FROLITICKS

Satirical commentary on Canadian and American current political issues

Oct 31

When Will the High Tech Stock Market Surge Slow Down?

by bcurry

Here are a couple of interesting stats about American high tech companies.  Market concentration has never been greater than in past decades, as the one created by Artificial Intelligence (A.I.).  According to senior index analysts for S&P Dow Jones Indices, Nvidia alone, which makes A.I. chips, makes up more than 8 percent of the S&P 500.  Nvidia is now worth $5 trillion as it continues to consolidate power in A.I. boom.  Apple and Microsoft now top $4 trillion. Those companies combined with Meta, Amazon, Alphabet and Tesla make up more than a third of the entire index.  According to Harvard’s economic faculty, spending on data centers, which are filled with the Nvidia chips, accounted for 92 percent of the country’s gross domestic product (G.D.P.) growth in the first half of 2025.  Chip technology is a powerful technology that can be used to develop advanced weaponry and drive economic opportunity.  Companies like Microsoft and the software company Oracle are pouring hundreds of billions of dollars into building data centers for A.I.

Now the question becomes: “What is the high tech impact on main street versus wall street?”  Most analysts are concerned particularly about the impact of current and future A.I. investments on the labour market for example.  While the current situation continues to produce more millionaires and billionaires, there is already evidence that companies are looking at ways of reducing labour costs through A.I. and A.I. assisted robotics.  For example, it concerns me that Amazon has been aggressively looking to do more with less.  It also concerns me that Amazon recently announced that it was laying off 14,000 corporate employees partly due to its use of A.I.  It is further reported that Amazon spent more than $34 billion on capital expenditures in the third quarter of this year, in large part to set up data centers that power cloud computing and A.I.  It should be noted that the company’s sales totalled $180.2 billion from July through September of 2025, up 13 percent from the same time in 2024.  Profit was $21.2 billion, up a whopping 38 percent.  Furthermore, as an obvious future cost cutting initiative, the New York Times reported that Amazon’s automation team has ambitious goals to use robotics to avoid hiring more than half a million workers by 2033.

Apple’s iPhones are fuelling record sales and profit so far this year, despite raising prices on its latest iPhone and having largely avoided the A.I. arms race.  However, the company still accounts for about 6 percent of the S&P 500 index.  While Apple is not pouring billions of dollars into data centers, developing expensive A.I. systems or building its own chatbot, the company continues to collect payments from Google.  Apple also charges A.I. companies to reach iPhone customers.  Most importantly, instead of bringing its manufacturing home to the U.S., Apple shifted some production from China to India, Vietnam and Thailand.  Almost nothing is made in America, and an estimated 80 percent of iPhones are still made in China.

All said and done, some investors have questioned whether A.I. will actually increase productivity and sales.  This is the trillion dollar question given that the short-term returns have not been all that great in light of the billions of dollars of current investment capital.  Nevertheless, it’s clear that the stock markets are apparently very optimistic.  Only time will tell. 

In addition, there is still the expected negative impact on the labour market as evidenced by recently announced employee cutbacks by several high tech firms using A.I.  A.I., complemented by enhanced robotics, is seen as a tool that could replace people in many jobs, including those in white collar occupations. The jury is still out on this one.  Today, youth unemployment in North American is at its highest rate and recent college graduates in several fields, including in the computer sciences, are experiencing a great deal of difficulty in obtaining employment in their field of study.  Higher unemployment may be one of those areas on main street that would be the result of the potential direct impact of what’s happening on wall street.  Of course, the billionaires would argue otherwise.

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Jul 28

U.S. Is Trying to Milk the Canadian Dairy Industry

by bcurry

As part of the Trump administration’s trade talks with Canada, Trump has once again unfairly attacked Canada’s supply management system in the dairy industry.  The problem is that this continuous American attack doesn’t really make much sense!  Here’s why.

