Gaaah. This is just crazy. I generally try to avoid fisking, but this is a case where so many clangers pile on top of each other like so many cars in a train wreck that there simply isn't another way of pointing out the awfulness of what Mr Reynolds has inflicted on unsuspecting Globe and Mail readers.
debt. Or has it? We've devalued our currency often enough, a frequent
method of default – as we famously did in 1962 when Prime Minister John
Diefenbaker took the Canadian dollar down from 105 cents against the
U.S. dollar and fixed it at 92.5 cents. Mr. Diefenbaker asserted that
the Diefenbuck would cause “a tremendous upsurge” in Canadian
prosperity. It didn't work. Investors fled the country and the
government was compelled to adopt an austerity program. A cheap dollar,
alas, isn't the best way to buy riches – as Prime Minister Jean
Chrétien demonstrated again with his hapless 60-cent dollar in 2002.
- There are very good reasons to think that monetary policy should have been looser in 1962.
- The Prime Minister does not set monetary policy, the Bank of Canada does.
- The Bank of Canada does *not* target exchange rates, and it hasn't intervened in foreign exchange markets since 1998.
need for honest pricing in the marketplace. Without honest pricing, the
economy can't direct investment to the places where it's most needed,
nor take it away from places where it's least needed. Inflation, in
other words, lies – and then compounds the lies annually. Yet the
federal government itself is an important part of the Canadian
marketplace. It directly allocates 14 per cent of Canadian GDP.
The last two sentences don't have anything to do with the rest of that paragraph.
In 1970-71, federal spending hit $16.4-billion (with a deficit of
$2-billion). The federal debt was $20.2-billion. The inflation rate was
3 per cent. In this year, inflation erased a modest $600-million from
the national debt. Call this the Eraser Factor for Year One.
A year later, in 1971-72, spending increased to $18.9-billion (with
another deficit of $2-billion). The inflation rate remained at 3 per
cent. In this year, the cumulative Eraser Factor wiped out $1.2-billion
from the national debt.
In the next three years, the government increased spending by roughly
20 per cent a year (from $21.7-billion to $32.1-billion) but kept a lid
on deficits (at $1.4-billion a year). By the end of fiscal year
1974-75, though, inflation reached 6 per cent. The cumulative Eraser
Factor reached $4.6-billion.
Beginning in fiscal 1975-76, federal spending soared. Deficits
increased at progressively faster rates, consistently exceeding the
rate of inflation. And in fiscal 1975-76, inflation hit 12 per cent –
doubling the cumulative Eraser Factor to $8.4-billion.
In fiscal 1976-77, the Eraser Factor increased to $12.7-billion; in
fiscal 1977-78, to $16.8-billion; in fiscal 1978-79, to $22.0-billion;
in fiscal 1979-80, to $28.1-billion; in fiscal 1980-81, to
$36.4-billion; in fiscal 1981-82, to $46.1-billion; in fiscal 1982-83
(when inflation again hit 12 per cent), to $63.1-billion; in fiscal
1983-84, to $78.8-billion – which number approximates Canada's
cumulative inflationary default on national debt during only part of
the fabled era of Prime Minister Pierre Trudeau. (Mr. Trudeau actually
assumed office in 1968 – with a budget of $12-billion.) Inflation is an
infinitely more complicated phenomenon than this quick sketch suggests.
And, at this precise moment, it is quite irrelevant. Judging by history
and judging by the world's reckless resort to government debt these
days, it won't be irrelevant for long.
Memo to Neil Reynolds:
- This is the year 2009. You may anticipate some disorientation as the cryonics wear off.
- Inflation has been low and stable for a generation.
- The current worry is deflation.
Jeebus.
Worthwhile Canadian Initiative 
Don’t these people have editors?
Perhaps it might be worthwhile mentioning to him that the yield the government needs to pay to attract investors to buy debt is typically related to inflation and the expectations thereof as well.
That’s another thing: expected inflation is incorporated in the price of govt debt. He can’t even make the distinction between anticipated and unanticipated inflation.
Gaaah.
A trainwreck is an apt analogy.
Totally incoherent. He’s trying to ride one on the dim right wing’s favorite hobby horse. This was my favorite line:
“inflation remains governments’ preferred way to repudiate debt”
He’s apparently unaware that all bonds (government or corporate) are subject to inflation risk.
At this point, the only conclusions left are either that Reynolds has some dirt on senior people at the Globe that prevents them from firing him, or that they (the owners/editors) simply don’t care about the credibility of their paper or that they don’t mind incoherent misleading nonsense as long as it is incoherent misleading right win nonsense that suits the interests of the papers owners. i.e. blackmail, incompetence or malice, take your pick.
brendon ask “do these people have editors”
Neil Reynolds was an editor of the Vancouver Sun. Where a real economist (David Bond) was axed for telling the truth that cutting taxes without cutting spending would lead to deficits, and where the paper became the publishing arm of the Fraser Institute.
Reynolds has written approvingly written about the sensible work of Vaclav Smil on energy transitions, but will also has written about the potential of carbon capture and storage to mitigate green house gas emissions in the oil sands. Which shows his reading of Smil is awfully selective.
An original glibertarian.