Kingston – Bank of Canada Governor Stephen Poloz got a warm welcome following a key policy presentation at his alma mater last week.
“These are exciting times,” Poloz told a large crowd at Queen’s University . “Students here will shape the future. I cannot wait to see how it turns out.”
Afterwards, during a press conference with local and student media, Poloz brushed aside speculation about a possible “poverty effect” caused by rising interest rates.
Poloz cited a strengthening Canadian economy and downplayed suggestions that central bank rate-tightening cycles—which crashed global stock markets in the early and mid-2000s—would do so again.
Yet while the extent of a “poverty effect” in the overall economy may be open for debate, there are growing signs that central bank actions are impoverishing Canadian youth.
Trickle down central banking
During the 1980s, economists derided US President Ronald Reagan’s policies—which cut taxes in the hope that they would spur economic growth—as “trickle down economics.”
Yet the Canadian government has adopted similar tactics.
The Bank of Canada’s “wealth effect” policies are intended to drive up asset prices in the hope that richer consumers will spend more, thus boosting the overall economy.
For example, if a Queen’s University economics professor sees his stock portfolio double, he might then buy extra lattés at the campus Starbucks, thus creating more jobs.
Sadly, the wealth effect hasn’t been working for the country’s youth— 44% of the 4.5 million Canadians aged between 15 and 24 are out of work.
Worse, trickle down central banking requires constant borrowing, at a pace faster than GDP growth.
As Renaud Brossard , executive director of Generation Screwed noted recently, such policies stick Canadian youth with nearly all of the country’s debts.
In his Queen’s speech, Governor Poloz highlighted one of the free market’s most important qualities—what Joseph Schumpeter called “creative destruction.”
This is the process through which markets kill inefficient businesses and create job and entrepreneurship opportunities, many of which are exploited by youth.
“By far the most potent form of business investment is the creation of brand new companies,” said Poloz. “As successful firms exploit new technologies, they can grow very rapidly.”
Yet the Canadian government’s and its central bank’s actual policies amount to “destructive preservation.”
Ongoing bailouts of government, banking, automotive and other privileged sectors have entrenched corruption, incompetence, laziness and greed.
This can be seen concretely in the public sector, where politicians and bureaucrats continue to pay themselves salary increases as Canada teeters on the edge of bankruptcy.
From “fine tuning” to Human Action
The most corrosive effects of government policies have been on the country’s culture. Ironically, it’s economists that are driving much of the rot.
Queen’s University academics teach that Canadians are a big collective, one whose activities can be “fine tuned” by government tax policies and central bank wealth transfers.
They don’t teach Ludwig von Mises’s banned work “Human Action.”
In this eponymous classic, Mises taught that the way to understand economies was to study individual “human action”—not groups.
Mises recognized that people don’t like to be fine tuned.
He identified early that the first people to react would be economists themselves, who would say whatever was needed to protect the special interests they represented.
Queen’s University students can see this most clearly in widespread manipulation of GDP , inflation and other economic data, which for example show the youth unemployment rate at 10.9%, one quarter the actual total.
The pig that ate the kitchen
A way to think about Canada’s economy is like a pig that eats all the food in a kitchen. If you get hungry, all that’s left to eat is the pig.
In Canada, that pig is government, which now consumes and redistributes half of the country’s GDP.
This has spurred the growth of a huge, but quiet, government, academic and special interest complex, which protects each other’s interests, jobs and funding.
It’s a big club. But younger Canadians aren’t in it.
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