The Globe and Mail | Published Wednesday, March 22, 2017
If there’s one message on inflation from the Bank of Canada these days, it is this: There isn’t any. In its most recent press release on interest-rate policy, the Bank said, “… three measures of core inflation, taken together, continue to point to material excess capacity in the economy.” That’s an economist’s cryptic way of saying inflation isn’t a problem.
So if inflation is so benign, why don’t Canadians believe it?
This isn’t a question of the integrity of Statistics Canada – no one is implying (at least not to me) that they don’t trust the work of our national statistical agency.
Rather, they simply don’t believe that inflation is a lowly 1 per cent or 2 per cent a year. There are a few reasons why Statistics Canada’s official rate of inflation is so different from what many Canadians feel they are experiencing.
The first factor has to do with our natural tendency to notice the headwinds but ignore the tailwinds. Psychologists call this the “hedonic treadmill” – we may be pleased to notice a 10-cent drop in the price of gasoline, but the pleasure wears off quickly. If prices jump back up by a nickel the next week, we will grumble loudly and feel we are worse off. We simply pay more attention when prices go up, and less attention when they fall.
There may be some evolutionary genetic trait to explain this. A caveman would have experienced extreme duress and alarm when a sabre-toothed tiger threatened to pounce. But he’d have taken proportionately far less pleasure when encountering a rabbit or deer, even if they actually contribute to his survival. We notice threats more than opportunities.
The second factor involves consumer spending on discretionary versus non-discretionary items. Between January, 2007, and January, 2017, the all-items index of consumer prices rose 18 per cent. But that masks a huge disparity in price movements for particular items within the basket of goods and services.
For example, over the last 10 years, prices have fallen for flat screen TVs (down 60 per cent), audio equipment (down 36 per cent), women’s clothing (down 17 per cent) and household appliances (down 4 per cent). New cars and trucks have shown statistically no price increase. These favour higher-income Canadians with more discretionary dollars to spend.
But price increases have been unrelenting for other items, many of them non-discretionary. Parking fees (up 51 per cent), child-care services (up 43 per cent), tuition fees (up 40 per cent) and public transportation fees (up 37 per cent) top the list. Other things, such as food from grocery stores (up 27 per cent), and electricity (up 33 per cent) have also outpaced the all-items inflation rate.
So, if you are a low-income household spending disproportionately more on basic necessities, your inflation rate is anything but low and benign.
Finally, there are dozens of prices that Canadians face which are simply not captured by the consumer price index [CPI]. The price of a home, for example, is not included (although many costs associated with home ownership are, such as mortgage insurance and maintenance and repairs). Inflation does not feel low, particularly for property buyers in Vancouver and Toronto.
Other costs are similarly not covered by the CPI survey: fees for students’ field trips, tipping in restaurants (the standard has risen from 15 per cent to 20 per cent), paying for food on airplanes, and even being asked to give an extra dollar or two “to charity” at the check-out in certain retail stores. These things are typically optional, but have become customary and expected costs, eating into consumers’ budgets.
Our national statistical agency does a great job in providing data each month on consumer prices. Yet, the low inflation reports don’t convey the reality faced by Canadian households. It’s not that the figures are incorrect. It’s just the way we naturally pay attention to price movements – and the growing list of expenses that most of us are facing.
Special to The Globe and Mail | Published Sunday, March 12, 2017
Call it sibling rivalry.
For more than a century, Canada’s twin sisters of Confederation – Alberta and Saskatchewan – have always loved to compare themselves. The two became provinces on the same day in 1905, and for the first half of their lives Saskatchewan was the over-achiever. In the 1920s and 1930s, it boasted more than twice as many people as Alberta and was the preferred destination of waves of European immigrants.
By the second-half of the century, however, Alberta kicked into high gear and easily outperformed Saskatchewan in economic growth and political influence. Saskatchewan looked on with jealously of her twin who had left her in the Prairie dust.
More recently, with the nasty recession that gripped Alberta in 2015 and 2016, the tables have turned. Alberta is once again looking at her sister with some envy; there’s a notion that Saskatchewan is outperforming her. Saskatchewan’s current unemployment rate of 6.4 per cent is much lower than Alberta’s 8.8 per cent. And unlike Alberta, Saskatchewan has not recently changed its provincial government. Some in Alberta are crediting the small “c” conservative policies of the Brad Wall government for Saskatchewan’s stronger economic performance.
But is it true? Is Saskatchewan’s economy actually outperforming Alberta’s? A closer look at the data would suggest that it is not – at least not with respect to jobs. Employment in both provinces has fallen over the course of the past few years by the same amount.
The graph below shows the annual year-over-year per-cent change in total employment. Because monthly data can jump up and down erratically, the data are smoothed using a 12-month trend line. This shows how closely the labour markets in both provinces have moved.
Back in 2012 when Alberta and Saskatchewan were enjoying a petroleum-induced boom, employment was growing steadily by about 3 per cent annually – more than twice the national average. But even before oil prices started to drop in mid-2014, job growth in Saskatchewan started to stall. Alberta’s, on the other hand, remained solid until the end of 2015, at which point it started to drop steeply.
