Business
Bank of Canada missteps helped fuel today’s inflation
From the Fraser Institute
By Herbert Grubel and John Greenwood
The correlation between the quantity of money and inflation shown is not perfect but strong enough to justify the conclusion that Canada would have avoided the inflation starting in early 2021 had the Bank not increased the money supply so dramatically during the first year of the pandemic.
According to Statistics Canada’s latest consumer price index report, in February the annual inflation rate fell to 2.8 per cent, raising the prospect of interest rate cuts by the Bank of Canada sometime this year. “Inflation is caused by too many dollars chasing too few goods” used to be the traditional diagnosis of the cause of inflation, prompting central banks to fight it by slowing the growth of the money supply. This approach is based on what is known as the “monetarist” theory of inflation, which suggests that supply shocks such as those associated with the COVID pandemic do not cause inflation but only a temporary increase in the price level, which is reversed once the cause of the shock ends—unless the money supply has increased.
In recent decades, central banks have fought inflation using interest rates instead of monetary growth. This switch followed the postwar success of Keynesian theory, which blames inflation on excess aggregate demand, which higher interest rates are supposed to curtail.
Targeting interest rates can work if central banks simultaneously pay attention to money growth, but too often they’ve failed to do so. Equally, targeting the money supply can create inflation-fighting interest rates. However, interest rate targeting in practice has a serious shortcoming. Aggregate spending is influenced by real interest rates while central banks can set only nominal rates and real rates are beyond their control because they cannot change inflation by any direct policy.
This important problem arises because, for example, a nominal interest rate of 6 per cent turns into a real rate of minus 2 per cent if the expected inflation is 8 per cent. At that rate, investors can borrow $1 million at 6 per cent, use the money to buy real estate, sell it a year later after it has appreciated at the expected 8 per cent, repay the $1 million and take home a capital gain of $20,000. In other words, the high expected inflation rate incentivizes consumers and businesses to borrow more, which results in faster money growth and risks even higher inflation.
The expected rate of inflation exists only in peoples’ minds and is determined by many factors. The Bank of Canada collects as much information as it can, drawing on the results of public surveys, the information contained in the prices of so-called Real Return Yields, and sophisticated economic models produced by the Bank’s economists. But these efforts do not result in reliable information, as evidenced by the uncertain and speculative nature of economic forecasts found in its economic updates.
The problems associated with not knowing the real rate of interest have persuaded some economists, called “monetarists,” to urge central banks to target the money supply including famed economist Milton Friedman whose monumental study of the history of U.S. money supply and inflation inspired many including David Laidler, emeritus professor at the University of Western Ontario, and Britain’s John Greenwood who maintains a large database he used to create the accompanying graph.
This graph shows Canada’s annual rate of inflation (measured on the left axis) and the annual rate of growth of the money supply (M3) (measured on the right axis) for the years 2014 to 2024 using data published by the Bank of Canada and Statistics Canada, which require little manipulation. The annual percentage change in the money supply is averaged over 12-months, as is done widely to smooth data that fluctuate much over short periods; and the resultant time series is shifted forward 18 months, to achieve the best fit between changes in money growth and changes in inflation in the monetarist tradition, which has found the lag to have been variable historically between 12 and 18 months. (Thus, the peak smoothed money supply growth rate of more than 13 per cent occurred in February/March 2021, but is shown as occurring in August/September 2022, some 18 months later and close to the peak of inflation in June 2022.)
The correlation between the quantity of money and inflation shown is not perfect but strong enough to justify the conclusion that Canada would have avoided the inflation starting in early 2021 had the Bank not increased the money supply so dramatically during the first year of the pandemic.
In 1994, John Crow, then-governor of the Bank of Canada, presented to a parliamentary finance committee a report on the economic outlook. One of the authors of this op-ed (Grubel) was at this meeting. In response to his question, Crow said that the Bank’s econometric forecasting model did not include data on the money supply but that he always looked over his shoulders to ensure it does not get out of line. If his successors had followed his practice, perhaps Canada’s present inflation would have been avoided.
