1 THE END OF WORLD POVERTY : PROJECT OF SOCIETY :... MUTUALLY RESPONSIBLE WAY.

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THE END OF WORLD POVERTY : PROJECT OF SOCIETY : LIBERTY EXERCISED IN A
MUTUALLY RESPONSIBLE WAY.
CONTENTS
1- FOREWORD p.1
2- TWO SCHOOLS OF THOUGHT p.2
3- BASIC MACROECONOMIC THEORIES p.5
3.1- PRODUCTIVITY p.5
3.2- LESS DEVELOPED COUNTRIES p.6
3.3- INFLATION p.6
3.4- THE INVISIBLE HAND p.8
3.5- VALUE p.8
3.6- WORK p.10
3.7- THE RARITY ELEMENT p.11
3.8- THE PENDULUM EFFECT p.12
3.9- CONSENSUS p.12
3.10- KEYNESIANISM p.12
4- INDICATOR BOARD p.13
5- PERMANENT COMMISSION p.17
6- CONCLUSION p.17
7- MATTERS WORTH CONSIDERING p.18
8- SUMMARY P.18
9- REFERENCES p.20
10- ABOUT THE AUTHOR p.25
1- FOREWORD
It is by a free and mutually responsible liberty that we will be able to
get rid of world poverty. But it is not a simple task.
We don’t know, where we come from, why we are here, and what is our
destiny. But we are there, the sky is blue, nature is a beauty, birds are
singing and we love life. Yes, we are there with our strengths and
weaknesses, our qualities and shortcomings, in search of happiness. We all
need to love and be loved. We all want to be usefull and make our little
contribution to society according to our capacities and talents. Our
Creator has left us free to choose between right and wrong. However there
is a little light inside that makes us happy when we do good. I therefore
think that it must be His will.
It is this good, closely associated with a responsible liberty, that
permits us to mature well as individuals. A society, to mature well,
represents quite another challenge. It needs a great cohesion between all
the individuals. A great progress has been achieved in the last few
thousand years to arrive at our present democracies. We still have a way to
go. We need to be able to better unite our efforts in order to build the
society that we are all dreaming of.
Retired, and a member of the choir of the Amos Cathedral, I have sung at
least at 50 funerals a year since the last 9 years. The preachers do not
miss the opportunity to say a few words about the numerous qualities and
life details of the deceased persons, their work, devotion, courage etc. I
have seen the same qualities in the persons I have known all my life. Yes,
we all have weaknesses. The necessity to live well in society tames our
primitive instincts. Our own liberty stops where the liberty of others
begin. A fully matured society could be compared to the human body where
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each part has its own functions, in harmony with all the other parts. It is
easy to see that each person represents a whole lot of goodwill and
generosity. It is why I am confident that we will always be able to improve
our social fiber for the better well-being of each individual. We all have
inherited a great thirst of beauty, justice and peace. All the elements are
there to make us fulfill our dreams.
We must be able to see over the fray and get rid of many prejudices. Only a
good vision of things will make us take the right choices. We must ask
ourselves what we would like to leave to our children and grandchildren. I
well know that it is easy to dream and imagine a better world and that it
is much more difficult to realize it, but we all must first have a very
good vision of that dream.
History shows us the errors that we must not repeat. Friedrich Nietzsche
has observed that insanity is rare among individuals, but is the rule in
groups, parties, nations and epochs. An individual can make an error, it is
not too damaging, especially in a democracy. But when a society makes an
error, the damage can really hurt. Many institutions in place have great
difficulties to adapt to new realities. A carapace is formed preventing the
infiltration of new or different ideas, systems are built on shaky
foundations. Only major crises can make them change.
On the other hand, Francis Bacon has also well observed that if we want to
command nature, we must go by its rules. It is in this sense that our
liberty must be responsible. If we want to progress as a free democratic
society, it is important to give us the rules which, if respected, will
give us a better world. If the rules are not respected by all, we must find
the way to make them respected for the better well-being of everybody.
Developments in technology and communications already force us into a
greater cohesion at the scale of the planet.
Security must first be present in any project of society. In Canada as well
as in many other democratic countries, this has already been achieved, but
we will always have to be vigilant. Recent problems of violence in France
shows us how fragile it may be. The project that I am presenting here can
well help prevent such problems.
We have also developed a justice system that protects very well individual
liberties. My comments will not touch this important aspect.
This being said, the table is set for the presentation of my dream.
2- TWO SCHOOLS OF THOUGHT
As we often say, money speaks. It is a means, not an end. It is the medium
of exchange by excellence in all our modern societies. It is mainly by work
that we can earn it, in order to first satisfy the basic needs of our
families.
The society that I dream of, must give the right to work to each
individual, without exception. Jean-Paul II rightly said that work is a
right, that it corresponds to the dignity of human creatures, a good that
expresses that dignity and which enhances it.
Work must occupy the place of honor in our society. It is evident that it
is actually not the case. Yes, it is a big preoccupation of our present
governments, but it is not the first priority. The situation has
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deteriorated since the last 25 years, as shown by the main indicators. The
deterioration is cetainly one of the great causes of the misfortunes we now
have as a society.
Where is the problem? For many, including myself, the evidence points
towards the monetarist school of thought instituted by the american
economist Milton Friedman who received a nobel prize in 1976. This school
of thought has caused incalculable harm during these last 25 years.
Unfortunately, the system is the one that is still comfortably seated in
the control room and is permitted to use its defective tools. By limiting
the monetary mass and by juggling with interest rates, it is possible to
control inflation and therefore assure a certain price stability. But at
what price? That is the question!!!
The other school of thought, which is also mine, is mainly based on
Keynesianism which gives an important role to governments in order to
achieve the highest possible level of labour, by assuming certain
investments when the private sector is slowing down. To borrow a part of
the Social Credit theory, we have to make financially possible what is
physically realizable. That is also what we call the contra cyclical role
of public administrations in order to maintain full employment. Inflation
can be controlled effectively and more economically by a general consensus
in our society. We have here an excellent occasion to be a more mutually
responsible society and thus make the right choice.
A Permanent Commission should be created to assure the respect of the
consensus eliminating inflation. The result would be a much bigger pie to
be distributed to everybody. We have to start by making the change in our
own country. The others will soon follow in front of the results that
should be very spectacular. More details will later follow.
Since 1982 I have made the promotion of a general consensus to eliminate
inflation, because inflation was the problem at the time. The Consumer
Price Index (CPI), a good measure of inflation, oscillated around 10%
during the 1978-1982 years. It was not a new problem since a Commission to
fight inflation was instituted in 1975-76. Unfortunately, the work of this
temporary Commission did not give concrete results. Inflation was throwing
us into recessions. Inflation, or the loss of value of money through time,
causes a corresponding increase in interest rates in order to attract
investors. Then an increase in interest rates causes the slowing down of
the economic activity. When the increase in inflation is important, may it
be caused by petroleum price increases, salary increases or whatever, it
inevitably throws the economy into recession. For example a 100,000$
mortgage at a 5% interest rate that must be renewed at 11%, will result in
6,000$ more interest that must be paid. That person will have to reduce his
other expenses or maybe consider bankruptcy. Others will have to postpone
their dream of buying a home, etc., thus the direction towards the
reduction in the economic activity, or in other words, recession.
Canada has taken measures in 1982 to gradually reduce inflation. A
guideline was given to reduce salary increases at 6% for 1983 and at 5% for
1984. Effectively, the rates of inflation were reduced at 5,7% for 1983 and
at 4,4% for 1984. We find here the result of a certain consensus, even if
it was imposed in a certain way… Workers were not happy to receive salary
increases that did not reflect the recent cost of living. We must see here
the effectiveness of salary or revenue controls to fight inflation. My
intervention was to propose a salary increase of 0% in 1983 in order to
eliminate all the inflation in 1983.
Then later my criticism went against the monetary school of thought that
was in the driver’s seat. They had a method to control inflation, but the
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new ennemy became the method itself, that had the effect of keeping us in a
permanent position of relative poverty. It is in fact the evidence that
there is no wealth available, that makes it possible ,to restrain salary
increases and to refuse or limit other demands, in our society. It is an
evidence of poverty that makes the success of the central banks in their
constant fight against inflation.
