Harper rings the alarm bell
Former prime minister Stephen Harper says Canadian agriculture is well-positioned for the future, but farmers shouldn’t read too much into current high commodity prices.
He said people have to understand that rising inflation is due to government monetary policy as a result of the COVID-19 pandemic, and inflation is pushing up the price of everything.
Speaking during Canada’s Farm Show, Harper said once inflation occurs it tends not to be temporary and it won’t be easy to stop because of what’s generating it: monetary expansion to accommodate extraordinary government borrowing and spending.
“Yes, inflation is temporary if you stop printing money,” he said during a conversation with Saskatchewan trade minister Jeremy Harrison. “The only way you’re going to be able to do that in my judgment is you’re going to have to rein in fiscal policy.”
He said some governments, including the United States, have decided to continue some of the policies they implemented during the pandemic. That’s far different than the stimulus funding offered after the 2008 recession.
“Now we have governments saying we just got through this … we’re going to do this forever,” he said.
“Frankly this is not feasible. This runs against the principle of economic science … that human wants and demands outstrip resources and choices have to be made.”
The first consequence of ignoring that is rising inflation, Harper said.
Inflation in the U.S. is four percent and rising quickly, and the Bank of Canada announced some weeks ago that it would likely hike interest rates and begin contracting bond purchases sooner than expected. This isn’t good economic news.
“The bad news is that I am certain that a lot of the rise we’re seeing in commodity prices is simply inflation,” he said.
“Consumer and commodity inflation is quite recent. We have had for some time now asset inflation. We have rising real estate prices in Calgary where the economy is still in recession. None of this makes any sense.”
Harper said he wouldn’t read too much into what higher commodity prices mean because of this inflationary bubble.
“The price of everything today is going through the roof. I don’t know what it means other than inflation.”
Harper said the situation is the same as the 1970s. Low growth, high unemployment and high inflation all combined for stagflation.
The good news for agriculture is that there is continuing demand growth driven by emerging economies. Harper said he doesn’t expect that to change even though these countries will emerge from the pandemic much slower.
“The reality is that they have not done as much structural damage to their economies through their responses to the pandemic and I believe they’re going to lead the recovery in a lot of areas and certainly I think that basic commodities, particularly food commodities, are going to continue to show ongoing robust demand for many years.”
The former PM also said that it’s critical to maintain proper trade structure to take advantage of those. Saskatchewan’s decision to open trade offices in several countries around the world is a good one, he said.
Harper said negotiating a trade agreement is only a first step; getting on the ground and developing relationships must follow.
Even agreements with political allies don’t always mean trade will go smoothly. He said the recent renegotiation of the North American free trade deal was a wake-up call. The new agreement will essentially be renegotiated every five years instead of the more secure deal under the original NAFTA.
Harper said a big lesson from those talks was that the U.S. Congress is increasingly more important in trade matters.
He also pointed to an old axiom that may no longer be true — that if a country is a security ally, a democracy or a close friend trade deals are more secure.
“We cannot be naïve about the nature of our trade relations even with allies,” he said.
He pointed to current issues between Australia and China after the Australians asked “some pretty legitimate questions” about COVID-19’s origins. China retaliated with tariffs and trade actions.
Australia’s allies have issued some supportive statements but have mostly gone in to see if they can take Australian trade space.
“I think we have to assume when it comes to trade and economic matters that countries are going to look after their own interests and the interests of the constituencies that influence politicians. I think this is true in the United States.”
Harper added that there has been no indication so far that the Biden administration will be any different than the Trump administration in terms of the trade relationship.
Harper described Trump as having no particular affinity for Canada and not philosophically inclined to open trade. Biden, on the other hand, is even less philosophically trade oriented, he said, and given his stance on integrated energy may be less friendly.