My Statement At The House of Commons

On May 1, 2020, I was invited by The House of Commons Standing Committee on Finance to provide a statement on the government's response to the COVID-19 pandemic, here is what I said (transcript below):

A sampling of questions asked:

Transcript:

Before we talk about solutions, we need to understand the problem we’re trying to solve.  

The inflationary economic system we have relied on all of our lives is breaking down. Covid-19 is only amplifying the phase transition. 

 For some time - two opposing forces have been competing against each other. Moving in opposing directions. Those forces are 1) the exponentially deflationary aspect of technology and 2) an inflationary monetary policy trying to overcome it.  

 While we might not like those facts – it does not change them. 

 Technological advances are sweeping across society. They have been hugely beneficial. Your smartphone provides a compelling example. Invented only 13 years ago, it is no longer just a phone: It is your camera, virtual assistant, map, music device, flashlight, guitar tuner and hundreds of other applications that you pay very little for or get for free. More for less - and every year it gets better. That is the nature of technology. 

 As technology accelerates across every industry, we can expect the same type of step change in performance versus cost everywhere. Automotive, agriculture, energy, health care, it doesn’t matter. It will reshape them all and, in so doing, provide far better outcomes for society at a drastically reduced price. 

 If technology makes everything cheaper and more abundant, and it’s moving into every industry, it is logical to assume that prices should go down and society should enjoy increasing benefits everywhere. 

The problem in the transition is that deflationary pressure makes debt hard to pay back. As a consequence - current economic dogma has us on a growth and inflation trajectory at all costs. 

In a desperate effort to achieve growth and inflation in the face of a structural change brought to us by technology, Central Banks – through artificially low interest rates and monetary policy have only added more pain. Incentives designed to make cash less valuable and encourage spending do just that. In doing so, they also discourage savings and encourage individuals and companies take on additional debt and risk. 

 Because of that, debt is being added at a rate that is hard to comprehend. Since 2000, the world added US$185 trillion of debt to achieve US$46 trillion of global growth per year. Each year adding more debt to achieve smaller growth rates as technology pushes the other way. 

This was before our current crisis, which has seen an explosive rise in debt while the economy shrinks. In itself, that debt burden must slow growth in the future because taxes will need to go up on the range of industries and households that will have to pay for it.

 Because the debt has grown so large, Central banks and governments continually bail out the existing system – not by desire, but out of fear that letting the system fail and go through a disorderly unwind is the worse alternative in a set of bad choices. By doing so, society is forced to run on a treadmill – requiring more work to support ever-higher prices, which have themselves been inflated through monetary easing, artificially low interest rates, and bailouts. The devasting irony of bailouts is that it “artificially” keeps prices high. The government then needs to allocate more in social programs for those left behind by the same high prices that they created in the first place. 

For the wealthy and those with assets that are artificially boosted by this leverage, it has played out well. Assets, including real estate and stocks, are the beneficiaries, having run up in value far beyond what they would have been without the easing. For every person on the winning side of those decisions, there are many others on the losing side. Their costs of food, shelter, gas, and education are rising because of policies designed to make their cash and wages less valuable. 

Paradoxically, Covid-19 is actually speeding up the adoption of technology and driving the trend to lower prices faster. Technology companies are the beneficiaries. Consider just one example - Zoom going from 10 million users to 300 million users in just over 3 months. 

Those additional 290 million people “might” not occupy the same amount of commercial real estate on the other side of this pandemic. If that happens, real estate prices would fall – as would rents – creating additional deflationary pressure. 

So – we stand at a crossroads similar to the one we had in 2008 - only bigger, with calls for massive bailouts of taxpayer money to save the same system that was so clearly failing in the first place. 

Policy response is required and justified - but we need a new set of rules. One that starts with a far deeper understanding of the risks in using the same playbook that worked for a different time.  

By understanding the key structural change that technology has enabled, Government can step in and provide a transition to a very bright future for all Canadians. Not doing so is analogous to Kodak trying to retain their film business while competing against digital cameras or Blockbuster adding candy isles to their stores to counter Netflix. Massive money will be wasted, and it will fail regardless. 

If that happens more people, in the end, will be hurt.

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I dive deeper into this situation: how we got here, where we’re set to go from here, and what we can do about it in my new book entitled The Price of Tomorrow, Why Deflation is Key to an Abundant Future. Prepare to be challenged. 

Available now in all formats on Amazon: thepriceoftomorrow.com/amazon.