By Stephen Johnston
July 13, 2024
Excerpt from article:
Canada has a stagflation problem. It has for years, and we have been ignoring it.
What is stagflation? Stagflation happens when there is below trend growth and above trend inflation that drives stagnant or declining real GDP per capita.
Why should you care? An extended period of stagflation tends to disproportionately harm the middle class via socioeconomic barbell effects. The phrase socioeconomic barbell describes a structure where there is a pronounced and increasing number of members of society at the ends of the economic spectrum: the high and the low income, combined with a diminishing middle class.
Why does Canada have a stagflation problem? Simply put, Canada has for decades violated the three axioms of per capita growth:
- Capital formation drives growth: Economies that inhibit capital formation have declining standards of living. Economies that prohibit capital formation have poverty.
- Savings drive growth: Savings are the sole source of capital in an economy. Canadians have low savings rates and disproportionately spend savings on consumption goods rather than investing in production goods.
- Investment drives growth: To ensure future prosperity, you must produce and invest more than you consume. Canadians consume much more than they produce or invest.