I am not the only one to propose a less penalizing method. Mister Paul
Hellyer published « Exit Inflation » in 1981. John Cornwall and Wendy
Maclean published « Economic Recovery for Canada » in 1984. Again in 1984,
Paul Hellyer published « Jobs for All ». This last book was the guiding
light of a resolution of the Liberal Party of Canada at its 1986 annual
meeting in Hamilton in order to make full employment the #1 priority. The
honorable Paul Martin was one of the many notables that endorsed the
resolution! The application of that vision could have changed our world.
Unfortunately, there was no public debate and it was rather the monetarist
method used by the United States Federal Reserve that influenced the Bank
of Canada and our government. The recognized expert in economics Alex N.
McLeod published in 1994 « The Fearsome Dilemma » dedicated to the millions
of unnecessarily unemployed throughout the world. John Cornwall also
published in 1994 « Economic Breakdown & Recovery ». These are only a few
books in my possession. I doubt that there are many others to defend our
school of thought. These books have greatly contributed in the elaboration
of my own opinions and to comfort me in my positions.
I still cannot understand why our governments refuse to make a public
debate on this crucial question. Journalists and the media, supposedly
representing the public good, are too much in complicity with the system in
place. Is it because they don’t want to upset the system? Do they receive
orders from the boss? They simply ignore those too fundamental questions.
They don’t even bother to mention these requests that are so important for
the good of our society. Organizations like the C.D. Howe Institute,
supposedly also representing the public good, occasionally present debates
on economic ideas, for example in « Zero Inflation, The Goal of Price
Stability », and « Taking Aim : The Debate on Zero Inflation », both
published in 1990. Unfortunately, they are contributing to harden the shell
of the system in place by refusing to make the real debate with another
school of thought. Their debates were limited to analysing the advantages
and disadvantages of tolerating an inflation of 0%, 1%, 3%, 5% or more at
the monetary level control. They very timidly recognize that there is an
economic cost in the monetary control and that the cost is only temporary.
That is grotesquely false!
The indicator board clearly shows us the very important deterioration of
our economy since the application of the monetary instruments. We will see
that later.
Our society is treated like a sick patient that is deprived of oxygen as
soon as he shows the least little sign of recovery. Those in power have
boasted the long period of stability that we have known in controlling this
patient! They even add that we are functionning at the maximum of our
capacities! That is a very nice act of playing with the words. They mention
that we are in the lead group of developped countries. This last mention is
true, but the other countries are also using very similar disastrous
methods…
And the juggling with the interest rates is cunningly done with small
gradual changes of 0,25%. They certainly know that they are walking on
eggs… It is also a good way to shut down the critics by diluting the impact
of their changes into a complex economic conjuncture. The central banks who
have the responsibility of maintaining stability, do not seem to understand
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that it is mainly by keeping a very stable interest rate that stability
will be maintained in the medium and long term. The impact of a raise in
interest rates takes a certain time to gradually materialize on the
economic activity level. We only have to think about the many fixed
mortgages of 5 or 10 years for example. That is why some critics of the
monetary policy qualify the juggling with the interest rates as a blind
play. We don’t really control the economy by manipulating interest rates.
It’s like guiding the bull by pulling on his tail!
Finally, our capacities are far from operating at its maximum level since
they result directly from the structures and infrastructures put in place
by our sick patient. We should let the patient recover all his energy.
I think I am very conservative by saying that we have lost the benefits,
structures and infrastructures of at least 20% of our capacities during the
last quarter century. Our society is overwhelmed by surveys and
investigations of all sorts, but we do not receive the most important
informations. We are misled by the official unemployment statistics. They
do not take into account all those who do not search actively for work,
which is the case for the majority of welfare recipients, the many spouses
who remain at home, without making any noise, once the children are gone,
the many part-time workers who would appreciate a full time job, the many
light handicapped persons who could finally play a usefull role in our
society and thus have a better sense of belonging, the many retired persons
who live longer and longer in great shape and who would prefer a
remunerated part-time job instead of being limited to benevolent actions,
the many students who would take part-time jobs so as to not be prisoners
of huge debts at the end of their studies, etc.
Furthermore, the monetary policy needs an unemployment rate at 7% or 8% to
be successful in containing the spectre of inflation. With a general
consensus and keynesian policies, this rate could very fast be lowered at
2%. A better demonstration of the effectiveness of this school of thought
will be made later. The society that I dream of could even arrive at a
complete elimination of unemployment if municipalities would receive the
mandate to temporarily give work to the few unemployed who would still be
in their municipality. There will always be needs that could be better
answered, like cleanliness, security, the needs of the old aged or
handicapped persons etc.
3- BASIC MACROECONOMIC THEORIES
Let us look at the theories. It is necessary, in order to understand the
challenges in front of us and also to change certain incorrect perceptions
we might have.
3.1- PRODUCTIVITY
Our material well-being is regularly enhanced because of productivity
gains. Unfortunately these gains necessarily result in the loss of jobs.
That is why our society must be organized in such a way as to create other
jobs elsewhere, and by the way, creating less panic for those loosing their
jobs.
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3.2- LESS DEVELOPED COUNTRIES
For similar reasons, we should not criticize too much plant closures
because of the transfer of jobs to less developed countries who can finally
receive a piece of the cake. This should be accepted with grace as a symbol
of the solidarity we should have between nations. It represents a more
human way to aid poor countries than by the elimination of debts that do
not provide solutions to the more fundamental problems.
The capitalist system and the free enterprise are the ideal instruments for
the harmonious and gradual transfer of jobs and wealth towards poorer
countries. Instead of demonstrating against the globalization of commerce,
we should encourage it. It has often been demonstrated that the profits of
corporations do not go very much above 10% in the long term. For example,
in Canada, shareholder benefits were at 8,33% in average for the past 17
years. During the same period, dividends distributed were at 2,28% only,
the difference being reinvested thus giving more jobs. I do not see here
anything scandalous. Furthermore, our own pension money represents an
important shareholder portion. And as it goes for the very rich, there is
not a day that passes without hearing news from their foundations helping
the poor. For example, the November 7, 2005 issue of TIME magazine informs
us about a donation, made by Bill and Melinda Gates, of 258$ millions to
combat malaria, after having already given 6$ billions in healthcare. Even
when you have a lot of money, in the end, it must go somewhere, you cannot
eat it all, even with a big appetite! We should however eliminate all the
fiscal paradises that benefit only to the rich and criminals. We have here
a good example of the resistance to change in our world, where a small
minority imposes its way to do things, despite the popular will.
In our more developed countries, work will be found more and more in
Services as compared to the production of Goods. There is a natural limit
in the consumption of goods while there is none in the reception of
services. In the long term, the life conditions in poorer countries will
increase and gradually fill the gap with the more developed countries.
Things will tend towards an equilibrium, just like water naturally fills
the gaps.
I think that we will have to find a human way to limit world population
increases if we want to leave the space needed to preserve animal,
vegetation and other life, necessary for the global equilibrium and our
survival.
3.3- INFLATION
Let us return on the inflation notion. The man on the street had well
understood, especially at the beginning of the 1980 years, that inflation
resulted from the race between prices and salaries. The phenomenon was
often described as the dog running after his tail. Salary increases
resulting in price increases and the price increases requiring again salary
increases. This artificial circular flow of money, besides bringing us
nowhere, was provoking higher interest rates and its disastrous
consequences. Our elected representatives also understood this vicious
circle phenomenon, but they unfortunately didn’t have enough confidence in
the strong labour organizations and in the human nature to arrive at a
general consensus. And they believed that even if a consensus could be
achieved, the cohesion would not be strong enough to later respect it. They
should have made a public debate on this very important question permitting
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the two schools of thought to expose their differing views to the general
public. The cohesion of the system in place succeeded in leaving on dusty
shelves our isolated critics, which maybe have been made in a too much
civilized way. We certainly would have needed, in the House of Commons,
another Réal Caouette to rally the troops and make the required popular
education!
We have to cut the artificial portion of the circular flow, representing
inflation, between Salaries and Prices. By experience we know that it is
practically impossible to control Prices if we want to preserve the
effectiveness of our free markets. The conclusion is evident. The cut can
and must be made at the Salary level. When we control Salaries, we also
globally control Prices, since that it is Salaries that pay for the Prices.
We will later see that the Salary notion must be taken in its largest
sense.
