JERVIS: Panama's 1% inflation... who's the banana republic now?

After the Bank of Canada failed to do its one job of keeping inflation around two per cent, Conservative Party Leader Pierre Poilievre said he would fire its governor.“I would replace him with a new governor who would reinstate our low-inflation mandate, protect the purchasing power of our dollar and honour the working people who earned those dollars.”Mr. Poilievre is correct in saying that the Bank of Canada Governor Tiff Macklem failed to do his job and should be held accountable. However, is the answer to replace Macklem with another technocrat?This brings up a more fundamental question: why do we need politicians or a government mandated central bank in charge of our money in the first place?Panama, which doesn’t have a central bank, presents an interesting case study to consider. Annual inflation in Panama averaged one percent over the past 20 years with three years of price deflation: 1986, 1989 and 2003.(Wouldn’t it be nice for prices to go down in Canada so your income could buy more?)Without a central bank, the Panama government has chosen to avoid the inflationary pressure of printing money and has instead sustained itself with tax revenue.After a number of years accumulating malinvestments during times of economic prosperity, Panama’s banks went to work on the necessary liquidation of bad credit. With Panama’s loose regulation, its banks could be subjected to the market forces and therefore experience the necessary ups and downs of the business cycle — a component of economics that is both necessary and very important. This helped to satisfy demand and facilitate recovery by reducing business costs.But perhaps the important question to ask now is, have central banks ever been successful in their stated objectives of keeping inflation low?The simple answer is no.The fundamental reason for their failure is that they are set up to fail. The key tool all central banks have is the ability to print money. It is the printing of money that drives up prices, thereby creating general inflation throughout the economy.“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output,” said the late Milton Friedman, whose economic theories won him a Nobel Prize.Everyday Canadians don’t benefit when their income is eroded by the excessive printing of money at the central bank. Big spending politicians favour central bank intervention since it allows them to use the “money printer" to pay for government programs… programs that citizens wouldn’t support if tax hikes were required to pay for the extra spending.“A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes because it has reason to fear that it will forfeit approval of the policy,” explains another celebrity economist, Ludwig von Mises.“[Inflation] can be called an instrument of the unpopular and anti-democratic policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them.”Central banks also get a failing grade on protecting the economy.Take the U.S. Federal Reserve as an example. It oversaw the Great Depression, the savings and loan crisis of the early 80s, the stock market crash of 1987 and more recently, the Silicon Valley Bank failure of March 2023. The Fed also oversaw the monetary response to the Covid 19 pandemic and through its so-call quantitative easing program, contributed more directly to the pandemic inflation by expanding the money supply by 40%.This story is repeated across time and country, whether it is the European Central Bank, the Bank of Canada or any number of other central banks.Not only do central banks fail to protect the economy, they are a key contributor to booms and busts as well.How does this make sense? If we consider the Austrian Business Cycle Theory, the economy in simple terms is a reflection of consumers' needs and wants.Consumers do not always desire the same product or same service all the time.This can result in booms where if there is more than a necessary availability of relatively inexpensive funds, entrepreneurs invest in more sophisticated technologies like tech and AI, rather than basic consumer goods such as food.These booms are the direct products of artificial stimulus (quantitative easing) caused by the central bank. This stimulus then results in a speculative investment bubble which is not justified by the long-term factors of the market.The monetary boom ends when bank credit expansion finally stops, thereby bringing to light all the attempts by central banks to stimulate the economy with deficit spending. This only makes the misallocations and malinvestments more keenly felt and the economic distress more pronounced, prolonging the adjustment necessary to return to stability.If those stimulus measures substantially increase government debt and the long term debt load of the economy, it becomes apparent that the resources we thought we had for production are not really there and were just distorted by the credit inflation created by the central banks.It’s time for Canadians and people around the world to start standing up against central banks and their authoritarian control of our money and ultimately, our lives.Big spending politicians need a central bank. Everyday Canadians don’t.And they certainly don't need technocrats distorting our money supply and meddling in our economy. These central bank elites have proven time and again they aren’t and have never been qualified to manage the economies of entire nations.Mr. Poilievre would be right to fire Mr. Macklem. The time has come for Canadians to rethink the more fundamental issue and demand an end to government controlling our money.Eva Jarvis is a student of commerce and a member of the Canada Strong and Free Network Leaders Cohort.

JERVIS: Panama's 1% inflation... who's the banana republic now?

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