Chapter 6

http://www.cbc.ca/news/background/economy/

When it comes to interest rates, what goes up, must come down, and then up again. In mid-2006, the Bank of Canada has raised the interest rates nine times, up to 4.25%, after it hit 40 year lows in 2004. In the same manner, the US Federal Reserve raised their rates 17 times for the rate to reach 5.25% now. After both sides took some breaks, stating that economic growth seems to be moderating, there are now renewed talks on the Bank of Canada raising interest rates again. This means that the economy and of course, inflation is increasing faster than expected. However, the US may have to cut their rates to keep their economy running smoothly. It would be unusual for the Canadian and US rates to move in opposite directions because both the economies are closely related. However, it could happen because the Canadian economy does not follow the Americans completely.

So what does increasing interest rates mean? It means controlling inflation in the Canadian economy. Since the economy is booming so quickly, and future forecast shows that it will continue to boom (2010 Olympics), inflation will cause prices to rise and put stress on citizens. So, to control such an event, the Bank of Canada can increase their interest rates to change the money supply. This monetary policy will make it cost more for businesses to borrow money from the bank and cause them to invest less. In the same manner, households are encouraged to save money. When they save money in the bank, their returns will be higher; so when they save more, they will buy less, and inflation is controlled. However, everything is not as simple as it seems. Although increasing rates will control inflation, there might be a contradiction in savings called the paradox of thrift. If enough people increase their savings, the level of spending in the economy will fall. If this falls enough, then there will be less income and people’s ability to save their income would decline. This would mean their savings would decline. So, if they save too much, they might end up having less to save. So, in the end the Bank of Canada has a very tough job to do in order to maintain and steady growth of the economy and controlling inflation to keep us, the consumers and businesses happy.

High school is ending for me and post secondary is around the corner. So, if the Bank of Canada decides to increase interest rates, this will have a huge impact on me. Costs such as student loans and other related expenses would increase, making it even harder to get a decent education and managing money. However, that is just the way the economy goes and if inflation is not controlled, prices would still increase anyways, making other expenditures costly. One positive side for me is that I can put more money into savings and hopefully attain more from the higher interest return. So, whether inflation increases or decreases, we will just have to deal with it and save up when interest rates are high. But, don’t save too much because, strangely, if you do, you might end up with less.

Chapter 5

http://www.workpermit.com/news/2007_03_22/canada/british_columbia_needs_350000_workers.htm

Canada is currently facing record low unemployment, and the article above addresses the issue. Kamloops has an unemployment rate of 4%, down from 4.3% in June of last year. More and more workers are needed to cover the shortage of employees in the workforce. BC is expected to lose roughly over a million workers in the next 12 years, with 350,000 of them in key sectors. Since, BC has a striving economy, losing workers will mean that the growth is stalled or stopped. The Canadian government has now made it easier for immigrants to join the country, which would appeal better to them over other countries such as England, Germany, and Australia. Obtaining citizenship has become easier, and students in universities have increased flexibility. The labour force has failed to keep up with the employment growth for the past four years, and competition between provinces is increasing. Provinces such as Alberta have minerals and oil to offer; but although energy sector is growing, there is a shortage of skilled workers in other sectors.

So, how does this affect the BC economy? Although losing workers in the workforce might seem negative, having a low unemployment rate might actually be good. Since the reason for such low employment is the cause of the retirement of our previous generation, the baby boomers, it is fitting that many job openings are suddenly available. It is just a natural event, like the natural rate of unemployment, that the economy will have to go through, and since companies need skilled workers, it is pretty much the opposite of demand-deficient unemployment. More jobs are available, and as long as the required skills have been attained, the possibilities are endless for the current generation. So, one solution may be to encourage immigration. This will seem like one obvious solution to increase the “participation rate,” which is the percentage of the population that is employed or actively seeking employment, since BC has the lowest participation rate amongst the four Western provinces. However, there are obstacles that will come in the way. Their language barriers and the fact that they will have to be accustomed to their new way of life will delay their potential to use their skills, and even if they start to learn, there are still a lot more job openings to be covered.

Being a Canadian citizen who has just been starting to create my skills for the future, this is a very promising situation for me. A shortage in workers means one thing: more job openings. Although it is not a walk in the park, it will still be easier to find a job that suits my likings, and having a skill can provide me with a large advantage over others. This means that I am currently experiencing frictional unemployment, one of the positive types of unemployment. I just left my previous part-time job and am now choosing not to look for another one. I can make the decision of not working, and yet be assured that there are job opportunities for when I want one. However, since many retiring workers are already very skilled, the economy is in need of skilled workers. Although individuals like me can enter the workforce, our skills will not compare to that of the retirees. So, although the province might find replacements, time will be an issue in training their new staff and there will always be problems in filling in positions. From losing workers, to losing skilled ones, businesses will have to deal with the losses while our economy keeps on growing. No matter how we take it, hundreds of thousands of workers are still needed in BC for the next several years – a lot of people.

