WHITBY FREE PRESS, WEDNESDAY, SEPTEMBER 7, 1988, PAGE 7 PAGE SEVEN WHO'S MINDING THE STORE? Have you ever had the feeling that you knew more about running the .country than the "experts" in Ottawa (or Washington, or wherever)? Do you ever feel they're incapable of learning from past mistakes? The economy, for instance. Don't they remember the early eighties when interest rates went past twenty percent? They were trying to stop inflation - remember? Well, they're doing it all again. They call it monetary restraint. By their logic, if they raise the interest rates a little bit, people will borrow less, therefore spend less, therefore lower demand and therefore curb inflation. Sounds good - except it didn't work then and it won't work now. A little simple math illustrates why. If you buy a new car with a $10,000 loan, an increase in the interest rate of a quarter percent will add a whole $2 to your monthly payment - hardly enough to deter you. A $100,000 mortgage would cost $21 a month more and a million dollar corporate loan would cost a whopping $210 more - an insignificant amount to a business with a monthly cashflow in excess of $100,000. Would an increase of half a percent make any difference? Not likely. How high would interest rates have toe climb to deter you from buying that new car or the house of your dreams? The answer will depend on individual circumstances and personalities but I expect that rates would have to go up by four or five percent to make much difference. If you thought that rates were peaking and would drop again soon, you might postpone a major purchase; but, on the other hand, if you thought that they would keep on rising and stay high for a long time, you might jump in at 15% or even higher. That's what happened back in 1981. Rising interest rates fueled inflation rather than dampened it. Rising rates raised prices on everything and there was a surge to secure loans before the rates went even higher. 1981 should have been a lesson to the banking-world bureaucrats but they seem to have forgotten. It was only when rates climbed to the high teens and low twenies that the cost of money became too high; but what stopped the climb was not so much the actual i ates as the feeling that things were way out of control and borrowing money in such a volatile market was simply foolhardy. That reaction was right on the mark - things were way out of control and the monetarists drove the entire Western world into a recession for the next three years. You would have thought that even last fall's stock market crash might have given them some inkling that things weren't right. Remember immediately following the crash - all the major nations lowered their interest rates in order to avoid the recession that most of the pundits claimed was inevitable. Well the Western economies turned out to be a lot stronger than the "experts" thought. Growth and prosperity continued. But interest rates are nôw at the same level they were just before the crash and climbing fast. Were the "experts" wrong then? Or are they wrong now? Or ...are they ever right? (The only lasting result of the stock market crash was that a lot of smart money found Las Vegas was a safer place to gamble.) The trouble with monetary policies is that they are a very blunt instrument with which to regulate an economy. By the central bankers' own admissions, farmers, fishermen, consumers and small businesses will be hurt while they.try to slow down the "overheated" economy of big-business Ontario. What's more, the little guy gets hurt far worse. The theory is that recent wage increases are too high and higher interest rates will persuade big business to hold the line. Don't you believe it! - big business will simply pass its increased debt costs on to the rest of us in the form of higher prices for their products. What will happen is that a few more farmers and small businessmen who have been tottering at the brink will be forced under. So if monetary policies don't work, what are the alternatives? The answer is fiscal policies. You've heard politicians talk about fiscal and monetary policies but probably never understood what they were talking about. (Don't worry - they didn't either.) Fiscal policies are things like taxes and rebates and grants (and spending) which the government controls directly and which can be targetted at specific regions or sectors of the economy whereas monetary policy is directed at the money supply only. So why don't governments use their fiscal powers? Well they used to, but the temptation to spend their way out of economic problems was so great that we now have a $zillion national debt. Plus the bureaucratic time constraints invol- ved in getting any new tax or incentive off the ground (at least a year the way things are set up now) makes them the ideal vehicle for solving last year's problems. (In comparison, the Bank of Canada adjusts interest rates every week). Besides, the government is responsible for fiscal matters whereas monetary policy supposedly cornes from the Bank of Canada. Finance Minister Michael Wilson can blame unpalatable interest rates on Bank Governor John Crow. Is anybody minding the store? CLASS AT ASHBURN PUBLIC SCHOOL, 1907 The Ashburn public school was built in the 1860s of -,ranite field community centre in 1967. The old lady at le'1; - not teacher. She is lived next door and wanted to be in the photograpi wita '.e children. stone and became a "Granny Tarves" who Whitby Archives photo 10 YEARSî cO from the Wednesday, September 6, 1978 edition of the WHITBY FREE PRESS • The Ontario Public Service Employees Union (OPSEU) is concerned that staff cutbacks at the Whitby Psychiatric Hospital will increase staff injuries. • Bruce McCaffery, parliamentary assistant to the Minister of Culture and Recreation, will open the expanded Whitby Library on Sept. 13 • The Whitby Jail Community Work Program will continue despite the escape of two prisoners from a work detail. • Construction of a lighted soccer field costing $93,000 will begin at Iroquois Park this fall. 25 YEARS AGO from the Thursday, September 5, 1963 edition of the WHITBY WEEKLY NEWS • Sidney Correll is Whitby's first Building and Plumbing Inspector. • A contract has been awarded for construction of a new junior high separate school • Delegates from all sections of the world to the Anglican Church Congress in Toronto were guests at four Whitby homes. • The Ontario Hospital at Whitby is the largest industry in Ontario County, employing 791 men and women on a year-round basis. 100 YEARS AGO from the Friday, September 7, 1888 edition of the WHITBY CHRONICLE • The Public School Inspector reports that the Brooklin School grounds are "the dirtiest, worst kept premises in the county." • Whitby Harbor is becoming known as a coaling station for distributing American coal as far north as Georgian Bay. • The staff of the Whitby Gazette went on strike last week for a reduction of hours from 20 to 10 per day. 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