Advocates for women and racial minorities talk about systemic bias in our society, and I think the average person says, “Well, maybe, but I don’t really see it.” Well, here’s a systemic bias that’s a little more obvious: the tendency for our boom-and-bust economy to offload the losses onto the poor and allow the rich to take advantage of the high times.
Like right now in hi-tech, the most obvious example. The market is cooling, and the first thing the employers do is lay off a few thousand workers. Pot growers likewise. How is this systemic? Because the businesses are structured with a sacrificial layer of workers that can be shed easily.
Take the logging industry, the one I am most familiar with. Logging companies are subject to the fluctuating demands of the building industry, Canada-US trade treaties, changing government regulations, weather, forest fires and many other factors. They too are structured to expand and contract rapidly. Most logging is done in remote areas, where workers have their roots in small towns. They don’t just pack up and leave during a downturn. They pull in their lifestyles and cope until they are rehired.
A prudent logging company buys an expensive piece of equipment during a boom, writes the purchase price off against high profits, claims the depreciation against income for the next few years, and then can afford to sell the depreciated machine or let it sit idle during a low swing of the economy. The driver is the only one who suffers a layoff he can’t afford, but he absorbs it because he has no choice.
But It’s Worse than That
This pattern is a major cause of inflation not often discussed. Because of the many years when companies are not making money, a boom time creates great pressure to make hay while the sun shines. They expand as rapidly as they can, pay bigger wages to make sure they get workers and raise prices because supplies of everything are scarce.
Which once again dumps the pain onto the poor, because the price of necessities like rent and food rise as well, and their wages do not keep up. One statistic I read recently had inflation running over 6 percent and recent wage increases at 4.5. And that’s the average. You can bet that the above-average raises were in the higher wage brackets where the workers were more needed.
Enter the Bank of Canada
The government has only one tool to control this cycle; they raise interest rates. This makes rapid expansion more expensive, and it works. Slowly. Of course, the booming industries are still making lots of cash. They can afford to pay the higher rates. It’s the people with mortgages that suffer. And the statistics after the latest interest hike indicate that jobs are still being created. Does this mean more hikes?
The Bottom Line
The biggest driver of the boom-and-bust economy is the stock market, a gambling system designed so that insiders make money as it goes up and also make money on the way down. In other words, a system that works best for the winners when it fluctuates. This means there is no impetus for the leaders to make changes. We need some genius to invent a way to fund business expansion that doesn’t involve so much speculation.
I’m not laying any bets on that happening soon.
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