In fact, in order to preserve the effectiveness of free markets,
governments must never try to control prices, unless under very special
circumstances. Even with the petroleum crisis we are now living with,
governments should not interfere. We must let taxi drivers, airlines and
transportation companies increase their tariffs. It will cost us more to
use our cars, to heat our houses. We must let the free market react. We
will find alternative resources, save on energy, take the bike, the bus or
train, reduce the number of trips and use our legs! In the short and medium
term, prices should go down because of the reduced demand. If governments
decided to help everybody that is affected by the price increases, nobody
would be interested in changing his way of life and the market would lose
its effectiveness.
On the other hand, the effectiveness of the free market is not affected
when governments take general measures at the Salary level in an Income’s
Policy.
Theoretically, only one year is needed to solve the problem. In fact, if
for only one year we would all accept to not index our salaries for the
specific reason to take into account the rise in the cost of living, we
would witness, all other things being equal, a 0% increase in the cost of
living at the end of the year.
Now, knowing that gains in productivity eventually cause a corresponding
drop in prices, and since those gains come regularly, we could decide to
increase the general level of salaries corresponding to a conservative
yearly average of the productivity gains. If we can limit salary increases
to the the productivity gains, our inflation problem would be solved. We
need an Income’s Policy to give the general direction we want to salaries.
But we must also give the right to work, so that the loss of jobs caused by
the productivity gains can be reflected by corresponding job gains
elsewhere. If not, the productivity gains would not result in lower prices,
but rather in a cost transfer to the welfare system. This is simple logic.
Fortunately, all the macroeconomic theory is a question of good logic. We
must be able to see the fundamental forces in play. We must not be lured by
certain exceptional movements in the short term. For example, the Harricana
river which flows to the north, can give the impression of flowing to the
south when there is a strong wind coming from the north. The economic
reality is far more complex, but we will remain on the right path by waging
on the fundamental forces acting only in one direction on the long term.
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3.4- THE INVISIBLE HAND
So let us continue
harsh for many. It
whole picture, and
enough to convince
changes.
our theoric analyses even if they may be boring or too
may be a little long but it is important to see the
in order to show that the system proposed is coherent
everybody of the importance to make the necessary
For example, when we talk about the free market, we often refer to an
invisible hand, coordinating all the complex microeconomic details.
Luckily, staying at the macroeconomic level is much more simpler… So I will
only say that this invisible hand works simultaneously to equilibrate the
labour market, the market of goods and services and the financial markets.
The three markets have an influence on the other two. The predominant
relation is the circular flow, that is, the same order of Value, between
the global value of the labour market and the global value of the goods and
services market. The financial markets, by interest rate changes and the
development of new financial instruments, have an impact on the volume of
the circular flow between Salaries (the labour market) and Prices (the
goods and services market).
We must let the invisible hand be free to do its work adequately. It is
important to understand that it is only globally that the invisible hand
will produce its beneficial results. In the microeconomic details, each
industry, each good and individual service will have its own little story,
happy or sad. The same may be said of the remuneration level for each
individual, the utilization made by each individual of his remuneration,
which may be different from one individual to another, and which may vary
in time for the same individual. Governments must not try to control this
invisible hand which is doing a very good job to equilibrate the circular
flow in the midst of innumerable decisions made by millions of free
individuals every day. The invisible hand lets the individual liberties
dictate the directions of the markets and that is what must be. However,
the invisible hand will eliminate the weakest elements, the ones bringing
the smallest well-being to the collectivity. That is life. Evolution makes
its way.
3.5- VALUE
Let us return to the circular flow between the value of goods and services
and the value of labour. It is the same monetary value. The value of one
cannot stay very long different from the value of the other. If the value
of one is temporarily changed, for example if someone decides to start
saving his money, something will change somewhere to restore the same
circular flow, for example, goods less in demand will have to be reduced in
order to be sold.
The magnitude of this monetary flow is of a very secondary importance. The
real world will not be changed if the circular flow is in the order of 100$
billions or 1000$ billions. The value of the goods and services produced
and the value of labor permitting their acquisition can accomodate
themselves with any monetary mass. The real value of work is represented in
the goods and services produced : one bread, a liter of milk etc. It is of
no importance if the bread is paid 10$ instead of 1$ if the remuneration is
ten times higher. The real value is thus represented in the work effort
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required to produce one bread. Only the remuneration coming from a
comparable work effort will permit its appropriation.
This brings us back to the importance already stated to control inflation
in order to have a certain stability in the monetary value. It should now
be more easy to understand the error we are continually doing as a society
by the useless habit of indexing salary increases to take into account the
higher cost of living, in other words inflation :
First we have to understand the Salary notion in its largest sense,
including all the Revenue or Income policy. In fact, all the economic
activity may be defined in function of work including all the contractors
and professionals. Work is at the source of all accumulation of Value. At
the beginning of every line of production, what we take from nature is
free. The Creator does not send us an invoice! Let us again simplify in
order to have the macroeconomic vision. At the beginning, we have the
enterprises « A » composed 100% in salaries related to research,
exploration and extraction of the raw materials, followed by the
enterprises « B » giving another layer of value for the work of the
employees related to the manufacturing process, and finally the enterprises
« C » adding again another layer of value corresponding to the work of the
employees in the retail operations. Surely there is a margin of profit made
at each step of the process, but the rest of the Value is composed of
« capitalized » salaries. Profits are necessary and represent the motors of
the economic activity. The laws of the free market, and the statistics as
we have seen, prove that the margins of profits are not exaggerated in the
long term.
We can thus say that the selling prices of all goods and services
(including the equipments and buildings) are composed of accumulated
salaries and profits. All the economists agree on this point. Going more in
the details, we can also say that the greater portion of profits as well as
the investment or interest income, may be defined as coming from prior
salaries saved. Taxes represent the salaries of the employees in the public
administrations plus the contracts given to the private sector (the latter
again representing the salaries of the employees of the contractors).
Unemployment benefits, welfare benefits, pensions, lotery gains, gifts and
heritages represent redistributions, transfers or benefits saved from
salaries earned. Imports represent the salaries of the workers of other
countries.
That is why we can come to the conclusion that a general consensus applied
to the Salary level, will be 100% effective since it will be applied to all
the economic activity. We cannot control the salaries included in imports,
but in a macroeconomic vision, the exchange rates will adjust themselves in
the medium and long term to take into account the salary variations from
one country to the other.
Second, again to simplify, let us suppose that all Salaries could be
negotiated for everybody at the same date. We would soon be confronted to
the evidence that if we increase Salaries, we would also have to increase
Prices (including taxes) in order to maintain the necessary margins of
profit and to maintain balanced budgets in the public sector. Nothing would
be gained.
The fact that Salaries are negotiated at different dates does not invalid
the above reasoning. But actually, when our turn comes to negociate our
salaries, it would be foolish not to take our piece of the cake when the
left door neighbour has taken his share the previous month and the right
door neighbour will surely take his, the next month. That is why we must
take a decision as a society to put an end to this silly race generating
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inflation and its impact on interest rates etc. Employees often have to go
on strike in order to have their share…
Finally, let us return at our monetary system, used to combat inflation.
That system needs a constant brake on the wheel of the economic activity
(or to keep the patient in bed). They want the wheel to stop spinning
(inflation), but for that, they also have to stop the wheel from going
forward too fast (the increase in the economic activity level that would
bring us the bigger pie to be distributed), just enough so that everybody
can see that there is practically nothing left to be distributed. The
actual monetary system tolerates an inflation level of 2% to 3%. They do
not seem to understand that any level of inflation over 0% is a nuisance,
even if it is less disastrous at this relatively low level. This level of
2% to 3% also creates injustices for all those receiving partly indexed
pensions. The light should have been made on all this a long time ago. We
should now know all the advantages to « voluntarily » do what the monetary
policy forces us to do anyway!
A general consensus can thus settle these problems once and for all. We
will see later, how it is possible in a consensus, to determine a clear and
precise level of negotiation, an anchor point with no ambiguity, easy to
understand by the population and easy to apply by all the economic agents.
3.6- WORK
But we again have to make a little bit of theory. We must understand the
most vital importance of work in the economic system. Work is at the source
of all Value. It represents an effort, manual or intellectual, in order to
produce a result. It is the result that represents a value and which gives
a corresponding value to the work effort that must be done. The work of the
fisherman catching no fish is of no value. That is why the Value is
represented in the goods and services produced. On another aspect, the air
we breathe is essential, but since it is immediately available without any
work effort, it has no economic value.
