Topic: OT…The rising Canadian Dollar

[Drivesideways]

Wow Ovr!  You kicked 3 a*ses (mine included) in one post! Way to go!

[ovr50]

I'm not trying to kick anyone's a$$, just putting up alternate arguments/points.

[Drivesideways]

Ovr, I am definitly not an expert in macro economics, but I would still prefer our economy to be underpinned by world-class productivity and quality than by smoke and mirror money market tricks.

[random006]

Excellent point, Drive!

Now hold still while I pin those &*($#@! stars on!

For years Canadian companies complained that the lack of productivity was due to a lack of expensive American dollars to buy the latest whizbang productivity tool (training, gizmos, new plants,...).  Then the dollar went up and they cried it's too high!  Or more to the point, it went up too fast for them to adjust.

Well, it's been a year or more and our companies should have made the adjustments.  In short, they can't have it both ways.

We should be more than a resource provider; our aerospace, pharmaceutical, financial and yes even high tech businesses are world class.  It's time for them to shine big time.  Yes we have oil, lumber, water and minerals in abundance but let's not forget RIM, Bombardier and all those up and coming biotech firms.

Relying on currency valuations in other countries to define our worth is walking on thin ice indeed.

[random006]

On the matter of car prices, I don't think we will see much change due to the dollar.  If I understand Canadian pricing, the prices we see are NOT a linear multiple of the exchange rate.  We have our own pricing system which, in some cases, actually results in a lower priced car than it would be for Americans.

I seem to recall several stories of less than reputable dealers receiving their cars from Detroit (or wherever) and then reselling to American dealers who would pocket a nice profit when selling to American customers.  This would not happen if our cars were more expensive than their American counterparts.  There would be no incentive.

[Drivesideways]

Ouch.  My bum hurts from Ovr's boot and now this!

[johngenx]

Can an economist chime in?  The strength of the dollar is not a true indication of the "health" of the nation.  A "low" (say 65-70 cents) dollar is in no way an indicator that we are suffering from low productivity or using the low dollar as a "crutch" to stimulate export.

In fact, our dollar has NOT been "low" but the US dollar has been VERY strong over the last 5 years or so.  Uncertainty in Asia and Europe has turned the US currency into the "gold" of the 21st century.

Canada is a safe place to invest, and recent interest rate increases have made it more so.  Greenspan has done much to keep rates low in the US, but economic stimulation based entirely on consumer retail may have run it's course, and the Fed might allow rates to creep up a bit.  If so, money would flow out of Canada and into the US.

What is this money?  Is it, as some would say, investment in factories and productive capacity, or is it the simple purchase of money market instruments by people looking to profit from transactions?  Remember that our economy is largely uneffected by trading of currencies thanks to no "Tobin Tax" or transaction based taxes on capital flows.

If there is indeed a rush of capital investment, we'll see it in the rates of employment.  Is there a rush in the world to employ Canadian labour?  Well, believe it or not, there is, but only in SELECT sectors, and they are generally not manufacturing or capital intensive operations.

So, is the rising dollar good or bad?  Well, like anything, it's neither.  It depends on where you sit.  Thanks to very high productivity (Canada has AMAZING productivity, don't believe the limited viewpoint of one or two right-wing think tanks that are pushing a narrow political agenda) Canadian companies rely on export of their goods, as we have only 30 Million people.  Well, for those firms, the rising dollar is REALLY bad.  They have not used the "low" dollar as a crutch, but instead have made good margins.  What's wrong with that?

What about commodities and resources?  Well, it's BAD for them too.  Most of our volumes in resource sales are exports, and the stronger Canadian dollar means less profits for our raw materials.  Alberta sells it's natural gas in USD per GJ, and with a rise in the Canadian dollar with respect to the US dollar, we lose out.  Do we compensate with "increased productivity" and other buzz words that people throw about?  Huh?  Is the oil and gas biz purposely "lazy" relying on currency rates for profits?  Spin that yarn to people I know in the oil and gas biz and they'll laugh right before blackening your eye.

For a business that relys on importation of goods, the rising dollar is a good thing.

But, why do we get our knickers in a twist anyway?  We're a nation of debtors with wages that have been generally stagnant over the last 10-15 years and unemployment can't get much under eight percent.  We've lost a great deal of our manufacturing base and the gap between rich and poor has been rising and the middle class eroding.  As to productivity, what a lark!  Hello?  A first year macro economics student can compute that GDP growth has been PHENOMENAL and employment rates have been stagnant.  How can we have poor productivity in those circumstances?  What BS.  Productivity with respect to capital utilization and labour untilization is incredible in Canada.  Look at banks, just as an example.  They have tens of thousands fewer employees than 20 years ago and profits that make people faint.  Prove to me that Canadian businesses suck with respect to productivity.