First and foremost, Canada, with a population of about 40 million, is a small market to begin with.  Secondly, while the American dairy and poultry markets are dominated by large industrial farms, the Canadian scene is primarily one of smaller farms, often family managed.  Thirdly, U.S. dairy producers reportedly insist they’re not looking for Canada to dismantle its crucial supply management system.  Fourthly, Canada’s imports of U.S. dairy products have risen significantly since the quotas imposed under the current Canada-U.S.-Mexico Agreement (CUSMA) took effect in 2020.  Those imports totalled $897 million in 2024, according to Statistics Canada data, more than four times the value of imports in any year before 2020.  In 2024, American dairy exports to Canada had increased by 67% since 2021. This made Canada America’s second-largest dairy customer and its largest customer per capita.  Moreover, Canada presently has a $520 million dairy trade deficit with the U.S.  Fifthly, Trump’s claims of a 390 or 400 per cent tariff are false, particularly given the way the quotas on American dairy products actually work under the CUSMA.  Indeed, it is reported that to date, no U.S. dairy products imported by Canada have been subjected to those higher tariffs under the current agreement.  Under CUSMA, the U.S. can send 49 million litres of milk to Canada every year, before a single drop would have a tariff imposed.  In addition, that tariff-free amount is set to continue to grow gradually over the next 13 years.  The U.S. uses the same system of tariff-free imports of certain Canadian products up to a set quantity before imposing its tariffs. Finally, Canada’s maximum allowable dairy exports to the U.S. are lower than those for other countries, including the United Kingdom and Australia, according to the U.S. International Trade Commission’s harmonized tariff schedule.  So, let’s not talk about unfairness when it comes to dairy exports between the two countries.

Furthermore, the president of the Dairy Farmers of Canada, David Wiens, notes that countries such as the United States heavily subsidize their dairy industry for production, forcing taxpayers to pay twice for their milk (once at the store and again through their taxes). In contrast, Canadian dairy farmers do not receive similar production subsidies.

Importantly, supply management has delivered food security and sovereignty to Canada for more than six decades by producing dairy here for Canadians.  It aligns production with demand to deliver high-quality, diverse products at stable prices for Canadian consumers and a fair return for its farmers.  It also strengthens the economy, with about 340,000 Canadian jobs fuelled by the supply-managed dairy, poultry and egg sectors, and over $30 billion contributed to Canada’s gross domestic product.  Simply put, Canada’s rationale for the approach taken under CUSMA is to ensure that the domestic dairy industry thrives by effectively capping how much the U.S. can export each year, preventing cheaper American products from dominating the smaller market.

There are also benefits to having few industrial farms as demonstrated by the recent and ongoing costly toll of the bird flu outbreak on U.S. dairy farms, which in particular drove up the price of eggs in the states, affected dairy cows, decreased milk production and financially decimated many affected farms.  None of this happened to the same extent in Canada.

One chief complaint from the U.S. focuses on Canada’s cheap exports of milk proteins, also described as milk solids, such as skim milk powder.  The Americans argue that because Canada’s supply management system keeps domestic prices artificially high, Canada can sell its excess production of milk proteins internationally at artificially low prices, undercutting the competition.  Such issues can certainly be reasonably discussed as part of any renegotiation of the CUSMA scheduled to be undertaken in 2026.  Remember that Trump actually signed that agreement during his first term as president.  The key point is that one has to do away with sources of misinformation and continue to deal with this particular trade issue in a way that both countries can benefit, thereby profiting farmers on both sides of the border.

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Dec 28

What Does Next Year Have In Store For Canada-U.S. Relations?

by bcurry

Well, if the end of this year is any indication, 2025 is going to be a tough year for Canada-U.S. relations.  Even before he is sworn in as the next president, Donald Trump has alright stirred up a hornets nest with off the cuff statements aimed at Canada.  Firstly, he warns the Canadian government that he intends to impose 25 percent tariffs on Canadian goods if Canada does not reduce the flow of migrants and fentanyl into the U.S.  Such a move of course could be devastating for Canada, whose economy depends heavily on exports to the U.S.which is its largest trading partner.  However, Trump himself has suggested that the tariff plan may have less to do with border security than with his desire to eliminate the $50 billion trade deficit with Canada.  Interesting, given the fact that oil and gas exports from Canada account for most of that trade imbalance.  Without them, the U.S. generally has a trade surplus with Canada.  This would greatly impact the province of Alberta which supplies the U.S. with the bulk of crude oil and represents a safe, cheaper and more accessible source for Americans.  Therefore, the impact on the U.S. could mean higher costs for fuels.

