Reality can be evaded for a while, but not avoided.
In a recent column warning against the Liberal push for a “guaranteed livable basic income,” I wrote the following:
“For something to be consumed, it must first be produced. It sounds like common-sense, but it is completely lost on those in power.
They seem to think that if they print/borrow money, and give it out, it will magically create real goods and services.
But those goods and services first had to be created by real human beings, taking real productive action. When we forget this, our society begins to fall apart and our standard of living drops.”
Now, I’m going to expand on that point, because it is fundamental to our understanding of why our current economic policy is so counterproductive.
If someone wants to purchase and then eat a burger, that burger must first be cooked. But before it can be cooked, toppings like lettuce must be planted, grown, and transported. Cattle must be bred, grown and then slaughtered. The meat must then be processed, and transported. Workers must be hired and trained. A building must be constructed to house the necessary cooking equipment. That equipment must be transported to the location. It must first have been manufactured. The components used to manufacture it must themselves have been built. The raw materials to build those components had to be extracted and processed.
In short, a whole bunch of things had to happen for someone to get a burger.
To consume something, that something had to be produced.
With no production, there is no consumption.
With no production, there is no such thing as value.
Without production, money is meaningless, because you wouldn’t be able to do anything with it.
But imagine believing the reverse was somehow true.
Imagine believing that production required consumption.
Imagine believe that value led to production.
Imagine believing that money created the need for production.
That would be insanity. It would be some sort of mystical, magical thinking where simply wanting a product could make that product appear.
Here’s where it gets disturbing: That latter mindset, that magical ‘consumption creates production’ mindset’ is exactly the mindset held by our federal government, Liberal & NDP members, and many people within our country more broadly.
Consider the whole idea of a ‘universal basic livable income.’
The thinking is that if give money to people and keep everyone at a certain baseline ($2000 a month or so), then people will be better off.
But let’s go even further. Why just stop at $2,000 a month?
Why not give everyone $10,000 a month?
Why not $100,000?
Surely, if $2000 a month would make everyone better off, then $100,000 would make everyone rich!
Of course, it doesn’t work that way.
If the government gave every Canadian $100,000 a month then – aside from the country going bankrupt – prices would simply rise by the equivalent of $100,000 a month. Some would rise a bit more, some would rise a bit less, but overall it would about even out.
Why?
Because that extra money can’t really do anything if production hasn’t increased.
Countries don’t become rich because they have more money, countries have more money because they become more productive, which then makes them rich.
The carbon tax & ‘rebate’ program is also based on flawed thinking. The carbon tax disincentivizes production by increasing the production cost for many businesses and driving up the cost of energy. Even if the ‘rebate’ left most households better off (which it doesn’t), it would still be a real net loss. If you disincentivize production on one end, while increasing demand on the other, you will end up with higher prices. Producers will balance out higher production costs by raising prices.
That doesn’t make anyone richer, it just makes the numbers on price tags bigger.
Borrowed money
This is also true of deficit spending and government debt.
The Trudeau government claims they are ‘investing in Canadians’ by running large budget deficits and increasing spending.
But there truly is no such thing as a free lunch.
Every dollar the government borrows is a dollar that has to be paid back either directly through debt payments, or through a reduction in the overall value of our money through rampant inflation.
When the Bank of Canada creates money out of thin air, they don’t create any new production and they don’t generate any new value, they simply dilute the purchasing power of existing money, leaving more money to chase after the same number of goods.
Economic reality can be manipulated and masked for a short time, but it cannot be avoided.
This is why a country like Zimbabwe couldn’t become rich by printing $1,000,000 bills. They didn’t have any real production, so that money had no value regardless of what was printed on it.
Housing market
Of course, nowhere do we see this more than in the housing market. Everything the Liberals do to try and ‘make housing more affordable’ makes things worse. They increase immigration levels, thus pushing up demand. They borrow and spend at a rapid pace, thus putting more money into the system without a similar increase in the housing supply, thus driving up prices. And their overall economic policy has caused lower per-capita GDP growth and more household debt problems, leaving the economy overly dependent on housing prices.
Nothing will fix out of control housing costs unless more houses are built. A problem caused by a lack of supply can only be fixed through increased production. And the same is true for everything else. If we want a better standard of living, we need to incentivize production. Nothing else will work.
It is essential for Canadians to once again understand this basic truth: Production must precede consumption.
Spencer Fernando
