phoenix80
Banned
http://www.aei.org/publications/pubID.26851,filter.all/pub_detail.asp
It's the 1970s All Over Again--Except For
By David Frum Posted: Monday, September 24, 2007
ARTICLES National Post (Canada) Publication Date: September 22, 2007
Resident Fellow
David Frum
"Freedom costs a buck oh five," goes the song from Team America--and soon, maybe, will a Canadian dollar.
For the first time since the middle 1970s, the value of a Canadian loonie has surpassed that of the once mighty U.S. greenback. Thirty years! Think how long ago that was!
Back then, the United States was entangled in a protracted guerilla war on the other side of the world. Inflationary pressures were gathering because the U.S. government had refused to cut back domestic spending to finance its war. Rising oil prices were emboldening Arab regimes and enriching thug rulers from Moscow to Nigeria. Mmm. I suppose it really is true that the more things change, the more they stay the same.
Today, nobody much doubts that the free-enterprise system works very well.
On the other hand, some things genuinely do change.
In the 1970s, the developed world was just welcoming the baby boomers into the job market. The economy had to grow fast to
accommodate all these newcomers. Governments frightened of unemployment were strongly tempted to inflate their economies: It was more politically dangerous to anger (the numerous) young job-seekers than (the relatively few) older savers.
Today, those demographic realities have reversed themselves everywhere, and especially in Europe and Japan. That's the only way to make sense of the otherwise bizarre behaviour of the European monetary authorities. Unemployment was shockingly high to begin with everywhere from Portugal to Poland. Now, the rise of the Euro against the U.S. dollar threatens to drive European unemployment rates even higher.
With the Euro reaching an all-time high of US$1.40, everything from Spanish wines to French avionics looks radically more expensive than its U.S.-made competition. Look for Airbus, BMW, Chateaneuf-de-Pape, Dansk tableware and everything through to Zegna leisure ware to lose market share to American-made goods and services. That means still higher unemployment for Europe--and continuing robust job growth in the United States.
Under those circumstances, you might expect the European Central Bank to be cutting interest rates. You would be wrong. The ECB has raised interest rates eight times since December, 2005--and its only reaction to this week's Euro-zoom was to muse that it might forgo an expected ninth increase.
A continent of old savers is much more concerned to squelch any possible risk of inflation than to generate jobs and employment.
Here's another thing that has changed. Back in the 1970s, inflation seemed to be the consequence of the failure of capitalism.
Thoughtful people worried that we had reached "the limits of growth," the point at which the world would begin running out of natural resources. Prime minister Pierre Trudeau warned Canadians, most notoriously in his Dec. 28, 1975, end of year interview: "We haven't been able to make it work, the free enterprise system."
Today, nobody much doubts that the free-enterprise system works very well. Once-communist China and formerly-autarchic India have rejoined the world market --and are bidding up the price of commodities from feed grain to nickel to oil.
Canada, which produces many of the things that crowded China and India most desperately need, is a beneficiary of this new demand. The U.S. dollar is indirectly a casualty.
A third change. Back in the 1970s, many people imagined that the changes that had come to the world economy were permanent.
Commodity prices had risen high--and they must therefore always remain high. Oil seemed scarce, so we had better accustom ourselves to permanent shortages. The U.S. economy seemed troubled--therefore it must be Japan's turn to become "number one" (to borrow the title of a best-seller of 1979).
Today, with the wisdom of experience, we understand: No market condition lasts forever. High commodity prices curb demand, call forth new supply, and promote substitution--thus leading to low prices. Today's oil shortage is the prelude to tomorrow's oil glut. The low-dollar/ high-Euro of 2007 will in time give way to the high-dollar/low-euro of . . . ? Well if I knew that, I would be calling my broker not writing newspaper columns.
It's all a cycle--but a positive one, not a vicious one. We're witnessing the continuous process of adaptation that responds to new challenges with new innovation and adaptation. And we're witnessing something else too: a great opportunity for holders of Canadian assets to diversify out of their small, ice-bound marketplace into opportunities elsewhere. Pierre Trudeau was (as usual) utterly wrong: Canadians have made their free-enterprise system work splendidly. And now it is time to put that most fundamental of all free-enterprise rules to work: Sell high--buy low.