Nevertheless, both federal and provincial governments in Canada hit the panic button.  Prime Minister Justin Trudeau was forced to meet with the provincial premiers to discuss how to positively react to Trump, especially as it pertains to the issue of border security.  By the way, the issue of border security has a lot more to do with the border between Mexico and the U.S. That southern border has been a far worst scenario when it comes to illegal border crossings and drug smuggling.  The subsequent immediate result was the dinner Trudeau had with Trump at Mar-a-Lago over the Thanksgiving weekend, as well as telephone conversations between members of Trudeau’s cabinet and Thomas D. Homan, Trump’s designated border czar.  Next, was a follow-up by two top Canadian ministers, Foreign Minister Mélanie Joly and Finance Minister Dominic LeBlanc.  They met on December 27th with members of Trump’s circle in Florida about a planned 1.3 billion Canadian dollars’ worth of a package of proposed new border security measures.

Whether the Canadian government’s preemptive moves will satisfy Trump is anyone’s guess?  I would suggest that it won’t and he will continue to pursue the matter as part of trade negotiations with Canada once he is in office.  Meanwhile, Trump is clearly aware that Trudeau’s minority government is now politically in trouble.  There is little doubt that the opposition parties intend to introduce a non-confidence vote possibly by the end of January after parliament re-adjourns after the holidays.  This would then result in an election being called early in the New Year, with a predicted majority win by the Conservative Party under Pierre Poilievre.  Whether Trudeau will lead the Liberal Party once more is still up in the air given his current unpopularity among the electorate.

This will place a lot of perceived difficulties for Poilievre’s Conservatives on this and other potential issues in the face of President Trump’s administration.  It may mean that the next Canadian government will spend a good deal of its time simply reacting and responding to Trump’s demands.  The United States-Mexico-Canada Agreement (USMCA), signed in 2018 during Trump’s first term, is up for review in 2026.  Should a Trump administration take a hard-line stance requesting fewer restrictions on American exports to Canada, it could lead to a trade war with the U.S.  Such an outcome will no doubt further damage our relations, and would lead to higher product costs for consumers in both countries.  Due to our size, Canada has to be an export-import country in order to grow and thrive economically.

What makes the future that much more unclear are the irrational and uninformed outbursts of one Donald Trump.  How the next Canadian government will react to his social media musings will be very interesting?  For Canadians, there is little doubt that these will be trying times.  Stay tuned for more of the Donald Trump saga!

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Oct 21

2024 Predictions For Key Canadian Political And Economic Issues

by bcurry

Predicting the eventual outcome of political and economic matters in any year is pretty difficult, and 2024 has been just as unpredictable in various ways.  Relations with Canada’s biggest trade partner and political ally are about to change as a result of the U.S. elections next month.  Prime Minister Justin Trudeau has stated that a second Trump presidency would be difficult for the Canadian government, as there are many issues on which he and former president disagree.  However, who would have guessed earlier in the year that President Biden would be forced to drop out of the presidential race in favour of his Vice President, Kamala Harris.  Should the outcome result in a Harris administration, things could certainly be different and hopefully perhaps less antagonistic. 

What is most troubling for the Trudeau minority government is the current state of the economy, particularly as it relates to high inflation.  While inflation has come down from a year ago, Canadians are still faced with continuing high costs associated with housing, food and fuels.  In addition, his government has lost the previous mandated support of the New Democratic Party which assured him of being able to withstand any non-confidence motions in Parliament and the need to call an early election.  However, both the Liberals and NDP cannot afford to have an earlier election at this time, particularly since the opposition Conservatives continue to hold a twenty point lead in the polls.  The Conservatives, knowing that general public opinion is unfavourable to Trudeau, would be more than happy to have a federal election sooner than later due to their expectation to form the next government.  In addition, Trudeau has recently seen several Cabinet ministers resign and will not run in the next election, as well as a revolt in the Liberal caucus seeking to replace him as party leader.  Among Canadians in general, he now faces the lowest approval ratings ever.

