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Is the Economy “Hot”? Or is it Cold, and Getting Colder?
The Bank of Canada is widely expected to increase its policy interest rate again this week, for the eighth time in the last 10 months. Media and financial market commentary on its decision has made numerous throwaway references to how Canada’s economy is still “running hot,” and that i why a rate hike is needed. This common claim is surprising, and not consistent with economic evidence. Canada’s economy is not “running hot” by any concrete measure. Here are six: Final domestic demand in Canada has been weakening for over a year, and was shrinking in the third quarter of 2022 (latest data). Were it not for the export sector (with…
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When Will We Learn? Speculation is no Way to Build a Real Economy
History repeated itself last year in financial markets: several high-flying ventures that once generated a frenzy among financial speculators, came crashing back to earth in the face of higher interest rates, fears of recession, and a rush to the exits by more prescient investors. In this commentary, originally published in the Toronto Star, Centre for Future Work Director Jim Stanford reviews five speculative bubbles that popped in 2022. The most dangerous, from a macroeconomic perspective, is the accelerating downturn in Canadian housing prices – as rising debt charges squeeze prospective buyers. A major downturn in housing will have big impacts on real employment and spending. The common lesson from these…
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Economic Outlook for 2023: Soft Landing or Hard Impact?
In this year-in-review column, originally published in the Toronto Star, Centre for Future Work Director Jim Stanford reflects on the turbulent economic events of 2022 – dominated by the rise of global inflation, and a dramatic shift in monetary policy in Canada and many other countries. The outlook for 2023, unfortunately, will likely be determined by the side-effects of that harsh monetary policy medicine. Workers are Being Sacrificed to a Doctrine that Intentionally Keeps Unemployment High by Jim Stanford Economic events during 2022 were dominated by the rise of global inflation, surging to the fastest pace in decades. Economists had thought this spectre was long dead and buried, after years…
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Latest Interest Rate Hike Increases Risk of Recession
On December 7, the Bank of Canada increased its policy interest rate for the seventh time since March, by another super-sized increment of 50 basis points (0.50%). The rate is now set at 4.25%. The Bank of Canada has been among the most aggressive of any OECD central bank in lifting interest rates to slow economic activity. Centre for Future Work Director Jim Stanford was interviewed about the Bank’s decision in numerous media outlets. In this segment on CBC News Network, anchor Andrew Nichols asked about alternatives to higher interest rates for controlling inflation: Another CBC story, by Stephanie Hogan, provided a roundup of differing views (including Jim’s) on the…
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Fifteen Super-Profitable Industries are Driving Canadian Inflation
A new research paper from the Centre for Future Work sheds new light on the role of surging corporate profits in driving higher Canadian inflation. The report provides details on net income in 15 super-profitable private-sector industries in Canada, based on newly released data from Statistics Canada. It compares the most recent 12-month period to profit levels before the pandemic (in 2019). Combined profits in those 15 sectors grew by 89%, rising by a total of $143 billion. In contrast, profits in the other 37 business sectors tracked by Statistics Canada fell over the same time. The oil and gas industry experienced by far the largest increase in profits: up…
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Canadian Domestic Economy Fell Into Recession in the Autumn
New economic data from Statistics Canada, covering the third quarter of 2022 (July through September) indicate that the recession feared by many forecasters has already started in Canada’s domestic economy. After a year of rapid slowing, real domestic demand (excluding international trade) shrank in the third quarter at a 0.6% annualized rate. After months of rapid interest rate increases imposed by the Bank of Canada to slow job-creation and economic activity, many components of domestic spending (especially those sensitive to interest rates) are now contracting. Household consumption, residential building activity, business machinery and equipment investment, and public sector investment all declined in the third quarter. Despite the contraction in domestic…
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Saying the Quiet Bits Out Loud: Bank of Canada Aims to Raise Unemployment
It will seem irrational to most Canadians, but the surprising truth is that the Bank of Canada is explicitly trying to increase unemployment. The Bank’s Governor Tiff Macklem recently claimed that the unemployment rate in Canada was too low: “unsustainable,” in his words, and must be increased by using high interest rates to slow down economic activity and reduce employment. This idea – of using unemployment as a deliberate tool to undermine wages and protect business profit margins – has been implicit within orthodox monetary policy for many years. But it’s both rare and angering to hear that made explicit as the goal of economic policy. In this commentary, originally…
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Webinar on Inflation, Recession … or Both!
Centre for Future Work Director Jim Stanford recently presented a keynote lecture to a webinar on Canada’s uncertain macroeconomic outlook, hosted by the B.C. office of the Canadian Centre for Policy Alternatives. The presentation covered the causes and consequences of the recent acceleration of inflation in Canada – stressing that higher prices cannot be blamed on rising wages or ‘overheated’ labour markets. Instead, a combination of supply disruptions, international pressures, and record profit-taking by Canadian businesses are the main forces driving faster inflation. Unfortunately, the conventional response to higher inflation (quickly hiking interest rates to reduce employment and overall spending) will make things worse. Most economists now expect a recession…
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Who Wins, Who Loses in the Fight Against Inflation
The Centre for Future Work recently co-published with the Canadian Labour Congress a major new report on inflation: its causes, consequences, and how it could be tackled in a more balanced and fair manner (rather than throwing the whole economy into recession, which seems the inevitable outcome of the Bank of Canada’s current strategy). The report has generated considerable attention in print, broadcast, and social media. CBC’s daily political podcast, Front Burner, published a feature-length interview with report author Jim Stanford (Director of the Centre for Future Work) on why the Bank of Canada’s current approach is punishing workers for inflation they clearly did not cause. He discusses the options…
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Orthodox Cure for Inflation Will Be Worse than the Disease
Evidence is growing that Canada’s economy, and most other OECD nations, is heading into recession. Dramatic increases in interest rates around the world, motivated by a desire to clamp down inflation that broke out after the COVID pandemic, is undermining investment, job creation, and household spending power. The Centre for Future Work has jointly released a major new report with the Canadian Labour Congress documenting the flaws in the Bank of Canada’s diagnosis of current inflation, and the risks in its one-sided approach to solving the problem. The report, titled A Cure Worse than the Disease? Toward a More Balanced Understanding of Inflation and What to Do About It, was…