By Dian Cohen
So the headlines say “INFLATION!” Indeed, the authorities in both Canada and the US are saying “transitory” less and less. But behind the headlines think about how we got here. We got here because COVID shifted a 40-year consumer trend. The 1970s saw the acceleration of consumer spending away from goods you can touch (hard, manufactured goods like cars, bikes, furniture) toward services (hotels, restaurants, airlines, etc). There used to be headlines about the transition to a “service economy”. By the 1980s, fully two out of every three dollars was spent in the service economy, and by the 1990s, three out of every four dollars were. Suddenly at the beginning of 2020, with vacations and restaurant meals off the market, consumers started buying lots more “stuff” – hard goods, durable and throw-away. Not only did we spend the money that we used to spend on services, but we’re spending the extra money many of us received from the government in the form of income support. We’re demanding more goods and this demand is driving up prices. This inflation may last for a while but it will not last forever. At some point, demand will taper off, the supply chains will again work without clogging up, and price pressure will disappear.
Why am I so certain (since we’re talking about an unknown future?) Because human nature doesn’t change.
Politicians and bureaucrats who make public policy, and people who offer goods and services in the private sector are hard at work trying to find ways to make the system work more smoothly. The politicians and bureaucrats can change policies – like cutting the extra money people have been getting (Minister of Finance Chrystia Freeland announced this last week.) Like raising interest rates. Both these will reduce the amount of money in consumers’ bank accounts and therefore will reduce demand. There’s going to be a bit of a lag on raising interest rates because today’s politicians and bureaucrats are more focussed on increasing employment than curbing demand. That’s why they talk about inflation not being a problem – it has been 30 years since inflation was over 2.5 per cent — most of the pols and bureaucrats in Ottawa and Washington have absolutely no experience with the damage inflation inflicts. So they’re waiting. They may wait too long and make the situation worse than it has to be, but at some point they will act. Interest rates will rise, demand will fall, the private sector will bring some manufacturing capacity back to North America, reconfigured supply chains will work smoothly. (I am also certain that at some point in the relatively near future I will be writing about the recession that did not have to happen – also because human nature doesn’t change.)
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Here’s another headline that’s making me CRAZY. “Climate change is now a governance issue”.
In the past two years I have not read a single major government or corporate utterance that does not extol the virtues of being aligned to policies that will reduce greenhouse gasses, encourage recycling and/or cut down pollution. Not that these aren’t important sentiments. They are. Authorities in both the private and public sectors have embraced ESG as through it were a long-lost and desperately-sought relative. ESG stands for Environmental, Social and Governance.
Governments everywhere have published their targets for green and clean. Canada has noticed changes in climate — deadly heat waves, devastating forest fires, droughts in crop areas. Climate Action Track, a not-for-profit that does just that, writes, “Recent climate policy developments, while positive, are insufficient to address the climate crisis. The country’s new and stronger 2030 target is not quite Paris compatible. Its revised climate plan and additional measures announced in the 2021 federal budget are insufficient to meet that target. Canada continues to face challenges in implementing policies. We estimate that Canada has missed its 2020 target, even with the pandemic emissions drop.”
Corporations listed on stock exchanges around the world are increasingly making disclosures in their annual reports or in standalone sustainability documents. The Sustainability Accounting Standards Board (SASB), the Financial Stability Board (FSB), the Task Force on Climate-related Financial Disclosures (TCFD) were all founded within the last decade to define standards to include these factors in the investment process. Other groups like ISS Corporate Solutions and Glass, Lewis opportunistically make big money by advising mutual funds and other shareholders to vote or withhold their vote at shareholder meetings depending on the policies the company embraces and assimilates.
But the headlines belie the reality. Beyond the headlines, Bloomberg News itself reports that “many of the promises made to claim ESG virtue turn out to be meaningless … former champions of the movement speak about weak or contradictory assurances, describing an industry more devoted to virtue signalling than to real action.”
The fundamental issue is that there are no universally acceptable standards or definitions of what constitutes environmental, social or governance improvements or wrong-doing. Without them it’s impossible to have effective external scrutiny. There is a humungous pool of money – as much as $35 trillion worldwide – that titles itself ESG investments – that’s not chump change. It appears to be more scam and closer to ESG LaLaland than it is to making the world a better, cleaner, greener place.
Another undertaking to keep on our radar and to keep bitching about.
Dian Cohen is an economist and a founding organizer of the Massawippi Valley Foundation.