Where will the work effort be oriented? A basic condition must be met in
order to give a value to the goods and services produced. There must be a
need or a demand for those goods and services. That is why the work effort
will naturally be oriented towards the production of goods and services
which correspond to a need or which are in demand. Since there is a limit
to the volume of work that may be done by an individual, while the needs to
be satisfied are unlimited, the work effort will naturally be oriented
towards the goods and services representing the greatest demands or needs.
Needs may also be created or influenced by advertisements, marketing
techniques, fashions, inventions etc. The experience resulting from the
unsold goods and services, from those asked and not available, phenomena
that may be described as groping or the work of the invisible hand, will
result in the tendency for labour to be directed towards the production of
goods and services for which the satisfaction of the needs or the
collective well-being will be optimal.
If labour is at the source of all economic value, it is also at the source
of the accumulation of value, designated as capital, a very important
element in the pursuit of our collective well-being. The result of labour
may be consumed immediately or it may be saved, thus representing a
capital. If the result of labour is consumed immediately, it represents the
greatest short term well-being, but it prevents the possibility of a bigger
improvement in the medium term. The manufacture of a tool represents a
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certain sacrifice since it requires a labor effort not directly consumed,
but rather towards a consumption (depreciation) distributed on a certain
number of years in the future. The tool therefore represents the result of
labour not consumed immediately, an investment, a capital accumulation that
preserves a part of its value through time. The tool will multiply the
value of all the future labour, in other words a productivity improvement
that will increase the level of well-being in the medium and long term.
The result of labour may also be saved in the expectation of a future
consumption, for example in the anticipation of the needs after retirement.
Savings can take many forms but the main goal through the years is to
increase its value, at least corresponding to the increase in the value of
labour.
The search for optimal satisfaction will therefore take into account the
best equilibrium between the needs to be satisfied in the short term, those
that may be anticipated in the future, and the possibilities of increased
productivity in the medium and long term.
3.7- THE RARITY ELEMENT
Rarity cannot by itself be an independant source of value. It must always
be grafted or be dependant on labour and also on demand. A big diamond
represents a rare good of great value, but labour is required for its
discovery. A work of art is unique and represents well the rarity element,
but it requires the effort from the artist, the development of his talent,
often during a great number of years.
Speculation may also represent a cause of an increase in value. We may
agree to pay more than the actual value of a good if we think that it can
later be resold at an even higher price.
Marketing and mass communication may also represent a considerable increase
(multiplication) of the value of labour, for example in the popular
professional sports.
The list could be made longer. It illustrates all the complexities of the
real world, concerning the determination of the value of labour, when we
enter into the rarity element. The value of goods and services for which an
element of rarity may exist, will depend not only on the work effort, but
also on the level of the demand. Goods and services may thus be
theoretically classified into two groups. The first one, probably the most
abundant, comprises those goods and services that may be produced in
unlimited quantities (all the demand can be satisfied) and whose value is
determined uniquely by the value of the work effort. The second one
comprises those goods and services for which there is a rarity element and
whose value will depend, in variable proportions, between the value of the
work effort, and the level of demand which will determine an additional
value attributable to the rarity element.
It is important to understand this distinction when we have to determine,
as a society, a consensus to eliminate inflation at its source. The
vitality in our society will be optimal if all the individuals have the
liberty, and are encouraged, to pursue their passions and develop their
talents. Everybody may benefit from the talents of their musicians, artists
and athletes, from inventions, scientific discoveries, new drugs,
technological developments, etc. We find here an important element of
rarity. It is normal, and preferable, to let the free market determine the
12
Value in these situations. A general consensus or an income policy must not
interfere in the determination of the value of the goods and services in
which the rarity element exists, if we want to let the invisible hand do
its work properly.
3.8- THE PENDULUM EFFECT
For the same reasons, we must not interfere with all the forces
representing a temporary disequilibrium or the pendulum effect. We have to
think here of the variations that regularly come in the prices of goods and
services, in the exchange rates, in the interest rates, in import and
export variations, in the labour composition where we often witness a lack
or a manpower surplus, the additional remunerations that may be given to
exceptional employees etc. We must let the invisible hand do its work. By
experience, we know that it does a very effective job in the goods and
services market. However this same invisible hand, needs a helping hand in
the labour market, for example to correct certain injustices such as the
lower value given to feminine labour, and the too low minimum wage level,
which represent choices that we can make as a society.
3.9- CONSENSUS
It should now be easier for us to understand that the inflation notion is
composed of two distinct forces. A « real » force coming from the rarity
elements and the pendulum effects, and an « artificial » force coming from
the generalized habits of indexing prices and salaries to the cost of
living. We do not have the choice but to learn to live with the real
forces. If these forces result in increased prices, we tighten our belts
until the return of the pendulum. However, the fundamental direction of the
real forces will be towards reduced prices because of the constant
productivity gains.
That is why it should not be too complicated to arrive at a consensus and
then be able to respect it. We simply have to eliminate the « artificial »
creation of inflation generated by our generalized bad habit of adjusting
salaries and other income elements to the cost of living. What is
artificial is not essential. Knowing that it is not at all a salary
« freeze » and that the direct result will be a very immediate and large
increase in our general well-being, (because of the later application of
the Keynesian model), the general public should be impatient, to sign such
a petition, or to vote YES in a referendum, that would lead to the adoption
of such a consensus.
The respect of the consensus would give us the solid foundation needed in
order to be able to apply effectively the Keynesian model.
3.10- KEYNESIANISM
The economists in the power seat, should have made us understand a long
time ago, that an additional expense or investment realized by the public
sector, in a period of low utilisation of our human resources, must
necessarily, sooner or later, come back to the public administrations as a
13
whole. The money rolling in the economy is swallowed very fast by the many
and large doors of the public sector at the federal, provincial and
municipal levels. The self-financing of the projects is assured globally,
besides giving a boost to the private sector. In the everyday practice, it
is only normal to manage well each separate department and to respect the
alloted budgets. But our vision must not be limited to that.
First, a macroeconomic vision should let us see that managing the whole
economy is not the same as managing the budget of a municipality or the one
of a single Ministry. For example, at the municipality level, to solve a
deficit problem, we impose an additional tax or we reduce expenses, and the
problem is solved, but the global vision should make us see that there is a
corresponding contraction of the economic activity as a whole. This will
force other economic agents to make again more cuts, causing a spiralling
downward economy. It cannot be otherwise since the private sector is in
search of profits and the public sector is in search of balanced budgets.
It is well understood that we cannot « see » the follow through of the
individual actions in a complex economy absorbing many shocks at the same
time, but we should « know » that the effect is there.
Second, let us see the financial impact of an additional investment made by
the public sector, in a period of low employment level. To begin with, all
the payroll deductions, combined with the immediate suspension of
unemployment insurance or other welfare benefits, which the unemployed or
inactive persons generally all receive, permits the recovery of more than
50% of the investment costs. (What’s more, in the case of contracts given
to the private sector, the public sector benefits from delayed payments
made on presentation of invoices that will have to be duly verified and
approved at many levels). Then, a revenue from work is normally spent very
fast since we all know that when a pay check is received, the preceding pay
has practically all disappeared, a portion of which went into sales taxes,
lottery tickets, etc. again returning into government coffers. The balance
that has not yet returned is therefore already in the process of again
increasing the volume of the circular flow and to give work to other
individuals. That is why we are not very far from the truth when we say
that public investments will be financed approximately as follows in each
successive cycle or waves of production : 50%, 75%, 88%, 95%, 98%… 100%.
And this is not counting the stimulating effect on the private sector.
Some may think of an enterprise that will be able to realize an additional
contract without adding any employees. That is true at the microeconomic
level. But the macroeconomic vision will let us see, that some will have to
work overtime, others will change a part time job into a full time one,
others will decide to keep their employees instead of going to their
projected cuts, and there are also the others who were waiting an increase
in the economic activity level before hiring new employees etc. That is
why, in a macroeconomic model, an additional investment made in a period of
low employment, will always be reflected by additional work. The important
aspect here, is to understand that economic growth will result. Because of
the stimulating effect on the private sector, revenues will keep on flowing
to the public sector, even after the initial investment costs will have
been recovered. Everybody knows, and the statistics are there to prove it,
an economic growth increases government revenues.
