The federal NDP has stated that the Conservative government should lower qualification standards to receive employment insurance benefits. Alex Atamanenko, B.C Southern Interior MP, has received complaint from unemployed citizens who are not able to access employment insurance benefits. As well, statistics show that about 60-70% of people who are currently unemployed are not eligible for benefits in the current system. Although the government as allocated billions of dollars to the employment insurance fund, the government has increased the standards eligibility, making it harder for citizens to collect the benefits they have paid for when they were employed. The federal New Democrats said that the numbers collected by Statistics Canada show that only 43% of unemployed Canadians and 39% of unemployed women qualify for employment benefits under the current regulation. The federal NDP has asked the government to eliminate the waiting period for employment insurance, decrease the works hours needed to quality and finally to expand eligibility to self-employed workers.
As the rate of unemployment increases, the level of spending in Canada is significantly reduced. As the income of other individuals are decreased, a multiplier affect in created. In order to ease the overall spending decline, individuals may receive some money so that their spending is not significantly reduced. However, many workers who are currently unemployed are not eligible for insurance benefits. In fact, as mentioned earlier, only 49% of unemployed workers are eligible under the current standards. As a result, the negative consequences of unemployment on the economy are greatly increased. The government must work to expand eligibility of employment insurance benefits so that the consumer spending will not significantly decrease.
There are many negative effects to the economy if the level of spending in Canada is greatly reduced. However, as the unemployment rates in Canada are relatively high compared to other years, the government may not have enough money to spend in employment insurance benefits. If the majority of workers who have lost their jobs do not receive employment insurance benefits, their reduced spending will indirectly effect the income of working family members.
For the first time since 2002, the UK Treasury was unable to sell all its government bonds in a government bond auction. The Treasury wanted to sell £1.75 billion of 40-year bonds. However, investors only bid for £1.63 billion as announced by the Debt Management Office. The bid-to-cover ratio, which is the number of bonds offered over the number of bonds sold, was at 0.93 compared to 1.0 in auctions in the last 7 years. As well, the consumer price index rose unexpectedly in February at an annual rate of 3.2% from 3.0% in January. The Bank of England has begun a policy of quantitative easing. More money will be created to buy government debt in order to inject a total of £75 billion of new money in to the English economy. Ultimately, the objective is no push down the cost of borrowing money.
The failure of the UK Treasury to sell all its government bonds is a sign of decrease in demand which could be affected by many factors. In order to buy a bond, businesses must reduce the amount of money in its bank deposit; however, the businesses may be saving their money in preparation for the future if they expect their profits to decrease. The fact that the Consumer Price Index rose unexpectedly, may also have influenced the demand for government bonds. Inflation decreases the value of bonds as they pay a fixed interest rate over time. When government bonds are sold, the ability of the charter banks to lend money is decreased because the reserves of the chartered banks have been reduced. When the government bonds are not sold, more money is retained in the circulation. However, the government needs this money in order to carry out its plans to revive the economy and continue to meet its previous commitments.
The lack of demand for government bonds shows how worried the consumers are about the future economy. Many are trying to keep funds available so that the money can be used when they are needed. If that money is used to buy a bond, they the consumers can no longer use that money until the bond has matured. However, if consumers do not buy government bonds, then the government may not have enough to spend. As predicted by BBC’s business editor Robert Peston, the bond sales in 2010 may have to sell for £200 billion in order to fund the plans the government have organized to revive the economy. If the government does not have sufficient funds to continue their plans then the task of coming out of the recession may become more difficult.
Summary The Bank of Canada has dropped its interest rate by one-half of a percentage point to 0.5 per cent. The interest rate has now been reduced by 4 percentage points since the bank commenced the latest cycle of easing in December 2007. The Bank of Canada stated that their real gross domestic product for 2009 is expected to decline by 1.2 per cent, with a rebound of 3.8 per cent in 2010. However, many critics felt that this forecast is overly optimistic. Other measures to provide monetary stimulus is also being considered by the bank, perhaps through credit and quantitative easing. The decision made by the Bank of Canada to lower its lending costs was quickly followed by a number of Canada’s big chartered banks as they lowered their prime rates to 2.5 per cent.
