demand.
Is Canada’s economy growing in real terms?
Most likely, the answer is ‘no.’
While distortions caused by money printing and government intervention make it difficult to truly ascertain what is happening, just ask yourself how many people really feel Canada’s economy is ‘growing’.
Sure, high immigration levels and a massive amount of printed money flooding the system can make it seem like the economy is ‘bigger,’ but that isn’t real growth – not in the way that growth truly matters.
What matters is productivity growth, whether we are becoming richer on a per capita basis.
Per capita growth matters most because it is what we each experience in our own lives. Do we have more purchasing power, or less?
For some time, Canada’s per capita growth has been declining.
We are – on a person by person level – becoming poorer as a country.
Only massive amounts of government spending and some of the highest per capita immigration numbers in the world have masked this.
But now, with inflation surging, there is no way to hide the truly moribund state of our economy.
As if that’s not enough for Canadians to be dealing with, the Bank of Canada is saying that the only way to address inflation is to weaken the economy further:
“Bank of Canada senior deputy governor Carolyn Rogers says a period of lower economic growth is necessary to bring inflation down but that the bank still expects to accomplish its goal of lowering inflation without triggering a recession.”
“We want to ensure this scenario does not materialize because if it does, the economic cost of restoring price stability will be much higher,” Rogers said.
In a news conference with journalists later on Thursday, Rogers said the bank still sees a path to a “soft landing,” where higher interest rates bring inflation down without triggering a serious economic downturn.
“We think there is room in the economy to cool it and stay in positive growth territory,” Rogers said.”
Rogers is correct, but not in the way many would expect.
In theory, there are ways we could reduce inflation while growing the economy.
It would require something similar to what CPC frontrunner Pierre Poilievre has advocated:
Restrained federal spending.
Tax cuts.
Rearranging social welfare programs so they reward work rather than punishing it.
Eliminating the carbon tax.
Removing government restrictions on the energy sector.
Scrapping things like the ArriveCAN app that are devastating the tourism sector.
New leadership at the Bank of Canada who refuse to enable massive deficit spending.
The effect of a program comprised of the ideas listed above would be to simultaneously reduce the flow of new printed money into the system – thus helping ease inflation – while incentivizing actual increases in productivity. More productivity would mean more goods being produced, which would help to bring prices to a more manageable level.
There would be a greater incentive for people to work and earn, and the embrace of the energy sector would bring large amounts of new, productive investment into our country.
And when it comes to investment, a fiscally responsible country with sound money and rising productivity would also incentivize people to save. Savings – rather than debt – are the true foundation of productive investment and growth, so a society that saves is also a society that invests in a productive way.
But here’s the thing.
All of that would require a government that is the opposite of the current Trudeau Liberals.
The Liberals refuse to take the simple, common-sense measures that could generate real productivity growth. Rather, the Liberals have been hostile to productivity, imposing policies that disincentivize work and punish productive Canadians/productive sectors of our economy.
And their ‘fixes’ for inflation always involve spending more borrowed money, which just makes things worse.
So, in that context, the only way to reduce inflation is through ‘demand destruction.’
Higher interest rates – combined with the effects of inflation – push many people over the edge financially.
People simply can’t make it anymore, and so they consume less.
Lower consumption ends up resulting in price decreases, thus inflation starts to come down.
Now, this is obviously the worst way to address inflation. But with such an incompetent and anti-productivity government, it is the only way the BoC has left, especially after their repeated mistakes, failures, and enabling of the destructive Trudeau agenda.
Spencer Fernando
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