Chapter 4

http://www.canada.com/windsorstar/news/story.html?id=bb40786a-f19a-41f1-ab71-13eabba1c32f

The link above discusses the issue about Canada’s underground economies and tax evasion. The article is about two local businessmen in Windsor, Ontario being accused of tax evasion. Michael Doyscher was accused of making false documents with three companies, while John Tamasovics and his family-owned business, J.F.J. Mold Processors was charged for five counts of tax evasion. However, the case was dropped by a Superior Court judge after it was dragged on since 1999. Lawyers of the two businessmen applied to the court to stop the case because of abuse and unreasonable delay. Under the Income Tax Act and the Excise Tax Act, they were charged with attempting to evade $1.2 million in corporate income taxes and GST in the 1990’s. It took eight years to schedule to begin the trial after the charges were laid out, which is way too long to wait, so the charges were dropped.

So, what was the whole article above about? It was about the Canadian government’s failure to catch criminals who are finding ways to avoid paying taxes. There was an eight year interval between charging the two businessmen and planning a trial date. In my opinion, that is way too long. As sad as it is, this is not the only case of tax evasion. This is just one of many companies who evade taxes. Yes, evading taxes might benefit the company, but does it really in the long run? The government needs the tax money to keep our economy running smoothly. The government needs money more than ever now that Canada is attracting more tourists with large events such as the 2010 Olympics. Under Wagner’s law of increasing state activity, our government expenses are growing at a faster rate than the total output of our goods and services. Since the government is spending more, it needs more money; and we, as citizens should not participate in such underground economies, which will deprive the government of money they need. For example, in 2005, BC alone has about $25 billion unreported activity – a lot of money.

Our economy is based on a progressive tax system (recessive and proportional being the other two), which might be one main reason companies are evading taxes. The more money a company makes, the more in taxes their profit is lost. However, the progressive tax system is the best system out of the three possible systems and companies will just have to find a way to make profit without breaking the law. As funny as it may seem, the Canadian government will have to spend more time and money in finding ways to crack down on underground economies in order to get the money it is losing. However, although there are many ways to catch such acts like tax evasion, underground economies are happening everywhere, even as you read this. So, the government may crack down and catch some offenders, but sadly, underground economies will continue to take place for as long as we have businesses striving for money. The Canadian government will just have to find more efficient ways to do the best they can in catching more lawbreakers who are hurting not themselves, but the entire economy.

Chapter 3

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=26807

The article above written by Ilana Mercer discusses the ongoing issue of public or private education. The question: should the government get involved in schools or should they leave it for private funding? According to the article, privately owned schools are the way to go. Why? It is simply because education is not a right. The only rights we “possess are to life, liberty, property, and the pursuit of happiness.” The government should only get involved to ensure that everyone can do their own business in a safe manner. Education is not a part of that. When schools are publicly owned, money does not magically appear. Someone has to pay for it. That would be the taxpayers. They have the right to “earn the money with which to educate their young.” But they shouldn’t have to pay for excess costs which will not benefit themselves. Mercer suggests that public education is a failing system anyways. Children who are struggling are put through therapy and troubled schools are rewarded with more money. Private education will allow for better, unregulated, independent education. Mercer also suggests that cutting taxes will allow individuals to pay for private schooling.

Although private education might now seem like the solution, is it really? Yes, private education does provide better services, but think of all the thriving economies in the world. They consist of USA, England, and Canada. What do they have in common? Government funded education. Although there are private schools that coexist among public schools, the governments play a major role in their country’s education system. They ensure that everyone has an equal opportunity to an education, and in turn, the whole economy benefits. These third-party effects encourage governments to help fund for schooling. An educated population means a successful economy. Let’s take a look at some struggling economies. Countries in Africa such as Sierra Leone have drastically high illiteracy rates. These war struck countries are so busy fighting, that the corrupted governments do not have time to care for its citizens’ education. Private education will follow the same fate, but in a different way. They are not fighting wars, but competition will lead to high costs, and people will be left out. In 2001, American President George Bush announced his “No Child Left Behind Act” to increase standards in schools and to provide parents with more flexibility in choosing schools for their children. Here is another example of a government taking a large step into improving public education.