Connection The main topic in Chapter 6 is Gross Domestic Product, or GDP. The GDP is affected by a number of factors, including investment and savings which significantly impacts the Bank of Canada as well as other banks around the world. During this time of economic recession, people tend to increase the amount of savings in expectation of a lower income, or losing a job. As a result, the amount of investment in the economy decreases. The Paradox of Thrift can be applied to this situation. In attempting to save more, the equilibrium RGDP is lowered. As a result, the total income earned in Canada declines, leading to layoffs as we are experiencing now. Consequently, people are not able to save as much as they intend. By decreasing their interest rates, The Bank of Canada aims to increase to amount of investments in the economy. Lower interest rates will encourage investments that were not feasible at high rates as well as provide an incentive for people to invest. While this is good for people who want to borrow money for investments, it may not be beneficial to those who want to save money.
Reflection Personally, I would question how effective the lowering of interest rates would be on boosting the economy. While I feel that this will indeed cause an increase in investments in the economy, I think that many people will be reluctant to invest under such economic circumstances. Instead, people will be inclined to save more of their income in order to prepare for the future. Simply lowering the interest rate will not be enough to boost the economy in my opinion. The Bank of Canada must put other methods into affect to ease the decline GDP.
At 1.1 per cent, Canada’s inflation rate has slightly eased for the month of January in comparison to last year’s increase of 1.2 per cent. The price of gasoline and passenger vehicles has decreased according to Statistics Canada. As a result of the sharp decline in the price of gasoline, the increase in consumer prices seen in December were the smallest increase since January 2007. However, while the price of gasoline declined the prices for food increased. During the 12-month period, the price of food has risen 7.3 percent. Deflation can be seen in the Maritime Provinces such as Nova Scotia, where the 12-month decline was 0.2 per cent. As stated by Statistics Canada, this was the first annual price change in any province that fell into negative territory since October 2006. A number of economists predict that the inflation rate of Canada will decline in the coming months.
Demand-pull inflation and cost-push inflation are two causes for the rise in consumer prices. These causes can also be used to explain the decrease in consumer prices, or deflation seen in the past month. The decrease in gasoline prices is the main factor in the decline of the national inflation rate. In the summer months of 2008, there was a significant increase in gas prices because of a decrease in supply of crude oil. This resulted in cost-push inflation. However, as the gas prices became less affordable for consumers, the demand for oil decreased. As a result, inflation caused by demand-pull inflation eased, resulting in lower prices for gas. However, for other items which are needed for survival such as food and clothing, the consumer prices have followed regular trends of inflation.
I have definitely seen the effects of deflation in the past month around the city. For example, auto dealers are willing to give away a new BMW for every apartment purchase in West Vancouver. In comparison to the economic situation sin the United States, and North Korea, Canada is still doing well in the global economic downturn. In my opinion, Canada will most likely see inflation rates decrease in the coming months. This may help relieve consumers who are struggling in the current economy. Moreover, the low prices may help create the demand needed to increase economic activity in Canada.
Quebec Finance Minister Monique Jerome-Forget announced a new tax credit may be given to residents who renovate their homes in the coming year. The tax credit for new renovations is part of a liberal plan aimed to stimulate the Quebec economy. Homeowners who are eligible for the tax credit would receive reimbursement for 20% of renovation expenses, up to a maximum of $2,500. It is expected that the stimulus plan will protect approximately 25,000 jobs in Montreal’s manufacturing and construction sectors as well as create up to 2,000 new jobs in the construction industry this year alone. However, opposing parties are critical of the plan.
Connection
As discussed in chapter 4, the government may choose to control price increases and unemployment through taxes. Through the tax credit, the liberal government is attempting to increase spending in Quebec on the construction industry. Greater demand for renovations will provide work for more construction workers. This will create new jobs in the coming year. It is likely that the government wants to expand the construction industry in Quebec, as this industry was chosen for the tax break that was not given to other sectors. The tax break may also help eliminate under-the -table agreements, although this is unlikely. Moreover, this is not the intent of the liberal government. Another problem which arises is that the plan only provides new jobs in the construction industry. Thousands of people have lost their jobs in a very short span of time. Most of these people are not construction workers. Although the plan may provide a number of jobs, many people will continue to be unemployed.