Is anyone familiar with "agrification?"  That's where we're going by focusing on productivity and NOT on income and labour untilization.  Think farmers.  Decades ago, they began to invest heavily in increasing productivity.  New machines, better machine, less labour.  Farms become much more efficient.  And thanks to increased prodcution and commodity pricing, the rise in supply relative to demand caused a drop in prices.  So, what to do?  Make MORE so that we can realize a profit.  Better machines!  Genetically engineered crops!  Well, farmers raised productivity by leaps and bounds.  And prices fell like a stone.

Ovr, I am definitly not an expert in macro economics, but I would still prefer our economy to be underpinned by world-class productivity and quality than by smoke and mirror money market tricks.

Can you fully explain the reasons?  Not requoting some BS from The National Post, but truly understand the economic theory behind your statement?  How do we measure productivity anyway?  What kind of productivity do you mean?  What are "money market tricks?"  Is the rising dollar not one of those tricks as hedgers move money to realize instant gains on interest rate gaps?  How do you know it's not?  Is there the possibility of arbitrage thanks to the difference in US and Canadian interest rates?  Some think so and move money back and forth in waves.  How does that activity effect the value of our currency?

Back to productivity.  Do you know the underpinnings behind the terrible depression of 1930-1939?  It was productivity!  Huge rises in productivity meant that supply outstripped demand in a such a short period of time that it caused a wholesale collapse of the entire economy.  Where is it written in economic theory that high productivity is always healthy?  (Besides at the Frasier Institute?)  What's important to PEOPLE? Is it productivity or is it unemployment rates?  Interest rates?  Income and cost of living?  Standard of living?  When did productivity become "king" outside of the boardroom?

[Drivesideways]

Can an economist chime in?

The word "chime" has a cheery, friendly connotation that is sadly lacking in your lengthy post. When a person clearly prefaces an opinion with "I'm not an "expert" but..." it doesn't seem that such a barrage is in order. No my impressions are not based on "BS" from the National Post (never read it) or the Frasier Institue. My impression comes from many many years of walking through business and looking at what people actually do when executing the processes designed to fulfill a customers' needs.
I will defend myself by saying that when I say "productivity", I am not referring to "production" or "output" which is how you seem to be taking it. Overproduction is very unhealthy for business. So is having half your workforce doing tasks that add no value to the final product, a condition that exists to a frightening degree in both manufacturing and service industries.  

In with the good air...out with the bad...in with the good air...out with the bad....

edited with flame retardant (I hope)

(Message edited by drivesideways on October 01, 2004)

Second second thoughts

(Message edited by drivesideways on October 01, 2004)

[johngenx]

My impression comes from many many years of walking through business and looking at what people actually do when executing the processes designed to fulfill a customers' needs.

Well, sorry to come off so poorly, but people tend to use individual ancedotal evidence to come up with economic theory and apply it on a nation-wide scale, which is exactly what you have done.

Your definition of productivity and mine are exactly the same.  It's a measure of the ratio of input to output.  If everyone is sitting around on their hands, nothing becomes output.  Well, you might be witnessing some lazy employees somewhere, and they do exist, but in relative terms, Canadian workers rate very highly when measured.

As to "I'm not an expert but..." well, I am sorry if I flamed away, but everyone likes to think of themselves as an economics expert, regardless of their vocation.  It's tiring for those of us that actually earn our living in the field, as people fail to realize the worth of our knowledge and expertise, well, because "everyone knows how it really works" based on their own observations.

So is having half your workforce doing tasks that add no value to the final product, a condition that exists to a frightening degree in both manufacturing and service industries.

This statement is based on some limited observations and not on industry and nation wide standards and measures.

Let me ask you why we've had an literal economic boom for the last few years, and except in Alberta, the rate of unemployment has not falled dramatically?  Everyone loves to bandy about the term "jobless recovery" like it's something we don't understand and can't do anything about.  It's thanks to rising productivity in labour that has outsripped real GDP growth.  Alberta has "suffered" lower unemployment thanks to the labour intensive natural resources sector that has had gains in productivity, but at a lower rate than growth in the sector.

