Mark Carney’s Zero-Sum Game

Mark Carney’s Zero-Sum Game
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Mark Carney’s recent speech to the Canadian Auto Workers union was quite revealing of the prevailing misunderstanding much of the public still has with simple economic reason.  As Governor of the Bank of Canada, Carney went before the autoworkers in an attempt to ease growing resentment from the Canadian dollar’s recent surge.  According to the Globe and Mail, manufacturing workers have been feeling the sting especially as their labor has lost its competitive edge internationally.  With ongoing negotiations between the workers’ union and the big three auto companies in America, Carney’s allowance of the loonie to appreciate is being heavily criticized.  During his speech, Carney attempted to deflect blame for the workers’ plight and lectured on the need to improve their specialized craftsmanship.  He shifted responsibility for weak economic growth on corporations hoarding cash while not once acknowledging the role government plays in threatening profit motive with costly regulation.  The attack was also disingenuous as Peter Foster points out in the Financial Post:

According to StatsCan, non-financial enterprises’ cash and short-term deposits did indeed rise by about 25% between 2008 and the first quarter of 2012, to $280 billion, but this figure, and the reasons for the increase, have to be put in perspective. This increase means that cash increased as a share of total assets 6.9% to 7.6%, hardly dramatic. When it comes to implications of non-investment, net capital assets in fact increased by $241 billion between 2008 and 2012 — four times as much as the alleged cash pile.

Carney’s condemnation of cash hoarding reveals not just his penchant for thinking that he knows what is best for an economy composed of millions of individuals, but also his belief that markets can be harmful to some instead of beneficial for all.  Carney’s view is far from unique but nonetheless wrong; the state, with its plethora of agencies and forcefully acquired privileges, disrupts the otherwise free and mutually satisfactory actions of people.

Central banking, like all government intervention, is a game where all sums equal zero.  Carney spoke to the autoworkers specifically because his strong loonie policy was directly affecting their competitiveness.  Prior negotiations between the workers’ union and the big three auto manufactures occurred when one Canadian dollar bought only 80 U.S. cents.  This exchange made the workers more appealing since their labor is cheaper when paid for with American dollars.  Industries which specialize in exports also benefit from inflationist policies as goods produced domestically can be purchase relatively cheaper around the world.  To the factory worker who produces goods sold abroad, money printing is a boon as his skills become more in demand.  But, like all economic issues, this is only one side of the coin.  Inflation has a positive effect for some but a negative effect for all.  Common sense says that as something becomes more abundant, it is demanded less and thus sells for less on the market as human needs become more satisfied.  Money is no different; its purchasing power is based on individual subjective valuations.  When the Canadian dollar is in high demand, as it is now as a consequence of the country’s ongoing commodity boom, this raises its asking price.  When a majority of people are shedding their holdings of Canadian dollars, the price lowers and it purchases fewer goods.  A deliberate cheap loonie policy might benefit exporters but it comes at the expense of all consumers who conduct business in the currency.  In short, all Canadians are worse off when the loonie is suppressed; including those manufacturing workers who are in a better position to sell their goods to foreign buyers but have to pay the price of a loss in purchasing power at home.

The inflationist mindset held by Carney, the Globe and Mail, and a great number of thinkers is rooted in Keynesian theory.  In their reactionary view, nominal value is what matters.  Yet this ignores real value which isn’t so immediate.  A laborer may have his wages cut by 10% but if the currency in which he is paid in increases in value by 20%, his real income has increased.  He may be getting less income but it buys more goods and services.  As Henry Hazlitt wrote in The Failure of the New Economics, “what counts in economics is only value productivity.”  Workers who refuse to have their nominal wages cut in the face of falling prices as a result of an appreciating currency are in a sense asking for a raise despite their productivity remaining unchanged.  This puts strain on business which must close its doors eventually if profits can’t be earned and reinvested.  What was once a mutual partnership between worker and manager is turned into a pointless battle which creates unproductive tension.

Centralize authority translates into picking winners and losers because it necessarily interferes with the voluntary interactions of people.  In a society where individuals are free to produce and transact, exchange is mutually beneficial as both parties see themselves as better off.  As economist Jesus Huerta de Soto writes, the capitalist system of private property and free exchange “generates prosperity, increases the population, and furthers the quantitative and qualitative advancement of civilization.”  Contrary to Marx and his followers, the free market is a positive sum game; not based on exploitation.

State intervention distorts this process as those who use government decree to forcefully distribute resources have little persuasion to do so efficiently outside of securing their political ends.  In the market system, buyers and sellers cooperate to improve their lot.  In central planning, those in charge aren’t hindered by someone not being satisfied by their decision.  Through the violent taking of resources, a loser is created for every winner because someone is denied his or her inborn right to use their property as they see fit.

The speech before the autoworkers union is demonstrative of the tug-of-war that central planning creates within society.  Instead of mutual effort, the coercive hand of the state is lobbied by various interest groups.  For unions, it means forcing employers to meet at the negotiating table.  To big business, government regulation can be used to put fiscal stress on small-time competitors.  For a banking industry built upon the continuous pyramiding of credit, it means having the guarantee of money printing to back up its business of maturity mismatching through borrowing short and lending long.  Each of these practices not only violates moral principles; they would never survive on a free market.

Taken to its furthest extent, the social fabric becomes torn and shredded as the authority of planners grows.  It is a dangerous trend where the end result is misery and economic collapse.

As long as the Bank of Canada maintains its monopoly over the creation of Canadian dollars, it will remain the target of special interests looking for an advantage.  Investment that could be made on capital improvements is funneled toward political causes instead.  In a society where the production of an invaluable commodity like money lies in the hands of the state, the ruling class remains the victor.  Everyone else tries to limit the pain; never fully ridding themselves of it.

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  • Jerry

    If our CDN dollar goes down, in effect what is happening is it's a discount to anyone holding a different currency. Markets are fluld. Overtime prices in terms of CDN dollars will rise to reflect the cheaper dollar. Canadians will have to pay more for the same item than they did previous. Certainly the favored group will benefit from such a policy, but most Canadians will be affected negatively. It's a fools game.

    If the argument for a cheaper dollar was valid, why stop at a small devaluation? Drop it even more. Why not zero? Even the least informed would recognize that's a no win situation.

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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