While the Conservative leader, Pierre Poilievre could become Canada’s next Prime Minister, he isn’t personally liked by most Canadians.  Some have compared him to Donald Trump, but this is somewhat an over exaggeration.  However, he does represent an increase in the presence in Canada of right-wing politics, similar to what has divided Americans politically — nothing out of the ordinary here.  What was hard to predict was the rapid decline in support for Trudeau and the increasing massive support for the Conservatives, whose platform remains much as it was a year ago — alluding to the high cost of living, crime rates and the carbon tax. 

The province of Quebec has itself moved away from past strong support for the federal Liberals and more toward dealing with its own political and economic issues surrounding greater protection of the French language, its lagging fertility rate, immigration targets and financial support for asylum seekers, many from the U.S.   Quebec Premier François Legault’s aggressive francophone-first policy has been controversial in Quebec, where business owners say the new requirements will add more barriers to hiring.  The current and future position of Quebec voters is difficult to predict.

The rapid growth of ultra-conservative movements in Canada, similar to those in the U.S., has surprised many political experts.  There is no doubt that the economic difficulties experienced by lower-income Canadians has certainly contributed to this outcome, especially as it pertains to the influx of immigrants and their impact on housing costs and social services.  Critics predicted, and rightly so, that Canada doesn’t have the housing, public resources or resettlement services to absorb the projected half a million newcomers in such a short period of time.  The war in the Middle East has also exacerbated the growing level of hate-related incidents against ethnic groups in the country.

What makes predictions next year for Canada even harder will depend on the outcome of the U.S.
elections, and the eventual policy changes that the new American administration will introduce.  One thing is clear is the importance of a more vibrant economy to both countries, despite the fact that inflationary trends appear to be on the decline.  Both countries will shortly have new administrations in power for 2025.

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Jun 12

Is Inflation On The Way Down?

by bcurry

This past week, both the U.S. Bureau of Labor Statistics and Statistics Canada indicated that the general inflation rate trend is gradually going down.  As a result, the Bank of Canada reduced its central bank rate by a quarter of a point.  However, such an interest rate reduction will not immediately affect mortgage and loan rates offered by the banks and other financial institutions.  Also, for the average American and Canadian, the cost of living is still high as demonstrated by food prices and the costs of homes or rents in urban centers.  These costs do not necessarily have as much to do with inflation as they do with regards to other domestic issues and foreign markets.  For this reason, there is little likelihood that food costs, rents and housing costs will decline in the near future.  There is a general lack of affordable housing across both countries and the impact of climate change is already being felt in the agriculture sector.  We will have to wait to see what the U.S. Federal Reserve will do with respect to the current central bank rate.  With inflation sticking at a level above their 2% target, they’re apparently downgrading their outlook for interest rate cuts.

Politically, this situation does not bear well for the governing parties in both countries.  The economy, and especially inflation and high interest rates, is still the priority concern for most voters.  Remember the old adage: “It’s the economy stupid”.  In light of the coming American elections next November, the possibility of major economic improvements is increasingly unlikely every day.  The same can be said for the Canada’s federal government and its ruling Liberal Party under Justin Trudeau, which could call an election next year. 

In general, the current economy has also particularly hurt younger voters, such as Generation Z and the Millennials.  They have been especially affected by the lack of affordable housing and the continuing difficulties surrounding the cost of living and failure of wages to keep up with rising costs.  Their votes in coming elections will be very important and may very well determine which parties are successful in their bids to govern.

Both the Federal Reserve and Bank of Canada have admitted that maintaining very low interest rates over the last decade has contributed to the current economic dilemma.  For example, it created a major imbalance in how the mortgage markets operate, encouraging many people to overspend and helping to cause incredible rising costs in housing.  In addition, new housing developments could not keep up with the created demand.  As a result of the pandemic, there was also a substantial increase in construction costs due to the resulting scarcity of materials.  It has taken some time for the markets to rebound and for supply chains to catch up to the subsequent demands.

While the markets did well during the pandemic and continue to do well, this primarily benefited the large corporate sector and shareholders, but not average Americans and Canadians.  Many of them suffered wage and job losses during the pandemic, and many have not recuperated those losses after the pandemic.  The pandemic significantly altered our economies and our lives.  The consequences will be around for years to come.  Just look at subsequent changes to our labour markets.

