What Canadians Believe, But Shouldn't, About Their Economy: 26 Economic Myths
Don Mills, Ontario: Addison-Wesley Publishers, 1993, 190 pp., $16.95
What Canadians Believe, But Shouldn't, About Their Economy. With that provocative title, economist and freelance writer Patrick Luciani leaps into an insightful and imaginative exploration of our economic myths. Since many of Luciani's "myths" are sacred cows for either the left or the right, this compact book never fails to challenge the reader's public policy opinions.
The past 20 years have seen economic discussions jump to the fore of our national debates. Witness, for example, the two free trade debates, our current parliamentary finger pointing over interest rate blame, or the close media scrutiny of prime rate wiggles and debt forecasts. Unfortunately, few readable books have been written to introduce Canadians to the general nuts and bolts of our economic foundations. When the level of national economic discourse in a nation is typified by a Prime Minister stating "that trucks moving in the streets will cause people to spend," Canadians should be concerned.
What Canadians Believe consists of 26 crisply written chapters designed to probe the facts and theories behind our most common economic debates. The author's goal is to enable general readers to sharpen their focus and understanding of public policy issues (while he attempts to clear a few mental cobwebs from our minds!). Each brief chapter provides a concise overview with current analysis. Luciani writes in a lucid manner, sprinkling each chapter with clear examples. One of the book's strengths is the author's impartial treatment of who wins and loses when certain public policy pathways are taken. From the rent-control fans on the left to the debt-is-disastrous types on the right, the author has a well-thought out alternative. . The following is a sample of some of the more common myths touched on by Luciani.
Buying Canadian creates more jobs: "When unions and industry appeal to your sense of nationalism on the grounds that it protects jobs, it's time for consumers to watch their wallets." This is perhaps the most difficult economic fallacy to detach people from because most people do not realize that trade is generally managed, with imports and exports balancing each other out. In addition, Luciani attempts to explain how tariffs are an expensive method of redistributing income from one sector to another, and illustrates his point with the sad decline of Argentina this century.
Quebec can separate costlessly: Luciani identifies and comments upon two key assumptions in the Parti Quebecois line of thought. First, Quebec will be accepted into NAFTA and GATT. Quebec's unique form of state capitalism and disproportionate agricultural quota allotment is tolerated within confederation as a necessary evil, but the United States is likely to take a dim view of Quebec's policies if they become a sovereign nation. Second, Parizeau has steadfastly maintained that a sovereign Quebec will use the Canadian dollar. Yet this would "allow the rest of Canada to unilaterally determine interest rates, money supply, and ultimately prices, output and employment. Quebec may have freedom, but without independence." Luciani concludes that separation will have negative repercussions for all of Canada, but particularly for Quebec, citing the staggering debt levels it will have to contend with.
Rent controls are good: "Next to bombing, rent controls can best destroy a city's rental housing." Luciani dissects Ontario's disastrous attempts to create affordable housing via the public trough. Like the European experience, rental shortages, costs, and bureaucracy have ballooned. He suggests combining a means-tested voucher system with the free market.
The national debt is a burden: "We owe it to ourselves." After making good sense on the relative size of the debt, Luciani falls all over himself to assure us our debt load is no problem. His crucial assumption is that government borrowing is not causing a reduction in private investment. Yet total government borrowing is consuming half of all our domestic savings each year. This growing appetite is crowding out private sector investment as it drives up the cost of borrowing.
We need a lower dollar to be competitive: "There are no quick remedies, such as getting rich by depreciating a nation's currency. The Japanese and Germans relied on product innovation to improve their productivity and competitiveness." The author correctly warns our politicians against this apparent economic remedy (i.e., devaluation), noting that it leads to more inflation (via imports) and stagnant industries over the long haul. Also, there is nothing stopping nations from responding in kind or closing their trade borders.
- Economists always disagree: On this lone issue the entire nation would agree, but the author does his best in trying to convince us otherwise!
What Canadians Believe succeeds admirably on nearly all fronts and is an excellent read for anyone with an interest in the intense socio-economic debates being conducted in our wobbly nation. So if you intend to argue about economics with your friends over a coffee sometime soon, spend an evening first with this book.