A tale of what ifs

From the October 2023 print edition

“Gedankenexperiment” is a German word that you’re likely not familiar with. It means “thought experiment.” You may be wondering why I didn’t just entitle this column “An economic thought experiment?” That’s a fair question. But then I wouldn’t have been able to show everyone how cosmopolitan I am.

With that out of the way, here’s a definition: “a thought experiment is an approach to problem-solving, where rather than running an actual experiment, one conceptualizes and imagines an outcome.” Thought experiments are a recognized technique consistent with the scientific method. Albert Einstein famously used it to arrive at the theory of relativity.

Toronto-based Michael Hlinka is a tenured professor at George Brown College. He hosts a weekly podcast about wagering on professional football. His website is www.michaelhlinka.com.

When it comes to postulating about economics, thought experiments are required. For example, “what would the Canadian economy look like right now if the federal government fully supported the production and refinement of as much oil as possible?” We know that the country would be wealthier. How much wealthier? Since we can’t run an actual experiment, contrasting what would be with what is, all we can do is speculate. In other words, we have to conduct a thought experiment.

Recession looming?
There’s a different gedankenexperiment that I’ve been mulling over. I know the following because of Statistics Canada: inflation is running at 3.3 per cent; GDP declined marginally in June; and over the past two months, consumer confidence has plunged. It hit a multi-month high in June at 51.43, and in the past two months has come close to a multi-month low of 46.9. I and others examine this data and are reasonably concerned that the economy may be slipping into recession, even while inflation remains at inflated levels. Maybe it’s time to tighten our belts?

Perhaps I’ll sit down with my wife and decide that even though our bank account seems healthy enough, she won’t be taking our son to Florida this winter. We generally go out for dinner on Sunday nights for half price wings, but
we really don’t have to do that.

So, before you know it, the Hlinka family that used to save about 10 per cent of its monthly income is now saving something closer to 20 per cent, and if we do it, and everyone else does it, guess what? The economy will slip into recession and maybe, to make up the revenue shortfall, airlines might cut flights and increase prices.
Now it’s time for the gedankenexperiment. What if I didn’t know the inflation number?

What if I didn’t know where GDP stands? What if I hadn’t heard of consumer confidence? What if we just got rid of Statistics Canada? Would that change behaviour? My wife would have noticed that the groceries we were buying had gone up in price (she does most of the shopping). She would have adjusted what she buys, seeking out specials more aggressively. She would have shopped around, maybe buying a bit less from Whole Foods and a bit more from No Frills. And if we went out for wings on Sunday, maybe I enjoy them with water instead of the usual draft beer or two.

Then, when we were doing our monthly spending review, my wife and I would have seen that we’re doing quite well in spite of higher grocery prices. We’re lucky in that we don’t have a mortgage, so while rates are higher and this is a concern for many people, it doesn’t impact us. By the way, about half of Canadian homeowners carry
a zero mortgage.

My employment with George Brown College is very secure. My other income isn’t what it was pre-COVID-19, but it’s coming back slowly. My better half hates the cold weather – she deserves to head south for at least a few days in February.

But don’t we need to keep track of all this economic data to help the Bank of Canada set interest rates? No, if we had governments – and I mean at all levels – that had the mandate to balance budgets, no matter what … hey, wait a second! Would this include during COVID-19? Yes. Because if this were a requirement, we would not have suffered through the unnecessary shutdown we went through. Then the Bank of Canada could maintain the bank rate at 2 per cent, come hell or high water. This would inject the certainty into the system that businesses and consumers need to make rational, long-term economic decisions.

Will to power
None of this will happen any time soon. Nietzsche famously said, “there is will to power where there is life and even the strongest living things will risk their lives for more power.” I would not accuse those who are currently in positions of authority to risk their lives for pretty much anything. What does characterize them is pettiness, and the desperate need to feel important. This is why the bean counters will continue to count beans and try to micro-manage the Canadian economy, even if it ends up hurting, rather than helping.