On July 13th, the Bank of Canada began to tighten monetary policy, arguing that the economy would be operating at full capacity by the end of this year. This action was guided more by the economic dogma of a “natural” unemployment rate crafted by Milton Friedman back in the 1970s than by hard evidence of a looming increase in inflation.
Due to the strong lobbying efforts of labour and social activists, Canada's minimum wage floor is rising significantly from the current level of between $11 and $12 per hour depending upon the province. A new norm of $15 per hour will be in place, in Alberta by October, 2018, in Ontario by January, 2019, and very likely in British Columbia under the terms of the NDP-Green Party agreement.
Global Affairs Canada is conducting public consultations on a possible Canada-China Free Trade Agreement. Based on the record since China joined the World Trade Organization in 2001, further liberalization of trade and investment on the current model would not benefit most Canadians.
Following the ground breaking work of Branko Milanovic at the World Bank, economists increasingly accept that the rules of the liberal global economy have produced both winners and losers. The big winners have been the top one percent around the world who have benefited from a global rise in corporate profits and senior executive incomes and, to a degree, workers in developing countries who have enjoyed rising real wages.
It is now three months into the Presidency of Donald Trump, and policy makers around the world are still unsure how to respond to the new administration's challenge to the liberal global order and the looming threat of “America First” trade policies.
Economics textbooks generally begin with a simple model in which prices of goods and services are determined by supply and demand in competitive markets and firms are “price-takers.” Yet it is much closer to reality to view the world we live in as one in which a handful of very large companies dominate most markets and have the power to administer prices so as to earn well above average profits or “rents.”
While Canadians are understandably focused on what the election of President Trump means for our bilateral trading relationship and the future of NAFTA, a much bigger issue for the global economy is the pending clash between the United States and China.
The major challenge for the federal government in the budget was to maintain its commitment to progressive social and economic policies in the face of criticism from the right for its supposedly profligate fiscal policies and unwise promises to make the tax system more progressive. The government was also urged to trim its sails in the face of pending tax cuts in the United States.
Donald Trump’s ascension to the US presidency is being hailed by some as the end of globalization as we have come to know it in the last four decades. Others see in Trump’s electoral victory the end of neoliberal economic policy, which promoted free trade and free markets, and limited the scope of government. But German sociologist Wolfgang Streeck discerns in the demise both of globalization and neoliberalism the end of capitalism itself, at least the variety of capitalism that exists in North America and Western Europe.
Special tax treatment of dividend income costs a lot in terms of foregone government revenues, mainly benefits the very affluent, and thus merits serious re-consideration as part of the federal government's current review of tax expenditures.