4- INDICATOR BOARD
Unfortunately, in our monetary system, too much growth is feared because
the increase in our collective wealth that will result, will only encourage
workers to demand salary increases in order to have their piece of the
14
bigger pie, thus provoking the resurgence of inflation… The Central Bank
must therefore, but not say it openly, tame the population by interest rate
increases, and explain their actions by saying that the growth witnessed is
not sustainable in the long term! Thus, growth is constantly paralyzed in
order to control inflation. The logical result is the deficient economy we
have witnessed during the last 25 years. Let us have a look at the
indicator board. The numbers tell the truth…
From 1945 to 1957, we have witnessed an economic growth qualified as
phenomenal, a period of both low inflation and low unemployment. From 1958
to 1966, the economy still prospers but we unfortunately question more and
more the efficiency of goverment interventions in the labour market, while
inflation is increasing at the end of the period, mainly because of the
beginning of the collective negociations for the employees in the public
sector. It was mainly the Keynesian model that was applied during these 22
years of spectacular growth.
I start the numbers in 1967 since it is the first year I have the
statistics on unemployment. To better see where the river flows, I present
annual averages for five year periods, except for the first eight year
period 1967-1974. We thus have a very neat macroeconomic view. The numbers
are in constant dollars of 2004, and are given « per canadian » in order to
see how we are all affected individually.
INDICATOR BOARD
PERIODS
1967
-1974
1975
-1979
1980
-1984
1985
-1989
1990
-1994
1995
-1999
2000
-2004
2604
3474
2823
2590
1278
789
(1245)
(1425)
(2110)
(344)
544
PERSONAL SAVING
$
1296
(all levels)
GOVERNMENT SAVING
$
544
UNEMPLOYMENT RATE
%
5,20
7,58
9,88
8,90
10,30
8,90
7,30
INFLATION RATE
%
5,20
8,88
8,70
4,30
2,78
1,28
2,44
BANK RATE
%
6,36
9,32
13,13
9,85
7,94
5,08
3,70
GDP VARIATION
%
2,84
2,43
1,13
2,50
(0,40)
2,68
1,99
21,6
23,7
25,1
26,5
28,4
29,9
31,3
POPULATION (millions)
(533)
These numbers come to the defense of Keynesianism which was judged for
being mainly responsible for the inflation problems of the 1960 and 1970
years. In those years, job creation was the first priority. Governments
were trying to do well their contra cyclical role, by interventions in the
economy, in order to maintain a full employment level. The unemployment
rate averaged 5,20% during the eight year period from 1967 to 1974
inclusively, even when we had a penalizing inflation rate at 5,20% and when
15
the Keynesian model was only partially applied. This unemployment rate at
5,20% which now seems very good, could therefore have been much better with
a consensus solution to eliminate inflation and with a better application
of the Keynesian model. At the time, critics came from everywhere saying
that we were living above our capacities, thus forcing governments to put
the brakes on their spending and investments. Those critics came from a
false macroeconomic vision of the economy. We were rather living below our
capacities, as measured by our work possibilities.
But first, let us examine the evolution of the Bank Rate as compared with
the Inflation Rate. During the 1967-1974 period which can be qualified as
normal, the Bank Rate exceeded the Inflation Rate by 1,16%. To understand
the impact that the Bank Rate may have on the economy, we must know that
the larger is the gap, the greater is the monetary restraint, in other
words, the brakes on the economic activity level or the pulling of the
bull’s tail. During the following period 1975-1979, the gap was only 0,44%
showing that the bank rate was having a certain difficulty in following the
ever increasing inflation rate. But the lesson was learned, both the foot
brakes and the hand brakes had to be used, to tame the human nature in its
quest for higher salaries… During the four following periods, the gaps were
4,43%, 5,55%, 5,16%, and 3,80%. We have thus pulled on the bull’s tail
during 20 years to stop him from going in the direction of inflation!!! We
then came back to a more normal monetary policy in 2000-2004 with a gap of
1,26%, which may explain the small progress realized during that period.
But during that period we can also see that we have let the bull go a
little more in the inflation direction, as it increases to 2,44%, while it
was only 1,28% in the previous period. That is why we must again have to
pull harder on the tail right now! In Canada, a sixth consecutive increase
of the Bank rate on April 25, 2006, places it at 4,00% with the Central
Bank giving the message that more increases are on the way. (In the United
States, a tenth consecutive increase on December 13, 2005, put their own
Rate at 4,25%). It is therefore not surprising to hear financial analysts
almost unanimously predict another slowing of the economic growth in 2006.
We have been living in this merciless environment during the last quarter
century! That is not the good recipe!!!
If we now look at our Governments (all levels) annual Savings, again given
in constant 2004 dollars, per canadian, it is stunning to see the evident
direct relation with the unemployment rate. This confirms the theory that
when governments play well their contra cyclical role, they will at the
same time solve their budget problems. With the glimpse of an eye, we can
see that an increase of 1% in the unemployment rate, increases the
government deficits in the order of 500$ per canadian. For the past 25
years the unemployment rate was over a 9% average. Can somebody please make
the count of what we have lost as compared with an easily attainable 5%
rate with the keynesian model in a consensus environment?
And we now come to our bottom line, the annual savings of each individual
in 2004 constant dollars. This yearly savings was at 1296$ during the 19671974, 8-year period. Pension fund contributions mainly started during that
period in the public sector. Yearly savings increased at 2604$ in the 19751979 period, where pension funds were generalized, for example in the
Quebec health sector. And another increase at 3474$ in the 1980-1984
period. As the theory has showed us, monetary restraints take a certain
lapse of time in producing their results, which are more than visible in
the following twenty years. Yearly savings were gradually reduced at 2823$,
2590$, 1278$ and finally at 789$. During those twenty years, pension funds
have again been generalized in the private sector, and other fiscal
instruments have been developed to encourage savings in view of retirement.
So, normally, the savings level should have been increased instead of
reduced.
16
The indicator board also shows us that it is not only the reduction in the
unemployment level that has contributed to solve the deficit situation in
the public sector. A good portion has been taken out of our pockets,
explaining a certain reduction in the personal saving level. So let us take
globally the two saving levels, which both belong to us canadians. The
totals for the seven periods of time respectively are : 1840$, 2071$,
2229$, 1398$, 480$, 934$ and 1333$.
Let us be conservative and accept the three first periods as they are and
simulate what would have happened if the other periods would have witnessed
a conservative increase of 200$ (40$ yearly). The four last periods would
have been 2430$, 2630$, 2830$ and 3030$ respectively. We would therefore
have lost the saving amounts of 1032$, 2150$, 1896$, and 1697$
respectively, or an average of 1694$ yearly for the 20-year period,
therefore a total saving of 33,880$ per canadian, not counting the compound
interests. For an average population of 29 millions for that period, the
canadian saving lost amounts to 1000$ billions. Since savings may represent
only 10% of Revenues, or of the volume of the circular flow, we have also
lost another 9000$ billions that could have been used for our expenses,
structures and infrastructures. A total loss of 10,000$ billions. For those
who may doubt the basics used here for the calculations, just think about
the public savings lost because of the higher than necessary 4%
unemployment rate and you will arrive at an even higher number, not
counting the other additional saving at the personal level.
I will not make the calculations by correcting the first three periods
which also need to be corrected because of the partially applied Keynesian
model. That would make me cry.
Here is another way to present the situation. The rough estimates will help
us to better understand the great importance of labour (re : the reduction
of the unemployment rate) in our collective well-being. During the 8-year
period 1967-1974, the unemployment rate varied in the range of 4% to 6%
even when the inflation rate was relatively high at 5,20%. With a social
consensus eliminating the « artificial » inflation, the unemployment rate
could have been reduced at 2%. On the rough estimate of 500$ yearly per
canadian for each percentage point of the unemployment rate, the public
surpluses could have been 1500$ higher each year for each canadian. And,
assuming the further respect of the consensus, the unemployment rate could
have been maintained at 2% up to this day. This means we may have been
penalized by 8-percentage points because of the real 10% average
unemployment rate during the 20-year period of 1980-1999. So, on top of the
many family dramas that may have occurred because of the unemployment
situations, we have lost in public surpluses (or increased deficits) an
amount of 4000$ yearly per canadian.