Yes, it would appear that the inflation rate is slowly on the way down.  However, for the existing political parties it may be too little and too late.  For the average person, the damage has already been done, resulting in a great deal of anger, frustration and increasing division in political views.  There is little doubt that both the Federal Reserve and Bank of Canada will continue to be cautious in how they handle the central bank rates.  Fearing any potential new inflationary pressures on the economy, don’t expect any major changes in the near future.

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Mar 25

Electorate in Both U.S. and Canada Appears to be Very Disgruntled. I Wonder Why?

by bcurry

George H. W. Bush Senior, going into his bid for a second term, was frequently told that it’s all about the economy stupid!  The U.S. economy went into a recession in 1990; the unemployment rate rose from 5.9% in 1989 to a high of 7.8% in mid-1991; and the debt percentage of total gross domestic product (GDP) rose from 39.4% in 1989 to almost 46.8% in 1992.  By the presidential election in1992, many conservative Republicans’ support of Bush had waned for a variety of reasons, including raising taxes and cutting defense spending.  Americans were less concerned with his foreign policy successes (e.g. Persian Gulf War victory over Iraq) than with the nation’s deteriorating economic situation.  Thus, despite having once been a relatively popular president, he lost to Bill Clinton.

Today, the primary issue among voters continues to be the economy, and especially the high rate of inflation and high interest rates affecting people’s mortgages and the cost of loans in general.  Yes, there is low unemployment and more people are employed today than anytime since the pandemic.  However, unfortunately for Joe Biden, the average American is struggling on a daily basis to make ends meet, especially since average wages have not kept up with increasing inflation over the last few years.  Many people and businesses are still recovering from the pandemic, which has created a real sense of insecurity and a general malaise within the population.

Taking all of this into account, and that people are not happen with another Trump vs. Biden election, there is a general mistrust with governance.  The same can be said for in Canada where you have a Prime Minister, Justin Trudeau, and a party that has been in power for over nine years.  The opposition is continuously harpooning about the high cost of inflation and high interest rates that average Canadians are facing.  There is also a good amount of discord over the government’s intention to raise the national carbon tax this coming April, despite it being only one element of several policies aimed at tackling climate change.  However, right now, climate change has taken a back seat to the economy.  A federal election will very likely be called next year in Canada, and all the government can hope for is that the economy will improve and inflation will come down.

Overall, these are tough times for governing parties.  There appear to be no win-win situations.  Government deficits have been climbing steadily, partly in earlier response to the pandemic, with no end in sight.  Wars overseas in the Ukraine and Middle East are not helping.  Funds are being allocated to support the Ukraine against Russia, Israel’s military and the plight of Palestinian refugees in Gaza.  The situation has placed both the U.S. and Canada in a difficult situation given the evolving humanitarian crisis in both conflicts.  In terms of foreign policy, domestically it is a no-win and highly emotive situation for both governments in terms of supporting one side or the other particularly in the Israeli-Palestinian conflict.

In addition, stability in the energy markets is constantly under threat as a result of the sanctions against Russian oil and natural gas exports and the general unstable situation in the Middle East.  As a result, there has been a measurable direct or indirect impact in the form of rising costs for gas and heating fuel in North America.

There is little doubt that we live uncertain times.  There is also little doubt that voters are concerned with the cost of living and continuing hard economic times.  This bleak outlook does not bode well for President Biden and Prime Minister Trudeau.  The question then becomes whether their political opponents can take advantage of the situation?  I guess time will tell.

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Dec 5

Today’s Younger Generations Are Paying To Support Older Generations

by bcurry

The recent federal fall economic statement once again reminds Canadians that previous governments never worked out how to pay for the healthy retirement of baby boomers.  Studies note that when boomers came of age as young adults, there were seven working-age residents for every retiree.  Now in retirement, boomers want the same or better supports when there are just three workers to pay for every person over age 65. The economic update reports some $150-billion (Can) in new spending on retirees between now and 2028, with possibly many billions more to follow.  These monies will drive up tax payments from younger people for today’s retirees well beyond what those retirees paid toward seniors when they were young.  Needless-to-say, organizations representing the interests of younger workers, such as Generation Squeeze, are not at all happy with the lack of alternative funding in support of younger Canadians.  In addition, all this means that deficits are increasing, and eventually someone will have to pay for the ongoing increases in our debt load.

