The Economics of inflation, Globe and Mail hysteria and the role of stimulus

The conservative Globe and Mail has amped up its anti Keynes campaign . It has in the past few weeks run several opinion pieces and articles in which it warns about excessive debt, the danger of inflation and the policy errors of the Justin Trudeau administration .

What are the facts ? Inflation is currently running at close to 2.2 % after recovering from its recent pandemic lows of minus 0.7% in the spring of 2020. What about unemployment? Despite over 6 % growth in the GDP unemployment is still 7.5 %.( The rate rose to 8.1 %in April) So there is plenty of need to further simulate the economy. That doesn’t mean that inflation above 3 -4 % cannot occur but it is highly unlikely in the current circumstance s. Oil prices remain relatively low although some analysts at Goldman Sachs are forecasting per barrel price rises to the 80 dollar range from their current level of 65 $ as the American economy recovers. But the changing nature of work and the stay at home option will push prices in a downward direction.

The real estate bubble is a potential problem which has been fuelled by very low and very essentially low interest rates. Like all bubbles it might burst and spread panic selling in the stock and commodity markets and provoke recession.

The need for stimulus continues. So long as the negative impact of Covid -19 continues and unemployment remains higher than 3-4 % the rates need to be kept low. It is also possible that large corporations in a position to use their oligopoly powers to raise their profit margins by raising supply chain costs can also fuel some inflation. But so long as price rise remain so low and unemployment so high the Federal Government is doing the right thing by using its powers to restore infrastructure, improve social programs, replace lost incomes, improve the environment, and reduce inequality.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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