To put it again bluntly, before the advent of the rigid monetarist regime,
we could at least benefit from the great increases in our collective wellbeing during the periods when the economy was functioning at the upper
levels of the economic cycles, before falling back into recessions (or the
lower levels of the economic cycles). The monetarist system took 20 years
to lower the unemployment rate in the range of 7% to 8% after the passage
in the desert at 10%. This rigid system confines us permanently at the
lower level of the economic cycle. Poverty is the price that must be paid
for this very nice stability!!! A Keynesian system applied on the solid
foundation of a social consensus could bring us the same economic
stability, but at the upper economic level of a 2% unemployment rate. The
stability would be even greater since it would not be necessary anymore to
make the interest rates vary so much.
17
The indicator board should be convincing enough to make us change the
course. The recipe needs to be changed.
5- PERMANENT COMMISSION
Evidently we must act on the Revenues to control inflation. The first
simple little step that must be made is to pass a law interdicting the
« general » indexations of salaries and other revenues including pension
payments etc. The respect of the law would rid us completely of the
inflation problem. A Permanent Commission should be instituted in order to
assure the respect of the law.
And, by the way, why not also pass another law putting all strikes and
labour slow-downs illegal? Except for certain precise injustices such as
the too low minimum salary level, labour conditions in Canada are fairly
good. Labour unions cannot bring any more significant improvements for
their members. The timing is probably good to improve our way of doing
things. Strikes result in great pains for workers, employers and the
population in general. The responsibility could be given to the Permanent
Commission to arbitrate the cases where agreements cannot be reached. The
Commission should seek the well-being of all the workers and not only the
syndicated ones.
6- CONCLUSION
It is very important to understand that my proposition is not at all a
control on the real salaries and other revenues. These will be free to
evolve according to the real forces in place. Variations in the offer and
demand for individual goods and salaries are desirable if they are limited
to the real forces. This is an indication of an healthy economy. Only the
artificial inflation phenomenon will be eliminated, as well as the
corresponding artificial impact on the interest rates. A permanent law
interdicting the « general » indexation of salaries and other revenues
represents a solid anchor point on monetary value around which all the real
economic forces will be free to gravitate. This solid foundation will
permit to push on the keynesian accelerator to bring us very fast at the
maximum of our working capabilities, instead of having to drag the
unemployment burden of the monetary brakes. The new consensus will be
beneficial to both the workers and their employers. We need an healthy
right to permit the emancipation of the left. The only thing that will be
lost finally is the very temporary euphoria of receiving a « general »
salary increase which represents only an illusion since prices will again
have to be increased by the same percentage, a euphoria that will soon be
replaced by a miserable feeling. We do not really loose anything by freeing
ourselves from this institutionalized mania.
My principal message ends here. However, I would like to add that we should
orient our actions in order to eventually arrive as soon as possible at a
universal world currency. The poorer countries, unstable and more fragile,
would finally be able to greatly benefit from this monetary stability,
protected from the speculative assaults. Money, in the end, only represents
a mean of exchange. Everybody’s lives are mostly complicated uselessly
because of exchange rate variations caused by temporary pendulum effects
and speculation.
18
7- MATTERS WORTH CONSIDERING
Our ancestors worked hard to build this country and to give a certain
comfort to their children. Lands were cleared, railroads have been built
all across the rugged land, mainly with the help of the lever and the
wheel. Water was taken at the well, cows were milked by hand, land was
ploughed with the help of the horse. They became contractors or members of
parliament with a fourth year grade.
Today, with means and resources multiplied by 10, 100, and often by 1000 or
more, we have difficulties to maintain our roads properly, to replace our
obsolete infrastructures, and to provide decent dwellings for the poorer
layer of the population. Men of good will, in front of the deficient
economy tolerated by our governments, do not have the choice but to
intervene, by multiplying the food banks, clothes counters, telethons etc.
We are in the process of developing a society of beggars. It is
inconceivable to see Canada in such a desperate situation, while we have
enormous natural resources at our disposition.
If we would have followed the road traced by our ancestors, and found the
way to be more mutually responsible, we would today have many more well
entertained highways and express ways all across Canada, rapid trains
relying the principal cities, modern municipal infrastructures etc. Poverty
would practically have been eliminated in Canada and we certainly would be
in a stronger position to help reduce suffering in the rest of the world,
may it be only by our example…
We are at the maximum of our capacities? My eye!
8- SUMMARY
A critical analysis of the fundamental macroeconomic statistics of the last
quarter century clearly shows the ineffectiveness of our institutions in
the creation of an healthy economic environment. The problem was mainly
created when the responsibility to control inflation was given to the
central banks. In order to control inflation we need an unemployment rate
much higher than necessary, giving such a poverty situation that labour
unions will not push too hard for salary increases, the principal cause of
inflation, in front of the visible financial difficulties in the private
sector as well as for all the important choices confronting our public
administrations. The Bank of Canada has evaluated that « natural »
unemployment rate at the 7% and 8% range, and for a long time it was at 9%
when the reality was at that level… With the rate now approaching 6%,our
central bank is uneasy and we therefore have been witnessing regular
increases in the basic interest rates in order to cause a slowdown of the
economy and bring the unemployment rates at a more comfortable level… What
foolishness!
To thwart the criticism and remain in the driver’s seat, the Bank of Canada
has become an expert in hiding the reality by the choice of words and
distorted explanations. Our governments, reputed economists and even the
medias have entered the game, thus protecting the system in place. When it
is question of unemployment it is to say that at 6% it is at its lowest
level of the past 30 years. They clearly « forget » to mention that it was
often maintained at the 3% level in the 1950 and 1960 years. We should
rather be asking ourselves why the monetary instruments have taken 30 years
to arrive at only 6%! We often hear that we are at the maximum of our
economic activity level, evidently in order to not be bothered too much
about the unemployment aspect. They « forget » to mention that the real
maximum level must be determined by our work potential. Also, even if the
19
Bank of Canada has taken austerity measures to reduce inflation during the
last 30 years, we now seem to « forget » the first more disastrous 15 years
to concentrate the attention only on the last 15 ones where the economic
statistics have been improved and stabilized as compared to the first 15
years… Finally, governments are now very proud of their performance in the
reduction of our public indebtedness. They « forget » to say that the money
has been taken out of the pockets of taxpayers. For example, from 1977 to
1985 the real purchasing power has been reduced 3% and personal savings
have been gradually reduced up to 2006. Older public employees have been
laid off to give the place to younger ones, the governments benefitting
from the taxable pension revenues of the older ones and also from the
reduction of the unemployment and other welfare payments of the younger
ones, but, by the way reducing the personal savings level that is so
important for infrastructure and other needed investments.
Inflation is the public ennemy #1 in all economies. The priority was
rightly given to the employment situation during the 35 years from 1945 to
1980. That period gave us a very important economic growth and also
important personal savings with, at the beginning, very low inflation and
unemployment. But we began witnessing very important variations in the
economic cycle highs and lows. The periods of growth showing, important
reductions in the unemployment rates, budget surpluses in our public
administrations and interesting profits and investments in the private
sector. Everything was going very well, facilitating salary increases that
could be paid since prices and taxes could also be increased. The vicious
circle between salaries and prices was winding around an enlarging spiral.
In front of the increasing inflation rate, and with the tacit social
agreement to increase salaries to the cost of living, agreements have even
been reached to take into account in advance the future expected increases.
Agreements also took into account the new notion : the necessity to
participate in the collective wealth. Everything was in place for the rapid
descent, especially in front of important oil price increases, since higher
interest rates are also necessary in order to absorb the higher inflation
rates. We then could witness budget deficits in the public sector with an
increasing debt level, personal and business bankruptcies, the reduction in
personal savings, the reduction in public and private investments etc. Even
with these important variations in the economic cycles, the overall results
were more than interesting during those 35 years.
The source of the problem was our failure to understand and eliminate the
inflation phenomenon during the 1970 years. Unfortunately, the work of the
Commission to fight inflation in 1975-1976 did not give concrete results.