David Frum is a resident fellow at AEI.
It's the 1970s All Over Again--Except For
By David Frum Posted: Monday, September 24, 2007
ARTICLES National Post (Canada) Publication Date: September 22, 2007
Resident Fellow
David Frum
"Freedom costs a buck oh five," goes the song from Team America--and soon, maybe, will a Canadian dollar.
For the first time since the middle 1970s, the value of a Canadian loonie has surpassed that of the once mighty U.S. greenback. Thirty years! Think how long ago that was!
Back then, the United States was entangled in a protracted guerilla war on the other side of the world. Inflationary pressures were gathering because the U.S. government had refused to cut back domestic spending to finance its war. Rising oil prices were emboldening Arab regimes and enriching thug rulers from Moscow to Nigeria. Mmm. I suppose it really is true that the more things change, the more they stay the same.
Today, nobody much doubts that the free-enterprise system works very well.
On the other hand, some things genuinely do change.
In the 1970s, the developed world was just welcoming the baby boomers into the job market. The economy had to grow fast to
accommodate all these newcomers. Governments frightened of unemployment were strongly tempted to inflate their economies: It was more politically dangerous to anger (the numerous) young job-seekers than (the relatively few) older savers.
Today, those demographic realities have reversed themselves everywhere, and especially in Europe and Japan. That's the only way to make sense of the otherwise bizarre behaviour of the European monetary authorities. Unemployment was shockingly high to begin with everywhere from Portugal to Poland. Now, the rise of the Euro against the U.S. dollar threatens to drive European unemployment rates even higher.
With the Euro reaching an all-time high of US$1.40, everything from Spanish wines to French avionics looks radically more expensive than its U.S.-made competition. Look for Airbus, BMW, Chateaneuf-de-Pape, Dansk tableware and everything through to Zegna leisure ware to lose market share to American-made goods and services. That means still higher unemployment for Europe--and continuing robust job growth in the United States.
Under those circumstances, you might expect the European Central Bank to be cutting interest rates. You would be wrong. The ECB has raised interest rates eight times since December, 2005--and its only reaction to this week's Euro-zoom was to muse that it might forgo an expected ninth increase.
A continent of old savers is much more concerned to squelch any possible risk of inflation than to generate jobs and employment.
Here's another thing that has changed. Back in the 1970s, inflation seemed to be the consequence of the failure of capitalism.
Thoughtful people worried that we had reached "the limits of growth," the point at which the world would begin running out of natural resources. Prime minister Pierre Trudeau warned Canadians, most notoriously in his Dec. 28, 1975, end of year interview: "We haven't been able to make it work, the free enterprise system."
Today, nobody much doubts that the free-enterprise system works very well. Once-communist China and formerly-autarchic India have rejoined the world market --and are bidding up the price of commodities from feed grain to nickel to oil.
Canada, which produces many of the things that crowded China and India most desperately need, is a beneficiary of this new demand. The U.S. dollar is indirectly a casualty.
A third change. Back in the 1970s, many people imagined that the changes that had come to the world economy were permanent.
Commodity prices had risen high--and they must therefore always remain high. Oil seemed scarce, so we had better accustom ourselves to permanent shortages. The U.S. economy seemed troubled--therefore it must be Japan's turn to become "number one" (to borrow the title of a best-seller of 1979).
Today, with the wisdom of experience, we understand: No market condition lasts forever. High commodity prices curb demand, call forth new supply, and promote substitution--thus leading to low prices. Today's oil shortage is the prelude to tomorrow's oil glut. The low-dollar/ high-Euro of 2007 will in time give way to the high-dollar/low-euro of . . . ? Well if I knew that, I would be calling my broker not writing newspaper columns.
It's all a cycle--but a positive one, not a vicious one. We're witnessing the continuous process of adaptation that responds to new challenges with new innovation and adaptation. And we're witnessing something else too: a great opportunity for holders of Canadian assets to diversify out of their small, ice-bound marketplace into opportunities elsewhere. Pierre Trudeau was (as usual) utterly wrong: Canadians have made their free-enterprise system work splendidly. And now it is time to put that most fundamental of all free-enterprise rules to work: Sell high--buy low.
David Frum is a resident fellow at AEI.