Yes there are more monies in the budget to lower child-care expenses and to assist in improving the housing market for potential buyers, but both are a somewhat late in happening.  The mood among younger generations isn’t all that great.  They view, and perhaps understandably, that boomers have been given greater advantages when it comes to retirement.  Canadian seniors have access to a reasonably good social security system, much of it provided through public pension plans and a progressive taxation system supporting the elderly.  In addition, Canada has a universal health care system which provides affordable health care for an aging population. 

Younger workers are faced with fewer private pension plans, which unlike the boomers makes up a major part of their retirement income.  While defined pension plans are ubiquitous in the Canadian public sector, in the private sector barely one in five employees is covered according to a 2016 study.  Most past private sector pension plans, where they exist, employ a defined contribution plan.  Increasingly, today’s defined contribution plans require that employees invest their contributions in financial markets and incur the risk as to the value of their individual investments.  Defined benefit plans on the other hand were built up within the employer-provided plan and more-or-less guaranteed an annual pension payment upon retirement as long as the person lives.  Furthermore, investment risks associated with defined benefit plans are shared among employees and employers.

Today, younger workers are also affected by past lower compensation in comparison with the increasing cost of living.  Putting monies aside as part of building up a retirement nest egg has now become more important than ever.  Even if a Canadian retires at 65 — the age an individual is eligible for the Canada Pension Plan — and lives until 90, they will effectively need to live off savings for another 25 years of their life, a prospect for which many are not prepared.  For whatever reason, many younger workers are not in a position to put away a proportion of their income towards future retirement, even though there are government taxation schemes which allow for annual contributions such as the Registered Retirement Savings Plan (RRSP) which offers equivalent tax credits.  For many workers without employer pension plans, RRSPs often represent the only means of financial planning for retirement.  For lower income groups, even setting aside monies for RRSPs can be difficult if not impossible.

According to Statistics Canada, today the average Canadian will live until age 82, with the number of centenarians — those reaching the age of 100 — continuing to grow.  In 2019, the World Economic Forum suggested that Canadians on average will outlive their retirement savings by more than 10 years.  Over more prosperous years, today’s boomers have been able to build up their wealth, housing being a major part of that wealth.  Their children may in some cases be forced to wait for access to that wealth in order to afford housing or prepare for their eventual retirement.  As a result, they will most likely have to wait for their inheritance for some time to come given the projected longer life span of today’s boomers.  No wonder the younger generation isn’t too happy about their current situation and envy older generations!

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Jun 6

Financial Debt Increasingly a Concern for Canadians and Their Financial Institutions

by bcurry

Remember the sub-prime causing America’s great recession of 2008?  Well, now Canadians are on track to be subjected to a similar scenario in light of the average debt loads that they are experiencing.  The International Monetary Fund warns Canada that it runs the highest risk of mortgage defaults among advanced economies, while other reports show Canadians are increasingly struggling with their total debt.  There is little doubt that Canadians are now at the greatest risk of mortgage defaults.  Many Canadians bought houses in the last decade because of lower than average mortgage interest rates, often as low as 1.5 percent annually.  This despite the fact that in many urban areas the average cost of housing had reached record highs, sometimes increasing by 20 percent annually.  Now, the average mortgage rate in advanced economies, including Canada, has risen to 6.8 percent in late 2022, more than doubling from the start of last year.

Canada’s household debt is the highest in the G7.  A report by credit research firm Equifax Canada indicated that Canadian consumers on average are spending 21.5 percent more each month on credit cards, compared to pre-pandemic levels. It further noted that average monthly spending per credit card holder exceeded $2,200 this quarter, up about $400 compared to the first quarter of 2020.  A significant number of Canadians are also beginning to default on mortgage payments and non-mortgage credit.  A recent Angus Reid survey noted that three in ten Canadians say they are struggling to just get by, with far too many continuing to rely on the use of credit cards to cover their expenses.