It seems that the Government of Canada and its central bank have been
influenced by the works of the american economist Milton Friedman who
received the 1976 Nobel prize. Thus, the monetary instrument was chosen to
fight inflation. To be successful the instrument has to prevent the economy
from being too healthy… We have thus been voluntarily maintained since then
at the bottom of the economic cycle…
It is very indirectly and with many years in the making that the monetary
instrument can influence what will happen at the salary or other income
levels. In fact, during the 3 years 1980, 1981 et 1982, inflation stayed
around 11%, even with an unemployment rate at the 11% and 12% level! Under
the public pressure the Government of Canada gave a greatly needed blow by
giving the targets for salary and revenue increases of 6% and 5% for the
1983 and 1984 years respectively. The results were immediate with the
inflation rates reduced at 5,7% in 1983 and at 4,4% in 1984. We can see
here the results of a policy aimed directly at the revenue level. This
should have opened the eyes of our politicians and economists.
20
Simple logic should guide us in the fundamental changes that are needed to
return to healthy economies freed of the inflation phenomenon. We do not
realize what the higher than necessary unemployment rate has cost us during
the last quarter century, not taking into account all the silent human
tragedies that were lived by all those out of work and their families, the
overflowing on welfare etc.
We must evidently act directly at the revenue level to control effectively
inflation. The first easy little step that must be made is to pass a law
interdicting « general » indexations of salaries and other revenues on a
permanent basis. The respect of this law would completely eliminate the
inflation phenomenon. A Permanent Commission should be instituted in order
to assure the respect of the law. The mission of the Bank of Canada should
be returned to its original one, the supply of money, no more and no less,
in order to assure the maximum employment level in the country. Our
governments could immediately start many needed investments, without any
more fears on the inflation front, in order to give work to everybody
without exception. The private sector would very soon be more activated and
interested, helping the economy to go at its maximal work potential. The
public sector would be responsible to maintain the work potential at its
maximal level. The new permanently low interest rates will greatly
facilitate long term planning for the public and private sectors as well as
for each citizen, opening the door to a new era of progress for our
democratic societies. Each passing day without the desired change prevents
us from eradicating more effectively world poverty and therefore delays de
propagation of prosperity and peace in the world.
9-REFERENCES
It is impossible for me to give other references than the seven books
mentioned in Chapter 2- TWO SCHOOLS OF THOUGHT. My opinion has started to
take shape as a student at the bachelor’s degree level. During a basic
course in economy, I raised my hand to ask the teacher, why we could not
find a certain consensus as a society, in order to stop the race between
Prices and Salaries, and thus eliminate the inflation problem? The answer
looked like : « It’s more complicated than that ». I was left on my
appetite. I have always been very interested in the books, magazine
articles, editorials etc. treating the macroeconomic aspects of the
economy, for example in the Financial Post, The Economist, etc. It is
therefore with great confidence and with the feeling of being responsible
that I am giving my opinions to the general public.
References
PAUL HELLYER, « EXIT INFLATION, 1981 », Nelson Canada Limited.
JOHN CORNWALL and WENDY MACLEAN, « ECONOMIC RECOVERY FOR Canada, 1984 »,
James Lorimer & Company, Publishers, in association with the Canadian
Institute for Economic Policy.
PAUL HELLYER, « JOBS FOR ALL, 1984 », Methuen Publications.
ALEX N. McLEOD, « THE FEARSOME DILEMMA, 1994 », The Mercury Press.
JOHN CORNWALL, « ECONOMIC BREAKDOWN & RECOVERY, 1994 », M.E. Sharpe.
C.D. HOWE INSTITUTE, « ZERO INFLATION, 1990 », Renouf Publishing Company
Limited.
C.D. HOWE INSTITUTE, « TAKING AIM, 1990 », Renouf Publishing Company
Limited.
21
In 1995, I had a good correspondance with Mister Alexander Norman McLeod,
Professor Emeritus in Economics at York University. He wrote to me :
« In my opinion you are 100 per cent right in your main theses… many people
have had the same experience that you report in getting anything published
in the news media that is critical of the conventional wisdom, several
times I have sent material to virtually every daily paper in Canada, with
at most one or two obscure papers printing them. I have tried some U.S. and
British papers and magazines too, and some Canadian magazines, so far
without much success… I think you have considerable more work to do in
order to tighten up your arguments… don’t be discouraged, and don’t give
up, you are on the right track! »
I also had a correspondance during many years with the then honorable Paul
T. Hellyer and also have been a founding member of the (CAP) Canadian
Action Party. (I resigned when I found out that the fight against inflation
and the monetary policy was not a high priority). Mr Hellyer wrote me in
1996 :
« Your analysis of the cause of contemporary inflation is quite correct.
It has been primarily due to wages rising faster than productivity. I first
warned the Liberal Party that the monopoly power of big labour and big
business could have this effect in a speech at Banff in 1961. But
unemployment was only 3% and inflation only 1% at the time so no one took
the warning seriously. Ten years later the problem was obvious even if the
solution wasn’t. I prepared an incomes policy –lignes directrices- in a
1971 book called AGENDA : A PLAN FOR ACTION. In 1980 another book called
EXIT INFLATION proposed the same thing but included a temporary wage-price
freeze because the situation had become more desparate then »
Here follows a selection of some very interesting
excerpts related to, social consensus, negotiated
negative effects of the monetary policies used to
confirming that I have not been the only one with
newspaper and magazine
restraints and the very
control inflation,
a different vision.
PIERRE DIONNE and RENÉ BLAIS in L’AVENIR of December 1991-January 1992 :
(translated) : SOCIAL CONTRACT : ILLUSION OR SOLUTION…
-we discover the existence of labor rights as jealously protected as those
of the managers…
-these reactions leave us perplexed and put in evidence that labor unions
and employers have confined themselves in two distinct worlds, difficult to
get out of…
-ARCHIER AND SÉRIEX can well preach for the mobilisation of the human
intelligence in a mutually shared project or enterprise, the actual state
of mind of the actors… appears as an obstacle, confirming the resistance to
change…
-the alternatives to this very permanent conflict, are only studied on the
angle, or fear, that the other party will be the beneficiary!…
-now, as long as power is at the center of the preoccupations, mutual trust
is absent! Both sides act as if they have their backs on the wall, while
total quality can only be reached with mutual respect, confidence and the
engagement of each side in a shared project…
-the paralysis puts it very difficult to reach a lasting social peace,
because it conveys the illusion that labor relations are inevitably
conflictual…
GREG IP in THE FINANCIAL POST of March 18, 1991.
-the Bank of Canada and Finance Department call the targets of 3% inflation
by the end of 1992, 2.5% by mid-1994 and 2% by the end of 1995 (it was 6.8%
in January) « realistic ». But the fine print in the budget explains why :
prolonged high unemployment is expected to be the price of reaching the
goals…
22
-to achieve its inflation targets without higher unemployment, the
government should have entered a « social consensus » with business and
labor to set wages compatible with low inflation, as Germany and Japan
have, Fortin argues
JORDAN BONFANTE in TIME of July 6, 1998.
-in the ‘50s and ‘60s the deutsche mark went on to serve as anchor of
Germany’s economic miracle… Germany was able to enjoy exceptional labor
harmony, avoid the wage-price spirals that were hobbling neighboring
economies… Unlike other countries we have no labor contracts linked to the
cost of living, no indexed social security…
JOHN KENNETH GALBRAITH in THE FINANCIAL POST of September 21, 1987. From
his address to the Liberal International Congress in Ottawa.
-with a sensible macroeconomic policy must go a system of negotiated
restraints in wage and price policy in the organized sector of the economy
as a primary weapon in the defence against inflation. This – a wage policy
that is consistent as to result with stable prices – is now commonplace in
Austria, Switzerland, Scandinavia, broadly in Germany and, needless to say,
in Japan…
JAMES D. VASOFF in CA MAGAZINE of March 1990. (retranslated). YOU ARE
HURTING US MR. CROW.
-here is the painful reality. It will not be possible to stop, or reduce,
the risk of austerity measures taken in the future by the central Bank and
its Governor if we continue our thoughtless behavior… This means that
managers, workers and government must cooperate in matters of salary
contracts…
JAMES D. VASOFF in CA MAGAZINE of September 1985. (retranslated). THE PRICE
OF INDEXATION.
-in my opinion, we have to eliminate indexation once and for all… Nonindexation would have shown us that all Canadians would benefit from the
lower inflation, since it would require lower interest rates, encourage
private investments, increase the employment level, give us a stronger
dollar, and reduce the deficit…
ALAIN DUBUC in LA PRESSE of August 18, 1991. (translated) THE TIME OF FULL
EMPLOYMENT.
