Federal government is absolutely to blame for rising prices and the reason is simple
James Pascual
Farmers Forum
Now here’s an idea. You and your buddies are at a pizza party, and there’s only one pizza on the table and everyone wants that pizza, all of it.
Everyone is drooling with anticipation. But suddenly, the host decides to get wacky and grabs a magical pump-action water rifle from the corner of the room.
But this is no ordinary pump-action rifle. Instead of pumping water, it starts spewing out money like a crazy fountain. Cha-ching! Coins and bills start flying in all directions. It’s like a game show where the prize is a never-ending shower of cash.
At first, you and your friends are ecstatic. You grab handfuls of money, throw it in the air, and dance around like you’re at the Norwood Country Jamboree. It’s raining money, baby! Life feels fantastic, and you’re floating on a cloud of dollar bills.
But here’s the twist: The magical money pump doesn’t stop. It keeps spewing out more and more money, faster than you can collect. Now, think about what happens when there’s too much of something. It loses its value, right? Like when your neighbour produces way too many cucumbers for the farmers’ market and he makes his eighth trip to your house to drop off another bag. The first bag was awesome but now you can’t eat anymore and you’re in the basement pretending not to hear his knock at the door. Cucumbers just aren’t so valuable anymore.
That’s how it is at the pizza party. But there’s not too much pizza. There’s too much money. With all this extra money flooding the scene, things start to get a little crazy. Demand for that one pizza hasn’t changed, but the money supply has exploded. So what do people do? They start bidding against each other, waving wads of cash and shouting, “I’ll pay 100 bucks for a slice!”
Since there’s only one pizza, prices skyrocket. It’s a pizza bidding war, and you find yourself contemplating whether you should sell your old tractor to pay for a slice. The absurdity is off the charts.
This is what happens when the money supply goes bonkers. More money chasing the same amount of goods and services causes inflation. We see this in Canada as it costs a lot more to fill up at the pump and groceries are more expensive even though the packages are smaller. So, who or what caused it?
Government caused it.
I should mention there is a second kind of inflation, nonmonetary inflation. This is temporary and not what we’re talking about. In this case, there is a shortage of something. So, people are willing to pay more. The best example is an external event, like a hurricane that hits the Gulf of Mexico and interrupts oil production. The price of gas goes up. But that is temporary and there’s a return to normal prices when oil production resumes.
The other cause is man-made and that’s worse. “Inflation is a man-made disaster,” says Forbes magazine editor Steve Forbes.
In Canada, we got hit twice by inflation. Governments locked down economies, limited supplies and everyone was willing to pay more for almost everything. Then our federal Liberal government decided that it needed to spend money to kickstart the economy and suddenly there was more money available chasing fewer products and services.
It was worse in Venezuela. So much money was printed that in 2020 alone, inflation for consumer products averaged 3,000 per cent. That means that a $2 cup of coffee in January cost $60 by Christmas.
In Canada, our government said inflation last year was about 7 % but government typically lowballs. We’re also creating new money — every week. Here’s how. The Canadian central bank, the Bank of Canada, is buying $400-billion bonds. To pay for them, Canada can simply print more money or, even easier, create that amount at the central bank by electronically increasing the dollar amount in the government account. It’s as simple as just adding a zero. See, the Canadian government has a money pump too. By magically increasing the money in the government bank account, the government has more money to spend on bank bonds and anything else, making it easier for public sector unions to demand a raise.
Money injection in the past two years has also allowed Canadian banks to loan more money to the investing class that bought up a lot of houses and guess what? All that money chasing a limited number of houses caused the prices of houses soar.
So, wise-apple, you’re saying. How should government kick-start the economy? I’m surprised the answer isn’t obvious. Governments should do nothing. It’s amazing how everyone seems to admit that less government is better government and things run better when government gets out of the way and lets people be free to run their own affairs. But every time there is an apparent crisis, government steps in to “fix” it and the problems get worse.
But this is not my advice. This is from 1976 Nobel prize winning economist Milton Friedman. He places more trust in people and markets than government intervention. He would allow short-term pain in a free market for long-term gain. The alternative can be frightening. Said Friedman: “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”
So, the next time you hear about the money supply causing inflation, just remember the magical money pump at the pizza party. It’s a wild, exaggerated tale, but it captures the essence of how too much money can make prices go absolutely nuts.