Reflection
The tax break is not a good approach to stimulate the economy in my opinion. Although post-secondary education is generally not required for work in this field, training in construction is still expected. Therefore, even new job openings will be available only for people who are already working in the industry. Secondly, the plan is expected only to provide 2000 new jobs in the coming year. That number is not significantly high in comparison to the jobs which have been lost or expected to be lost. In the receding economy, I believe most people would be reluctant to spend their money on something that is for luxury rather than a need. The tax break does not provide in my opinion an incentive with enough appeal to greatly stimulate the economy in the coming year.
Alberta's oilsands produce over 1.8 billion liters of toxic wastewater daily. Known as tailings, this wastewater is left after bitumen, which is used to make conventional crude oil, is separated from the sand on top of it. Tailings have been stored in open-air lakes for decades. However, there has been no attempt in the past to empty the lakes or the land reclaimed. Several plans to reclaim the ponds have been discussed, including the creation of End Pit Lakes, using tailing thickeners, cycloning or centrifugation. Some of the toxic tailings have leaked into the Athabasca River. The health implications of this pollution are vast. Research has shown that there are elevated rates of cancers among the citizens of Fort Chipewyan, a small village of 1,200 downstream from the oilsands. The residents, which rely on fish as a major food resource, have noticed their fish are deformed with crooked tails, bulging eyes, skin tumors and humpbacks. Although the government has never had formal regulations on tailings management of enforcement mechanisms, the concern of initiating these regulations have been increasing.
Connection: Third Part Effects
Tailings causing extremely high levels of mercury and arsenic in water have lead to the increased rate of cancer to residents of Fort Chipewyan. This is an example of negative third party effects. As a result of the free-market system and the lack of government regulation in the past, the oil industry has ignored the need to keep this toxic water under control. Furthermore, placing a system to capture the toxins would cost a lot of money. Recently, Alberta's Energy Resources Conservation Board released a policy which required the oil industry to submit its plans for the construction and operation of tailings ponds. Companies may be forced to invest a significant sum of money in controlling tailings. This may be further reflected in the price of crude oil from Alberta in future months.
Reflection
In my opinion, Alberta's Energy Resources Conservation Board has been slow in its decision to regulate the tailings created by the crude oil industry. Since crude oil is a source of Alberta’s major revenue, it would be logical to ensure that no harm is done to the environment in obtaining it. The lives of many people have been put at risk because Fort Chipewyan’s most dominant food resource has been damaged. The fish can no longer be consumed. The economy of this small village can easily fail simply because of the ignorance of the oil industry. The Energy Resources Conservation Board as well as the oil industry must act quickly to repair the crisis that has emerged.
Google Inc. has announced that it will invest tens of millions of dollar in the search for renewable energy sources in 2008. Although the company plans to focus on solar thermal technologies, wind power technologies, and enhanced geothermal systems during the next year, Google Inc. also plans to devote a part of its research in smaller breakthrough energy projects. Currently, Google Inc. is investing in two companies conducting research in this area, namely eSolar Inc. and Makani Power Inc. Finding new ways to produce electricity will help lower the cost of the enormous amount of energy required to run Goggle’s data centers around the world.
Connection: Scarcity, Direct Costs, and Opportunity Costs
Today, coal is a major supplier of the world’s energy. However, since coal is a scare resource, a situation such as that caused by diminishing fossil fuels may begin to arise. Secondly, as coal becomes more scare, energy which requires coal to function will become more expensive. By investing in energy from renewable resources such as solar and wind power, the prices of these energies are less likely to rise since the sources are not scarce. This situation can also be related to the concept of direct costs and opportunity costs in this chapter. The direct cost is the money needed to conduct the research. The opportunity cost on the other hand is the money which Goggle Inc. could have earned with the tens of millions of dollars, including interest money. However, if finding a cheaper way of producing energy from renewable sources proves to be successful, the money that could be saved on energy costs could potentially be far greater than the money that could have been invested from the tens of million of dollars.
Reflection
Lately, the research for renewable resources has been becoming increasingly popular. There are frequently new commercials discussing the importance of investing in this area. In my opinion, Google Inc. made a good decision in devoting a portion of their fortune to find a renewable resource. If successful, this research will greatly benefit mankind. Soon, the resources which are providing the energy we are currently using will run out. At the moment, coal is the greatest provider of the world’s energy. Coal however, creates many unwanted greenhouse gases. Turning away from coal as an energy resource will lower gas emissions, help fight global warming, and reduce the world’s dependence on fossil fuels. New research in renewable energy sources will bring us to a greener and more pleasant future.