But then it would not be possible to test the usefulness of the model, which draws on money supply growth data over the last 18 months to predict that inflation should fall to 2 per cent near year-end 2024 or early 2025.
If the prediction is realized, however, Canadians should not expect the lower inflation rate to result in lower costs of living. That would happen only if the Bank made the money growth rate negative, something history suggests is unlikely because it usually resulted in recessions. How much better it would have been if the inflation genie had never been allowed out of the lamp.
Authors:
Business
‘Context Of Chemsex’: Biden-Harris Admin Dumps Millions Into Developing Drug-Fueled Gay Sex App
From the Daily Caller News Foundation
By Owen Klinsky
The Biden-Harris administration is spending millions funding a project to advise homosexual men on how to more safely engage in drug-fueled intercourse.
The University of Connecticut (UCONN) in July announced a five-year, $3.4 million grant from the U.S. National Institute of Health (NIH) for Assistant Professor Roman Shrestha to develop his app JomCare — “a smartphone-based just-in-time adaptive intervention aimed at improving access to HIV- and substance use-related harm reduction services for Malaysian GBMSM [gay, bisexual, and other men who have sex with men] engaged in chemsex,” university news website UCONN Today reported. “Chemsex,” according to Northern Irish LGBTQ+ nonprofit the Rainbow Project, is the involvement of drug use in one’s sex life, and typically involves Methamphetamine (crystal meth), Mephedrone (meth), and GHB and GBL (G).
Examples of the app’s use-cases include providing a user who has reported injecting drugs with prompts about ordering an at-home HIV test kit and employing safe drug injection practices, UCONN Today reported. The app is also slated to provide same-day delivery of HIV prevention drug PrEP, HIV self-testing kits and even a mood tracker.
“In Malaysia, our research has indicated that harm reduction needs of GBMSM [gay, bisexual, and other men who have sex with men] engaged in chemsex are not being adequately met,” Shrestha told UCONN Today. “Utilizing smartphone apps and other mHealth tools presents a promising and cost-effective approach to expand access to these services.”
Homosexuality is illegal in Malaysia and is punishable by imprisonment, according to digital LGBTQ+ rights publication Equaldex. Drug use, including of cannabis, is illegal in Malaysia, and drug trafficking can be a capital offense.
The Old Border Czar VS The New Border Czar pic.twitter.com/9Ie8JRsroR
— Daily Caller (@DailyCaller) November 12, 2024
The NIH disbursed $773,845 to Shrestha in July to conduct a 90-day trial testing the efficacy of JomCare among 482 chemsex-involved Malaysian gays. It also provided Shrestha with $191,417 in 2022 to “facilitate access to gender-affirming health care” for transgender women in the country.
“Gender-affirming care” is a euphemism used to describe a wide range of procedures, including sometimes irreversible hormone treatments that can lead to infertility as well as irreversible surgeries like mastectomies, phalloplasties and vaginoplasties.
Shrestha has a track record of researching mobile health (mHealth) initiatives for foreign homosexuals, co-authoring a 2024 study entitled, “Preferences for mHealth Intervention to Address Mental Health Challenges Among Men Who Have Sex With Men in Nepal.”
The proliferation of LGBT rights has been a “foreign policy priority” under the Biden-Harris administration, a State Department spokesperson previously told the Daily Caller News Foundation, with President Joe Biden instructing federal government department heads to “to advance the human rights of LGBTQI+ persons.”
“Around the globe, including here at home, brave lesbian, gay, bisexual, transgender, queer, and intersex (LGBTQI+) activists are fighting for equal protection under the law, freedom from violence, and recognition of their fundamental human rights,” a 2021 White House memorandum states. “The United States belongs at the forefront of this struggle — speaking out and standing strong for our most dearly held values.”
President-elect Donald Trump announced on Nov. 12 that Elon Musk and Vivek Ramaswamy would collaborate to establish a new Department of Government Efficiency (DOGE), with Musk claiming the agency would feature a leaderboard for the “most insanely dumb spending of your tax dollars.” Some DOGE cuts could come from LGBTQ+ programs, such as a grant from the United States Agency for International Development to perform sex changes in Guatemala and State Department funding for the showing of a play in North Macedonia entitled, “Angels in America: A Gay Fantasia on National Themes.”