I'm working right now with an aquaculture business that has farms in BC, the US, and Chile.  Canadian processing workers are paid $15USD an hour and Chilean workers $3USD per hour.  So, they started a plant and farm in Chile.  Well, it sucks.  The labour might be cheap, but their productivity is terribly low, quality control is awful, gov't standards are non-existant, and the education level of the worker is very low.  Granted, these are not rocket scientist jobs, but they do require some degree of skill.  People are operating $600,000 machines.  They are probably going to close the Chilean plant and open their newest plant in Canada.  Sure, labour costs are higher, but the overall productivity of the workers is amazing.  In the seafood business, we're right with Norway, which has a huge aquaculture industry.  Guess what?  Norway kicks ass in the business, and pays their workers $23USD an hour.  Hhhhmmm.

The CEO of a major food firm had bought into the "Canadian worker is low in productivity" myth and it's going to cost them a few million to learn that it's plain not true.

One thing that we must do is look at policy to harness this productivity and make it work for everyone, not just a few.  During the 1930's FDR was presented with a plan to drop the work week to 32 hours in an effort to restore employment by distributing the work over a larger number of people.  He nearly went for it, but copped out with the New Deal.  It would have failed, but he was bailed out by WW2 which soaked up all that excess capacity.

Why do we fail to account for huge gains in productivity in the last 20 years?  Why do business lobbies win out over economic theory?  It's because business has convinced many people that "what's good for business is good for the nation."  Well, some of it is but a great deal is not.  Concentration of wealth, power, and monopolization are great for business, but really suck for the citizens.

If we were to deal with gains in productivity by redistributing the labour, we'd see unemployment rates fall.  I don't know a single employer that wants that.  That means the possibility of rising wages due to increased competition within the labour force.  Okay, so here's where people get out their economics knowledge and talk about rising wages and that nine-hundred-headed dragon: inflation.  Hhhhm.  Yes, inflation is bad, but at what level?  There is sound theory that we can operate a full capacity economy with 3-4% unemployment and have 4% or so inflation.  Is 4% vs. 2% worth putting hundreds of thousands of Canadians to work?  I think so.  Look to Alberta.  Thanks to friction in the oil patch labour market, we've had low unemployment and manageable inflation.

[Drivesideways]

Since you like doing this, John....

This statement is based on some limited observations and not on industry and nation wide standards and measures.  


I actually found this to be fairly insulting.  It is my job to know and study this subject at both a specific level and a general level, and I'd say I'm fairly good at it.  I know you couldn't know this fact, so I'm trying not to take it personally.


Surprisingly, I'm actually not interested in trading rebutals with you on this.  

Hypocrasy alert!!  Rebutal coming....

Obviously you have much more knowledge and expertise in economics than I.  You do not, however, know how much knowledge I do or don't have in the area of manufacturing theory or practice and what constitutes business excellence, whether it be applied to traditional manufacturing or resource or service industries.  I will not attempt to give you a lecture on manufacturing theory, a subject which I am very well versed, for the reasons that 1) it drags this thread even further off topic and 2) I don't presume to know your current level of knowledge.  Therefore I would thank you not to make the same judgements about me.  I do believe that many businesses would be far more successful if they looked with a critical eye at the systems they have created for people and machinery to work in ensured that as much as possible their resources were being applied to value-adding or business-growing work.  I am not criticising Canadian worker as being "lazy".  My previous posts were purposely short and superficial on the topic because I didn't think it worth going into a long diatribe on why I believe what I believe.

[Snowman]

A picture is worth a 1000 words:

[johngenx]

So?  Compared to one nation.  And so what?  What difference does it make?  How does it effect 99% of people's lives on a daily basis?

Do you know there the shift in respect to the US comes from?  Is it from the lack of manufacturing jobs in Canada relative to the US?  Manufacturing jobs tend to have much higher productivity than service sector jobs, and while the US has lost many manufacturing jobs, it's not experienced the same degree of shift to service sectors that we have.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=531749

It's also about capacity and the ability to run production quickly from available unused productive capacity.  The US manufacturing industries may have a higher degree of "dormant" capacity.

http://www.bmonesbittburns.com/economics/econofacts/20040913a/

When manufacturing stalls (and it can thanks to the dollar rising) it can cause a loss of productivity.  A good explanation...

http://www.cbc.ca/stories/2004/05/21/business/productivity_040521

Also, I am not a proponent of rising productivity.  We've had productivity growth over the last many years, but if you see the stats, we don't have any job growth.

People get hung up on some measure like productivity and ignore it's complex relationship with other measures.  There is also an assumption that more of something is better.  It seems intuitive that higher productivity is better, but why?  Forget the microcosm of the individual firm, but look to the economy as a whole.