Public education is the way to go now and will continue to be the victor of the two in many years to come. There are just way too many flaws in a privately educated system. According to the philosopher Adam Smith, “society will be better off if everyone pursued his or her own self-interests...” If this is the case, then schools will compete so much that less fortunate families will have simply not enough money to pay for education. This will greatly affect the economic stabilization of a country and create negative third party effects. An uneducated population won’t benefit the economy, and the crime rates would most likely increase, affecting other people’s safety and pride in their country. Besides, private schools are not always better anyways. Through my experience, public schools can compete just as well with private schools, whether in academics or in sports. Although private schools generally perform better, some public schools can equal the task. As we are currently in the 21^st century, things are different. Technology is improving and science is better than religion. Most private schools are religious and how much can that actually benefit pupils when they are taught one way but are told to believe in another? Also, many private schools are segregated into all male or female schools. That isolates children from important social learning skills that many develop through their school years. So, are private really better or can public schools do the trick? You do the math.

Chapter 2

http://www.theglobeandmail.com/servlet/story/RTGAM.20061101.woilprices1101/BNStory/Business/

So what is all the talk about these days? Oil prices! Oil is essential to daily life for anyone who is living in British Columbia. We use it for food, work, and most importantly, transportation. So, what is happening with oil prices recently?

According to the article, oil prices have dropped and demand is low. But, refiners are actually boosting production. They are operating at two percent higher capacity than last week. The oil price dropping is due to the fact that this market really has nothing to drive for higher prices. The Institute for Supply Management’s manufacturing index even showed growth at its slowest pace in three years! However, the article does say that nothing is fixed and if something suddenly happens, then that “would bump up fuel demand and prompt a price spike…”

This article deals with the concept of elasticity and supply and demand. Oil demand is high for all the necessities of life, and oil is limited around the country. This leads to higher gas prices because everyone needs this resource. Generally, prices should go up, but this article shows that oil prices are actually going down. So, what can account for this to happen? Simple. People are beginning to get fed up with such high prices for transportation gas and substitutes are blooming before our eyes. What was an inelastic resource is quickly turning elastic. The low demand for oil has a lot to do with substitutes such as hybrid cars, different types of fuels, and alternatives such as bicycles.

What I think is strange about this article is how oil prices and supply is going down, but the quantity supplied is actually increasing. If the price goes down, the quantity supplied should go down with it. However, this is a positive outcome for the citizens of British Columbia. They should see gas prices decrease a slight amount and stay decreased for a longer period of time. Since the quantity supplied is still increasing and the price is low, this should mean that there are a lot of gas and oil while they are being sold in a lower price. Strange, but good for the public.

Chapter 1

http://www.cbc.ca/canada/story/2002/12/14/softwood_mill021214.html

As we all know, land is scarce. This also limits space on our world for growing objects such as trees. Complications such as global warming are causing more and more forest fires and this only creates more shortage of trees for production of lumber.

This article revolves around a small British Columbia lumber town. They are fighting for their survival with workers losing their jobs. In the town of Clearwater, more than 180 workers are being laid off, which is nearly a fifth of the small town’s workforce. The reason for such a tragic story? Blame it on the high US lumber duty which has made it impossible for the mill to keep running. So many residents are moving out to search for jobs that even an elementary school is due to close down in May.

This article relates to scarcity. Lumber and the industry is a limited resource, therefore causing price to increase. The US however, is not helping by instating a duty fee which has made many lumber industries to lose business. Clearwater is a perfect example of what is going on. Industries are actually shutting down instead of expanding on a scarce resource such as lumber. British Columbia is actually one of the few places with abundant trees, but the problem is that our main export is the US. What we should be profiting on is actually losing money. The forestry industry is not profiting as much as it potentially can and the high US duty fees are causing minor lumber towns to close their main source of income and drive them out of business.

This is a real problem that is affecting the Canadian economy. What this means is Canadians will have to pay even higher on lumber because they cannot control where to export their own resource. If lumber is scarce to begin with, this problem is going to make it worse. Since production is decreasing, this makes the country have less of the product. If the product is scarce, the price will jump even higher. However, not only scarcity affects our economy in this situation. It is like a vicious cycle that is affecting the Canadian economy negatively. Since lumber mills have to close down their production, this creates a higher unemployment rate. Those who are unemployed now have no income and cannot use money to put back to the system to keep our economy running smoothly. So, this issue is hurting Canadians in more than one way.