Canadian leftist economists go off the rails

Canada's slow moving train wreck reflects their bias towards leftist ideology

I rarely listen to anything on the CBC since it is a Liberal government propaganda machine more than a news medium, but I did spend a few minutes on YouTube listening to a CBC panel discuss the federal budget. The panel included Armine Yalnizian, Jimmy Jean and Sahir Khan. Jimmy Jean and Sahir Khan made sense. Yalnizian did not.

Yalnizian is a brilliant economist but sees the world through the lens of organized labour and her own socialist ideology, and despite her competence cannot shed the view that government is a better source of the money needed to build homes in Canada than the public. She argues that government can borrow at lower rates than individuals and that makes them the logical choice for funding for homebuilding, despite homebuilding being within Provincial jurisdiction, and supports the billions of dollars Ottawa is directing towards expansion of homebuilding. She calls it a “home run” budget, particularly for renters and to a certain extent for homeowners, rationalizing the outlays based on the budget planning to lend money rather than spend money and as she says, the government will get it back.

So lets dig in. Government is going to borrow the money from whom?

Either from Canadians who are financially strapped, from their pension plans or corporations or from abroad. Borrowing from individuals reduces the money they have to spend by the amount they have loaned government, so that seems a bit circular. Borrowing from pension plans reduces the returns those plans earn on behalf of pensioners, ultimately at the cost of lower pensions. Corporations saddled with higher taxes and in need of capital to invest in programs to improve productivity are an unlikely source of the money, and with Trudeau’s toxic policies that attack Canadian businesses in the resource sector (particulary oil & gas) and the unsustainable level of our public debt, foreign lenders can find better places to invest. The weakness of the Canadian dollar, which I suspect will worsen, is a headwind for government to attract foreign capital.

About 40% of Canada’s $2.2 trillion of debt is held by the Bank of Canada, the legacy of quantitative easing (QE) and this needs to be unwound, not expanded. When the Bank of Canada buys debt, it increases the monetary supply which ultimately contributes to inflation. Yalnizian’s claim that the government is the logical borrower ignores the question of who will be the logical lender and how will the loans ultimately be repaid.

About $100 billion of the $520 billion budget is support for the elderly (I am one of them) and this cost is sure to grow faster than GDP as the boomers keep aging and their health care needs increase. Economist Paul Kershaw (founder of Generation Squeeze) argues that the rise in housing costs is a transfer of wealth to the older generation that benefits from the decline in the value of money by realizing a higher price for the homes they own (mostly mortgage free) having been wise enough to buy those homes decades ago. So which is it? Are the elderly unsustainably rich or are they desperately in need of billions of public support?

The rise in housing prices is a direct result of leftist policies that created artificially low interest rates, ran massive deficits, and suppressed both oil & gas production and home building with needless regulations, often based on the pretense that CO2 causes climate change, an absurd theory inconsistent with laws of physics.

Canada has at least 1 billion acres of undeveloped land. While land can be bought and sold between Canadians as a group, land is not an economic cost to homebuilding since we already own it. Building costs have not risen as much as leftist leaders would have you believe. In 2019, the year voters returned Trudeau to keep him in office, homebuilding costs in major centres ranged from $125 to $215 per square foot (excluding custom homes where wealthy Canadians spend whatever they want for their dream home).

In 2024, those costs were not much higher for wood framed residential units.

Source: Altus Group Construction Cost Guides 2019 and 2024

The high costs of housing did not arise from higher construction costs but from over-regulation, municipal corruption and outright stupidity in the halls of power in legislatures, cities and towns. Simply de-regulating housing except for the application of a building code for reasons of safety would see a rapid rise in new homes, particularly if the promised federal funds were used in their entirety to develop serviced lands rather than squandered on “pork” to attract votes for Liberals.

Yalnizian’s enthusiasm for legislation to protect renters ignores the effect those laws will have on landlords. If renters pay less, landlords get less. Why build rental units if the returns are lower than those on U.S. treasuries? The average rent in Canada is $2,218 per month or about $27,000 per year. The average home price is $685,000 with much higher prices in the GTA and GVA. If homes were rented on a net-net basis with tenants responsible for property taxes, maintenance and all other costs, the return to a landlord would be 3.9%. U.S. treasuries yield over 4% at all maturities over one year.

Attacking landlords is typical since landlords are cannon fodder for leftist ideologues, similar to attacking the rich and “greedy” corporations. Landlords make rental units available, earn damn little for doing so, and don’t warrant the attack. The rich build the country by providing the leadership and funding for the capital needed to build the economy, and already pay more than half (about 61%) of all taxes collected by Canadian governments. Corporate returns on equity have not increased materially over the past fifty years and comprise the income that benefits the pension funds that hold the shares of those that are public. Attacks on corporate profits are stealth attacks on Canadian pensions. Higher corporate taxes are inflationary since the higher taxes manifest themselves in higher prices as corporations pass them on to protect the returns they need to exist.

Yalnizian is what I often call a “climate nutter” since she is outspoken about her views that climate change is an existential threat and clearly did not include any study of the laws of physics in her advanced education or she would realize that CO2 is not only harmless with no material impact on climate but also essential to life on Earth. It is almost trivial to apply radiative physics to demonstrate that rising CO2 has no material effect on global temperatures.

I have always found Yarmine Yalnizian well spoken, well-prepared and often brilliant in her public speaking, but she is on the wrong track. It would benefit her and us if she took a more objective view of how the Canadian economy actually works, stopped thinking people can be controlled like chess pieces, and recognized that everything you take from someone who has earned it and give to someone who has not punishes motivation for both. She could apply her considerable talents to building Canada rather thant tearing it down.