The high dollar: making Christmas more expensive?

December 23rd, 2007
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Dr. J. has written in the past about the strange reluctance to accept good economic news. A related phenomenon is the seeming desperation to ascribe incontrovertibly good economic news to any causes but the obvious.

A couple of nights ago CTV News attributed the willingness of Canadians to spend, at long last, with American-style abandon in preparation for the “holidays” firstly to the…high Canadian dollar. Lest I heard wrong or it was just dear old Lloyd Robertson speculating haphazardly, I checked the CTV’s website and, sure enough, that was also the official print version.

But shouldn’t a strong currency make Christmas shopping less expensive? Generally we’re not commemorating the Baby Jesus by buying our relatives gasoline vouchers or bushels of grain. For the most part we’re grabbing typically imported goods: toys, gadgets, clothing, electronics, books, fancy chocolates, wine, tools, sporting equipment. Virtually all of these have fallen in price, some of them radically. This process hasn’t been secret.

If you’re the type who essentially sets a Christmas budget, then goes and does the best he or she can with the money available, the high dollar has helped you tremendously in getting fancier, larger or higher-end goods for the same overall amount. I don’t think it has encouraged you to spend more. Obversely, if you dutifully fulfill all your friends and relations’ wishes regardless of cost, no matter how ruinous, this year you’ve hit the jackpot because you’ll be spending far less.

Why would a strong Canadian dollar cause someone to spend more on imports? I can only imagine some counterintuitive psychological effect in which, giddy with confidence and optimism, you toss out the planned purchase of the stodgy slow-cooker or overly practical mitre saw and instead buy mom and dad that flat-screen TV that’s still pricey but has come just within budgetary reach.

Still, aren’t there simpler, more direct and more credible explanations for Canadians’ higher spending? Like record-low unemployment, record high economic participation, steady increases in real incomes, gradually falling income and consumption taxes, massive run-ups in home equity values, easy credit (notwithstanding credit market turmoil), and a highly competitive retail sector that lets you shop virtually 24-7.

Strangely, the CTV had much of that information available. The expert they quoted, Aron Gampel, Scotiabank’s deputy chief economist, ascribed the higher spending to “a variety of reasons but I think confidence is reasonably high and the key factor there is jobs.” (Emphasis added.)

Confidence. Key factor. Jobs. Seems pretty clear.

So why did the CTV choose to lead with something quite different? The high-dollar explanation is an absurdity on its face – especially since the soaring currency’s frequently lamented trashing of Ontario’s manufacturing sector could be linked to hardship and reduced spending among those affected.

Could it have been that the real economic reasons behind our newly found devil-may-care behaviour might make Stephen Harper’s Conservative government look good?

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