18 July 2008

Premiers aren't financial geniuses

“If energy prices go up and people spend more on energy, you spend less
in the economy,” Alberta Premier Ed Stelmach said. “Is it going to come
out from home improvements? Is it going to come out from buying a car?
Is it going to come out from taking a holiday?”
Yes, Ed, if people are spending more for gas and heating oil, they'll have less to spending in the rest of the economy.

The key words in your prepared talking points were "rest of", as in spend less in the rest of the economy.

Your humble e-scribbler needs to check the Statistics Canada figure son consumer spending but odds are it hasn't really slacked off any. It's just shifted to filling up the tank of the giant, petrol sucking trucks that drove vehicle sales over the past few years.

The money is still being spent in the economy; it's just being spent differently.

As for the idea of lowering the value of the Canadian dollar, that suggestion just sends chills up and down the old spine. We can take some comfort from Premiers not finance ministers. Unfortunately, we don't catch that break in Newfoundland and Labrador, where the finance minister is already on record as endorsing that hideous idea.

There are all sorts of issues to take with this idea. Here are just some, randomly bulleted:

  • The North American dollars - Canuck and Yank - are trading at about par because of the weakness south of the border. In other words, their dollar came down to meet ours.
  • The American dollar is considerably weaker - worth less - against other currencies.
  • While Canadians export and import heavily from the United States, we still buy other goods and services overseas. Lowering the value of the Canadian dollar increases the cost of living in Canada.
  • Given that the American economy is contracting, lowering the price of Canadian goods won't necessarily boost sales and save all those manufacturing jobs in Ontario.
  • In fact, it might well cause even more damage to the Ontario economy by lowering the return on sales all the while driving costs up.
  • 70% of the goods and services exported from Newfoundland and Labrador head to the United States. Lowering the the value of the Canadian dollar makes it look like we are getting more - the numbers of dollars would be bigger - but we'd actually be getting less. That's not really a good thing.
  • The Canadian economy can use a bit of a shakeout resulting from the slowdown and the relatively high dollars. Some weaker performers can retool or drop out, for example and existing strong performers can make their operations leaner. When the American economy starts to grow and the dollars head back to their usual spreads, Canadian indistry can be more efficient and hence more profitable when the good times return.