Worst yet, the Bank of Canada may have to raise its rates in order to tackle the continuing high inflation rate.   April’s inflation numbers took economists by surprise, ticking up to 4.4 percent from a year ago, instead of the forecasted 4.1 percent, in the first acceleration since June 2022.  Further rate increases will only exacerbate the financial challenges that Canadians are now facing.  In addition, inflation is hitting everyone hard and appears to be on the upturn for a number of necessities, such as food, fuel and housing, including rental accommodation.

While Canada’s financial institutions are in fairly good shape, recent difficulties of major banking institutions in the U.S. have made some Canadians somewhat more nervous.  No one expects a run on the banks, but Canadians are increasingly putting investments into more secure and insured options.  Fear is a deadly thing for the economy.  Hopefully, our major banks will not see an inordinate number of loan defaults and those defaults on mortgages in particular.

Many Canadians were able to increase their savings during the pandemic, and it was expected that post-pandemic spending would eat into those savings.  However, Canadians appear to have gone on a spending spree instead of paying off some of their existing debt.  Now, because of high debt loads and the impact of inflation, they are caught in a financial bind with many struggling just to get by.  Should a recession occur, it would only make the situation worse, especially if unemployment rates rise.  Like a number of analysts suggest, perhaps it’s time to tighten our belts!

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Oct 4

Why The Minimum Wage Is Not A ‘Living Wage’

by bcurry

Going back over four decades, I studied changes across Canada in labour standards legislation, especially as they apply to minimum wages.  The minimum wage is the lowest hourly pay an employer can legally pay an employee whether they work part-time or full-time.  In Canada, minimum wages are primarily the responsibility of each of the ten provinces and three territories.  However, there is a federal minimum wage, which came into force in December 2021, adjusted automatically on April 1 of every year based on the average annual increase of the Consumer Price Index (CPI).  The federal minimum wage applies to workers and interns in federally regulated private sectors, including banks, postal and courier services, and interprovincial air, rail, road, and marine transportation — or roughly 6% of private sector employees in Canada.  The federal rate is currently set at $15.55 per hour.  Provincial and territorial minimum wage rates currently vary from $13.00 per hour in Saskatchewan to $15.50 in Ontario. 

Years after minimum wages were in first introduced in British Columbia and Manitoba in 1918, other jurisdictions followed suit.  Minimum wages are calculated and adjusted differently among the provinces, territories and the federal government.  Rates can be determined and adjusted according to regulations, rates of inflation and social and economic conditions.  In 2013, 61 percent of employees earning minimum wage were between the ages of 15 and 24, especially those working in the services sector (e.g. restaurants and fastfood chains) and the retail sector.  In recent years, there are those who argue that the current minimum wage rates do not reflect what became referred to as a ‘living wage.’  Originally, the formula for minimum wages was thought to be aligned with the average industrial wage rate, usually representing about 60 percent of that rate in Canada.  However, over the years, the determination of annual minimum wage rates became more a political factor based on the policies of the governing parties in power.  As a result, increases in the rates began to vary more extensively among jurisdictions and depended on the particular government in power.  For this reason, minimum wage rates began to lag far behind the rate of inflation and average industrial wage rates.

In today’s economy, many will rightly argue that current minimum wage rates, especially in urban centers, are putting workers in a near poverty situation given the high cost of living in many cities.  Matters have been made worst by the current hyperinflation being experienced across Canada.  As a result, many low-wage workers are required to have more than one job just in order to make ends meet.  Labour advocates say recent minimum wage gains are long overdue.  However, they also now advocate that the long-championed goal of a $15 an hour pay floor across the country no longer goes far enough to address the affordability crisis.  “We’ve been calling for a $15 an hour minimum wage for so many years, but now it’s no longer enough,” said Bea Bruske, president of the national Canadian Labour Congress. “It really needs to be $20 an hour or more when we look at inflation and the cost of food and housing.” 

