Most of us think this surge in the loonie is great, especially if we are going to visit the US this summer. Not so good for our manufactures, they are inefficient and this might make them actually move their operations to China. Will the unions wake up? Given that CN is now on strike, and Greyhound, not likely.
Let me take you back to the 70's, to something called stagflation (High inflation, high unemployment). Around 1975/6, OPEC started controlling the supply of oil, raising the price of oil, the US auto industry was producing gas guzzling autos just when the Japanese were entering the market with fuel efficient vehicles. To make matters worse, the auto unions, asked for, and got COLA's (Cost of Living Allowances), meaning that if inflation went up by 4%, they wages would automatically go up by that amount, and then they could still negotiate an increase on top of that rate. We also had the NEP (National Energy Program) that restricted the price of gas, shutting down Alberta.
Flash to the present. High oil prices, inflation on the rise, unions striking, climate change costing Alberta billions, high dollar leading to unemployment in the manufacturing sector, starting to sound familiar?
Beware, stagflation is not something that the government can fix. If the government targets inflation by raising the interest rate, that slows the economy, but if manufacturing jobs are being lost already, that kills even more jobs, making unemployment worse. So, if the government fights unemployment by stimulating spending, it makes inflation worse.
Do you see the problem, I see the problem.
No comments:
Post a Comment