I apologize for making some personal assumptions, but I have also spent a great deal of time working with different industries, including manufaturing and agri-processing.  There is always room for improvement in the production process, but the idea that we are somehow a nation of poorly run businesses is not correct in my opinion.  There is always room for improvement, but we must be careful about the adoption of a "productivity is king" matra.

The rise in the dollar with respect to the US dollar is not a positive thing for manufacturing in Canada, since we rely on exports to the US.  We have done a poor job of diversifying our economic trading base, and have become far too reliant on the US as a trading partner.  This has made us open to currency rate risk without any means of diversifying away the risk.

Business representatives will always talk about the need for constant productivity growth, high unemployment, and near zero inflation.  And then we take those statements and think they apply to the rest of the people.

Personally, I would take stagnant productivity if I could have 3% unemployment, 4% inflation and a stable economic base with a strong middle class.

[Mdxtasy]

I feel like I'm back in University taking my Micro and Macro Economics classes.  

[Snowman]

I do not like comparing Canada to the USA….but it is the business bench mark on this planet….like it of not. I think Canada is slowing making gains recently in productivity vs. the US economic machine….but I think we need to improve.

I do not think Canada will ever achieve a 3% unemployment rate. I strongly believe that we are near the level that reflects the skill and ability of our labor pool. We are in such a human resource deficit that we are employing the unemployable.

Perhaps with a strong monetary policy and improved exchange rate we can reverse the brain drain trend to the US….. get the people we educated back…..and make this country grey matter positive.
 

[Drivesideways]

John...I went for a run.  I feel better now.  I'd love to talk about this more later, but I'm gonna go try to enjoy the evening by a (contained) fire in the park.  

[Drivesideways]

In a city-approved fire pit, that is....hehehe

[Snowman]

Run?....I just poured another C&R..

I know I will start a fire…..but here goes:

The labor movement is much stronger in Canada than in the US. Laws in the US have made labor unions ineffective and It is clear that over the past two decades real per capita income has grown significantly more slowly in Canada. With its across-the-board system of forced unionism, than in the U.S., where pro-forced unionism and pro-Right to Work labor laws operate side by side.  American incomes have grown more quickly in states with Right to Work laws.

Unions tend to increase wages but not productivity, reduce profitability, reduce investment in physical capital and R&D, and, most importantly, lower the rate of employment growth. A higher standard of living for Canadian workers is best achieved by creating a competitive economy and through enhanced productivity growth and not by protecting the monopoly power of labor unions.

[saint_satan]

U.S. "productivity" is greatly helped by an abundance of slave labour from Mexico and a monster deficit - both sanctioned by the federal government.

Nobody deserves a living wage except captains of industry.  The government needs to tell everyone how they are supposed to act, fire all the public servants and hope for the best.  Let anarchy reign supreme.

I always get a kick out of comparisons to the U.S. and Canada.  People take the best of the States and forget the rest.  Violent crime rates, income disparities, systemic culture of racism, value of your citizenship based on your pocket book, the only industrialized nation without universal health care, their monster deficits vs. our balanced budget, rapant consumerism ("signs, signs, everywhere signs"), median income going backwards but mean income going up (think about THAT), etc.  (I think I'll go to Buffalo and buy an AK-47.)

The quality of life in this country is infinitely better.  Room for improvement - of course!  But based on the lifestyles I read about from some of the people on this board, nobody is hurting.  Canadians are spoiled rotten and don't realize it.

[Sterling]

IMO, we could fire 30% of our "public servants" in Canada and not even tell the difference.

BTW, who knows a gov't worker that would describe themselves as a "servant?"

I like living in Canada, although I've never lived anywhere else. Quality of life is infinitely better? Maybe based on the lifestyles of participants of this board but then a car-enthusiast internet forum probably doesn't attract society's downtrodden.

[saint_satan]

I doubt this forum would attract many illegal immigrants from Mexico the U.S. State Department has turned a blind eye to for the sake of "productivity".  Lots of downtrodden in Canada, but nothing compared to U.S.   Abolishing any organized labour in favour of productivity would fix this, right?  Believe it or not, our social programs ATTRACT investment - why?  Because the company doesn't have to provide them as part of a benefit package to employees!

IMHO, blaming unions for Canada's perceived lack of productivity is pretty simplistic and doesn't even begin to scratch the surface of a very complex issue.  In many cases, we are not even ALLOWED to be competitive - see the Softwood Lumber issue.

The real question on the thread is this - the higher Canadian $ means car prices will come down because our money buys more, right?