Business organizations on the other hand continue to use the same old arguments against having a living wage.  These include the argument that higher minimum wages would cause employers to reduce the number of employees and the number of hours worked, potentially leading the hiring of more part-time workers.  A 2014 report from the right-wing Vancouver-based think-tank Fraser Institute concluded that both economic theory and the evidence suggest that living wages, like minimum wages, create distortions in the labour market that have a negative impact on employment.  Left-wing organizations in Canada, including the Canadian Centre for Policy Alternatives and Living Wages for Families continue to campaign for living wages, arguing a higher standard of living will benefit the overall economy. 

Remember what Henry Ford said about higher than normal wages for his automotive assembly line workers in the early 1900’s.  He argued that not only would the high turnover rates for the dull and monotonous work — running at over 300 percent — be reduced, but his workers would eventually buy his Model Ts as many of workers could then afford to buy one for themselves.  In today’s consumer society, one can argue the same is true for many low-income workers if they were to have a living wage.

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Aug 22

Both Canada and the U.S. have something in common: Dismal Economic Outlooks

by bcurry

When I was studying economic theory in college, one phrase kept leaping out at me: “Economics is the dismal science.”  This was partly due to the fact that I could never really be convinced that the discipline of economics was anything but a science.  Instead, I preferred to think of the reality of economics being continuously influenced by political policies and institutional structures, including those in the international sphere.  Control over the world’s economies is much more institutionalized than ever before.  The current economic situation in North America really highlights this perspective, especially given the reaction of bodies such as the U.S. Federal Reserve Board and the Bank of Canada in dealing with the post-pandemic world.

In Canada, one is coping with the highest levels of inflation since 1995.  The U.S. is seeing the highest levels of inflation since the early 1980s.  On top of which, we’re getting economic data that is fluctuating quite rapidly, so it’s very hard to get a precise read on where the economy is at any point in time.  The additional fear now is that both these monetary bodies are increasing the prime rates in order to tackle this hyperinflation at a time when the economy is attempting to get back on its feet after the disastrous pandemic period — thus the concerns about a potential recession in both countries and around the world.

Now, you don’t have to be an economist to know that something’s wrong.  Filling up your gas tank, buying a home and purchasing groceries just got incredibly more expensive!  Governments blame much of the distress on post-pandemic supply chain problems and global fuel-food shortages due to the Russia-Ukraine war.  On top of which, there are suddenly skilled labour shortages in most countries, leading to increasing wage levels and low unemployment rates.  The current situation has particularly been led by Boomers, many of whom have chosen to retire.  An April paper by economists at the Federal Reserve Bank of Richmond found that “the pandemic has permanently reduced participation in the economy.”  Due to the lack of and high cost of child care for example, many women are financially unable to return to the labour market.  In order to fill many jobs, countries are having again to look to immigration policies as a possible solution.

Recent blow-out jobs reports may have quieted claims that the U.S. is in a recession, but it did not end the mystery about the state of the economy or resolve questions about where it is headed.  Should a recession evolve in the U.S., past experience would suggest that Canada is not far behind.  Similarly, both federal governments are under the gun to do something about inflation — a major political issue.  However, as most analysts state, the current economic situation is something completely new and unprecedented in light of post-pandemic elements and the current global situation with respect to supply chains, especially in Europe.

Higher interest rates as a result of Federal Reserve Board and the Bank of Canada benchmark interest rate increases to control the hyperinflation will have an immediate impact on lowering economic growth.  Consumers feeling the hit will most likely have to cut back on expenditures, including the purchases of homes due to the subsequent rise in mortgage rates.  Whether or not we are on the brink of a major recession is still up in the air.  There is no sector of the economy that hasn’t been affected during this so-called recovery period. 

However, how about longer-term predictions?  As the famous British economist, John Maynard Keynes, once said: “In the long-run, we are all dead.”  He further noted that aggregate demand does not necessarily equal the productive capacity of the economy.  Instead, it is influenced by a host of factors —sometimes behaving erratically — affecting production, employment and inflation.  As of today, this definitely appears to be the case.  All any of us can do is hope to survive during the foreseen continuing turmoil within the markets and the economy in general.  In the spirit of economics as a ‘dismal science’, most economists for are not overly optimistic about improved short-term growth. 

Canada Economy Economy Global Economy Labor Force Labour Force US

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