From the record-high level of employment a few years ago to January of this year, both provinces have seen precisely the same drop of 1.9 per cent. That fact runs counter to the narrative that Saskatchewan’s job market has fared any better than Alberta’s.
Given this, how do the jobless statistics make sense? If both provinces have seen employment shrink by precisely the same percentage, why is Alberta’s 8.8-per-cent unemployment rate nearly a third higher than Saskatchewan’s?
The answer to that lies in the size of the labour force in each province – and the fact that workers continue to move from Saskatchewan to Alberta. Over the past four years, Saskatchewan’s labour force (i.e., the pool of adults working or looking for work) grew by less than 1.3 per cent annually, while Alberta’s expanded by 2 per cent. And between October of 2016 and January of this year, Saskatchewan’s labour force has actually fallen, while Alberta’s continues to grow. It is the growing labour force – not job loss – that has pushed Alberta’s unemployment rate to close to double digits.
Even more contrary to the belief that Saskatchewan is the star performer, Alberta still enjoys a net positive inflow of migration from Saskatchewan. It has averaged a net gain of about 600 people each quarter over the past eight quarters (roughly the period of recession). This isn’t an enormous gain, particularly compared to the tidal wave of inter-provincial migration that has traditionally flowed from Saskatchewan to Alberta. But it is still positive.
Many sisters love to compete, perhaps even more so when they are twins. But in terms of employment in Alberta and Saskatchewan, there’s more comparison than contrast. Both provinces have been hit by precisely the same amount. Alberta need not look east across the border with jealously.
But if Alberta looked west across its other border to the job market in British Columbia … now there’s some serious fodder for rivalry!
Special to The Globe and Mail | Published Wednesday, February 22, 2017
You’d be hard-pressed to find a sensible economist who’d deny the benefits of trade. The cliché that a rising tide lifts all boats seems to fit. The problem is, it hasn’t happened. Not only have some boats not been lifted by globalization – they’ve been bashed against the rocks, stranded and left to sink while the rest of the world sails on.
Globalization is under threat, most notably in Britain and the United States, where recent referendums and elections have moved those economies into greater isolation. The boats that haven’t been lifted are the millions of workers who’ve been replaced by either cheap labour elsewhere or automation. No one can blame them for being angry. The economy has failed them. They feel hopeless and afraid, and they’ve connected with political messages that the problem is global trade.
When the United States flung open its borders to trade with China and Mexico, economists underestimated the speed at which entire industries would be ravaged. The devastation started in the 1970s and 80s, but it accelerated in the 90s and 2000s. Now, it’s resulted in a U.S. President elected on a platform of building walls and tearing up trade deals.
Canada – apparently one of the last bastions of open, liberal economics – is still willing to forge ahead with new trade agreements. But Prime Minister Justin Trudeau got it right when he warned the Europeans in a speech last week about the dangers of the Canada-EU Comprehensive Economic and Trade Agreement (CETA). “Now we need to make it work, for your people and mine,” he told an audience in France. “If we are successful, CETA will become the blueprint for all ambitious, future trade deals. If we are not, this could well be one of the last.”
So how do we do this? How do we prevent boats from sinking as the global tide rises?
The first answer has to be education. Literacy and numeracy skills, the ability to learn new information and a greater understanding and appreciation of different cultures will help Canadians create new opportunities in the global economy. Jobs and industries that don’t even exist yet will crop up – but only if we’re smart enough to identify them. And education starts in early childhood. We can’t wait until students show up at college or university ill-equipped to learn and expand their minds.
Skills development and retraining displaced workers is another common policy response, and it can be helpful. But there are limits to its efficacy, particularly when workers are unwilling or unable to be retrained. And then there is the problem of identifying appropriate skills and industries. Retraining mature workers for industries that don’t exist in their economic region isn’t going to succeed.
But a third way to prevent sinking boats is strong communities and connectivity. Education and skills upgrade will be limited if people are not in community with others. We have no good way of measuring it (although certain economists have suggested counting the number of bowling alleys in a region as a rough measure of how connected people are). But the importance of interpersonal connections and soft skills cannot be underestimated.
There are plenty of reasons some individuals fall into lives of desperate isolation and loneliness: mental-health issues, substance abuse, an inability to build healthy relationships. Not everyone who is living in poverty is lonely, of course. But loneliness and social isolation is a good predictor of someone’s ability to succeed economically – even more so in a global economy that is shifting and morphing quickly.
Income inequality and disparity of opportunity will be the greatest economic challenge for industrialized countries in the 21st century. And while Canadians like to think we are unlike our U.S. neighbours, we are not immune from anger, fear and frustration. If we ignore it, we will suffer the outcomes that other countries are now experiencing.
Education, skills upgrading and retraining all play a significant role. But community building and social connectivity is just as important. Faith communities, social agencies, volunteer organizations and sports-and-recreation clubs play a part too. We can’t just wait for the government to roll out a new program. As we enter into CETA and continue to uphold the benefits of global trade, it’s up to Canadians to make it work. That means global trade must work for everyone – especially the boats that risk being capsized by the rising tide.