Canadian Bacon in the Star Trek Economy

As I go off to Ottawa Canada for the next 6 weeks, this curious question from Stephen Poloz, the head of the Canadian Central Bank came up: what would a Star Trek (TNG) economy with no money look like? Yes, he actually asked that out loud.

That was before his comment that while Canadian housing is overvalued by 10-30%, there is no bubble (more on that in a minute). First though, it’s important to remember (and I hope he does) that economics deals with the societal allocation of scarce resources. It’s the only reason why a money economy (fiat or otherwise) exists. While Friedman (and others, but he’s the most famous) insisted that money is neutral, it seems that money only goes to the “neutral zone” when it no longer becomes relevant because resources are no longer scarce (replicators, anyone?). This means that hungry people have food, and, as his bubble comments show, homeless people have homes.

I’m not sure what Poloz thinks a bubble is, or is not, but here’s a hallmark of one: things are over-priced, or over-valued. However for Canada, it’s not really a big deal, other than possibly a lower exchange rate on the Loonie. And there’s two main reasons why: 1) most Canadian mortgages are insured with the full faith and credit of the Government of Canada, and 2) Canada’s debt -to-GDP is relatively low at around 55%. Much lower than the U.S. debt-to-GDP:

Canada Debt to GDP

The worst case scenario is that Canada’s debt-to-GDP ratio starts to look like the U.S. However, there is no scarcity of natural resources in Canada (tar sands aside), unlike the U.S. It would be relatively easy for Canada to pay down its debt (they did it in the 1980s). And that’s with equalization payment to the Provinces (or Government Transfers) plus universal health insurance.

I’m betting money in the Neutral Zone, that Poloz wishes there was a supply glut of houses right about now, or at least a housing replicator. That would certainly both remove the over-valuation problem, as well as the scarcity problem that causes over-valuation to begin with. In the meantime, calling an aggregate over-valuation by 30% NOT a bubble, is sort of like calling Canadian Bacon, ham.

This entry was posted in Demand, Macroeconomics, Markets. Bookmark the permalink.

2 Responses to Canadian Bacon in the Star Trek Economy

  1. Pingback: The Super of the Super Powers | Social Economy

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