“The woke mind virus consists of creating very, very divisive identity politics…[that] amplifies racism; amplifies, frankly, sexism; and all of the -isms while claiming to do the opposite,” Musk said at an event in Italy in December 2023, according to The Wall Street Journal. “It actually divides people and makes them hate each other and hate themselves.”
Shrestha and the NIH did not respond to requests for comment. When reached for comment, a UCONN spokeswoman told the Daily Caller News Foundation that, “specific questions about the grant and the decision to award it to our faculty member should be directed to the NIH, since that’s the funding agency.”
Business
Broken ‘equalization’ program bad for all provinces
From the Fraser Institute
By Alex Whalen and Tegan Hill
Back in the summer at a meeting in Halifax, several provincial premiers discussed a lawsuit meant to force the federal government to make changes to Canada’s equalization program. The suit—filed by Newfoundland and Labrador and backed by British Columbia, Saskatchewan and Alberta—effectively argues that the current formula isn’t fair. But while the question of “fairness” can be subjective, its clear the equalization program is broken.
In theory, the program equalizes the ability of provinces to deliver reasonably comparable services at a reasonably comparable level of taxation. Any province’s ability to pay is based on its “fiscal capacity”—that is, its ability to raise revenue.
This year, equalization payments will total a projected $25.3 billion with all provinces except B.C., Alberta and Saskatchewan to receive some money. Whether due to higher incomes, higher employment or other factors, these three provinces have a greater ability to collect government revenue so they will not receive equalization.
However, contrary to the intent of the program, as recently as 2021, equalization program costs increased despite a decline in the fiscal capacity of oil-producing provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador. In other words, the fiscal capacity gap among provinces was shrinking, yet recipient provinces still received a larger equalization payment.
Why? Because a “fixed-growth rule,” introduced by the Harper government in 2009, ensures that payments grow roughly in line with the economy—even if the gap between richer and poorer provinces shrinks. The result? Total equalization payments (before adjusting for inflation) increased by 19 per cent between 2015/16 and 2020/21 despite the gap in fiscal capacities between provinces shrinking during this time.
Moreover, the structure of the equalization program is also causing problems, even for recipient provinces, because it generates strong disincentives to natural resource development and the resulting economic growth because the program “claws back” equalization dollars when provinces raise revenue from natural resource development. Despite some changes to reduce this problem, one study estimated that a recipient province wishing to increase its natural resource revenues by a modest 10 per cent could face up to a 97 per cent claw back in equalization payments.
Put simply, provinces that generally do not receive equalization such as Alberta, B.C. and Saskatchewan have been punished for developing their resources, whereas recipient provinces such as Quebec and in the Maritimes have been rewarded for not developing theirs.
Finally, the current program design also encourages recipient provinces to maintain high personal and business income tax rates. While higher tax rates can reduce the incentive to work, invest and be productive, they also raise the national standard average tax rate, which is used in the equalization allocation formula. Therefore, provinces are incentivized to maintain high and economically damaging tax rates to maximize equalization payments.
Unless premiers push for reforms that will improve economic incentives and contain program costs, all provinces—recipient and non-recipient—will suffer the consequences.
Authors:
-
ESG2 days ago
Can’t afford Rent? Groceries for your kids? Trudeau says suck it up and pay the tax!
-
Aristotle Foundation1 day ago
Toronto cancels history, again: The irony and injustice of renaming Yonge-Dundas Square to Sankofa Square
-
International1 day ago
Euthanasia advocates use deception to affect public’s perception of assisted suicide
-
armed forces1 day ago
Judge dismisses Canadian military personnel’s lawsuit against COVID shot mandate
-
Alberta12 hours ago
Alberta government announces review of Trudeau’s euthanasia regime
-
Business9 hours ago
Trump’s government efficiency department plans to cut $500 Billion in unauthorized expenditures, including funding for Planned Parenthood
-
Addictions2 days ago
BC Addictions Expert Questions Ties Between Safer Supply Advocates and For-Profit Companies
-
Business17 hours ago
CBC’s business model is trapped in a very dark place