-what a laborious exit from recession…
-the logic in our economy, is that as soon as inflation shows
us its nose, we let aside our employment priorities. Or worse, we
deliberately choose to provoke unemployment by increasing the interest
rates. And that is why Canada has experienced two severe recessions in the
last ten years, both recessions resulting directly from the high interest
rates…
-and where does concertation fit in the picture? Its a way to control
salaries, prices in enterprises…
-it works since many countries have thus been able to limit their
unemployment rates at 3 or 4%…
-simple logic commands a change of orientation…
GILBERT GRAND in LA PRESSE of July 8, 1989. (translated)
-in Yugoslavia, inflation evolves at an annual rate of 1500% and could even
reach 2000% if nothing is done to reverse the tendency, asserts professor
IVAN RIBNIKAR…
-our problems result from the fact that we are living in a totally indexed
economy (salaries, taxes, capital)…
-to stop this inflation spiral, we should immediately reverse the
indexation of salaries. But up to now, governments have not considered that
23
measure, evidently not very popular… however, sooner or later, it will have
to be done…
-the waltz of price tags has given birth to a new profession, the price tag
fixer…
-we are all millionaires now, Yugoslavians are saying with a smile, taking
out of their pockets, large bundles of paper money, whose value is
shrinking like snow in the sun…
-besides the galloping inflation, all the indicators are flashing red : an
exterior debt of more than 20$ billion US, a negative economic activity
trend, a more than 15% unemployment rate, a record european number of labor
strikes (2000 last year), drops in the purchasing power at a daily rate of
0,7%…
(PERSONAL NOTE : the same logic applies, may the inflation rate be 3% or
1500%!!!)
GÉRARD BÉRUBÉ in CA MAGAZINE of May 2001 THE IRISH MODEL (translated)
-Quebec does not have much to envy Ireland… Except for its 10% activity
increase and its unemployment rate at 4,1%…
-to achieve that, Ireland gambled (among other measures) on the reduction
of corporate taxes and on salary moderation based on a national accord on
salaries and income taxes…
JAMES D. VASOFF IN CA MAGAZINE of November 1982 CURB DOWN INFLATION
(retranslated)
-the 6 and 5% solution will only permit us to crawl…
-if we want to surpass the Americans, we need to make greater efforts, for
example 4 and 3%, 2 and 1% and even 0 and 0%…
JAMES D. VASOFF IN CA MAGAZINE of July 1982 (retranslated)
-if price and salary controls are not acceptable and if workers, employers
and governments are not capable of mutual confidence and cooperation, then
we are doomed to experience constant drops in our purchasing power…
ROBERT B. REICH IN TIME 100 of 1999 about the economist JOHN MAYNARD KEYNES
-in 1938 the Depression deepened. Reluctantly, Franklin D. Roosevelt
embraced the only new idea he hadn’t yet tried, that of the bewildering
British « mathematician. »
-the big surprise was just how productive America could be when given the
chance. Between 1939 and 1944, the nation’s output almost doubled, and
unemployment plummeted – from more than 17% to just over 1%. Never before
had an economic theory been so dramatically tested…
-it seemed to work exactly as Keynes predicted…
-America’s Employment Act of 1946 – the year Keynes died – codified the new
wisdom, making it « the continuing policy and responsibility of the Federal
Government… to promote maximum employment, production, and purchasing
power. »
-and so the Federal Government did, for the next quarter century. As the
U.S. economy boomed, the President became its Manager in Chief… « we are
all Keynesians now », RICHARD NIXON famously proclaimed…
-Americans still take for granted that Washington has responsibility for
steering the economy, although it’s now Federal Reserve Chairman Alan
Greenspan rather than the President who carries most of the responsibility…
(PERSONAL NOTE : This change should shed a light on the path we have to
come back to.)
KENNETH COURTIS in TIME of May 29, 2006 GO EASY ON THE BRAKES
-central banks in their determination to kill inflation before it happens
may already have tightened too much…
24
THE FINANCIAL POST of August 17, 1994
-unemployment cost $109 billions in 1993… representing $3,955.79 per
capita, said a study by economists DIANE BELLEMARE and LISE POULIN-SIMON…
saying in their report that society grossly underestimates the cost of
unemployment…
(PERSONAL NOTE : In 2006$, this represents $5000 per capita.)
ALAIN DUBUC in LA PRESSE of March 15, 1986 (translated), including a table
showing the evolution of our purchasing power from 1950 to 1985)
-the peak has been reached in 1977, when the index reached 204.4… (as
compared to 100 in 1950)…
-our purchasing power index has decreased 3% since 1977…
(PERSONAL NOTE : our purchasing power has more than doubled from 1950 to
1977, while it has decreased 3% from 1977 to 1985. Should’nt such an
important change over those long periods of time, turn on the lights?)
CLAUDE MASSON in CONTACT of Winter 1991 NOT IN MY BACKYARD! (translated)
-During the past few months, unemployment has been on the rise, as well as
the number of personal and commercial bankruptcies. These are the very
evident signs of the recession. But these results are coming from the
strong slow-down in business investments and consumer spending. Why this
slow-down? It is very probable that it is mainly coming from our very high
real interest rates…
CLAUDE PICHER in LA PRESSE of February 9, 1991 (translated) THE WORST IS
YET TO COME
-the situation, whatever the angle we choose to look at it, is dramatic. It
has been brought on directly by the high interest rates, practiced blindly
by the Bank of Canada…
-meanwhile we have to prepare ourselves for more unemployment increases.
Will it be as bad as the terrible recession we have experienced in 81-82,
when Quebec had lost 150,000 jobs in just a few months? It’s probable, but
it will be more insidious. The 81-82 recession was short and violent. The
one we are now experiencing since last April, is long and less brutal, but
more pernicious…
-THAT IS THE PRICE WE HAVE TO PAY FOR THE HORSE THERAPY OTTAWA IS USING IN
ORDER TO KILL THE VERY SMALL WORM OF INFLATION…
THE FINANCIAL POST of December 3, 1994 ONE RUNG AT A TIME
-a caricature shows Martin in very poor shape at the bottom of a ladder
holding the last rung in his hand and saying « BUT I’M HAPPY TO REPORT WE
HAVE VIRTUALLY ELIMINATED ALL INFLATION!…)
GREG IP in THE FINANCIAL POST of December 3, 1994 THE UNEMPLOYMENT RATE
FALLS AT 9,6%
-the Bank of Canada’s most recent published research shows the « natural »
rate of unemployment at 9%…
(PERSONAL NOTE : By establishing a high natural unemployment rate, the Bank
of Canada thus can impose more easily its austerity treatment…)
CHARLES KRAUTHAMMER in TIME of February 13, 2006 THE U.S. IS STILL #1
-from 1947 to 1973, U.S. productivity grew annually at an average
compounding 3% rate. For the next 20 years that rate was mysteriously cut
in half…
(PERSONAL NOTE : When will the light shine on this « mystery »?)
The last time I checked the canadian statistics in 2006, it was to discover
that our personal savings rate was negative!!! confirming again our chronic
economic illness. The economy is a very alive thing needing a less static
or accounting vision and also a less defensive play in order to finally be
25
able to cross the center red line and reach the goal. The beauty, abundance
and strength of nature tell us that poverty, a pure human creation, does
not have its place on this earth.
10-ABOUT THE AUTHOR
PATRICE BERNARD
1952-1958 Classical College of Rouyn, (boarder), for the first six years
from l’Élément to the Rhétorique incl.
1959-1961 Bachelor’s degree at the Faculty of Commerce of the Ottawa
University.
1961-1962 Apprenticeship at Samson, Bélair, Côté, Lacroix & ass., Chartered
Accountants in Montreal.
1963 Master’s degree in Accounting at the Faculty of Commerce of Laval
University.
1964 Member of The Institute of Chartered Accountants of Quebec.
1963-1967 Inspecter for the Provincial Income Tax Service in Montreal.
1967-1992 Director of Financial Resources at the Hôtel-Dieu d’Amos
Hospital.
Varied experiences : school commissioner four years, church administrator
three years, member and treasurer of the Club Richelieu d’Amos four years,
member, treasurer and delivery-man for the Popote Roulante d’Amos six
years, member of the choir of the Amos Cathedral since 1997.