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One of the puzzles making the rounds in political and economic discussions these past few years has been the fact that western economies have been enjoying sustained, vigorous growth, without suffering much by way of inflation. This has been a boon to stock markets because of the saw-off between interest rates and the attractiveness of stock market investments. The connection is that interest rates do not have to be raised bycentral banks to control inflation.

I became interested in this while thinking about the reasons societies get agitated about counterfeiting activities. Counterfeiters offend our sense of fair play, but we are also interested in weeding out such activities because they are inflationary. The way to understand this is to notice that ‘really good’ counterfeit money would remain in circulation after being spent by individuals who had produced nothing to offset the value they were enjoying. This means more dollars mapping upon some fixed volume of goods and services.

We also know that governments occasionally attempt to elude fiscal and economic problems by printing more money than production and consumption volumes warrant.

In either case, dollars are diluted as the value stolen by counterfeiters is extracted from the population of stakeholders, proportionately as they possess equity.

Counterfeiting, however, is only one of a pair of illicit activities. In the following, I suggest how North American governments have been indulging in a new sort of counterfeiting. I also describe the connection between this practice and the remarkable lack of inflation corporations and investors have been enjoying.

If traditional counterfeiting harms by diluting the value of units of currency, the activities we shall term government counterfeiting work in the opposite direction. First, we need to consider why traditional counterfeiting is inflationary. Counterfeiting has two phases: The first is the act of spending bogus money into circulation. Obviously, since counterfeiters obtain something for nothing, theft is occurring. The question is: where does the value come from? If counterfeiting is successful, the person unwittingly in possession of bogus money simply spends it in turn, and the next person similarly .... The counterfeiter wins, but, if the money is undetectable, no person thereafter suffers direct harm.

Nonetheless, theft has occurred. The second phase of counterfeiting occurs as value illicitly obtained by counterfeiters is extracted from all the legitimate stakeholders in the economy.

Contrary to the press they enjoy, honest-to-God counterfeiters are rare. What are far more important are the growing number of activities in modern economies that are counterfeit-like in consequence. These include occupations wherein employees are paid handsomely, but for which no commensurate value is created. Even though illicit bills are not being spent into circulation, such occupations are identical to traditional counterfeiting in every way. This thievery involves being in receipt of money without generating corresponding goods or services. Such individuals are indistinguishable from printing and spending bogus bills into circulation.

It is no exaggeration to say that such activity is increasing. Why, then, are we not experiencing inflation? The answer is complicated, but it includes a congeries of disinflationary activities. What we have is one set of crimes masking another – with the result that casual observers believe economic affairs are proceeding in a wholesome, measured fashion.


If traditional counterfeiting involves trading bogus money for actual goods and services, the opposing set of ‘transactions’ involves activities wherein good money is taken and little given in return. Such activities have the disinflationary consequence needed to explain the presence of widespread traditional counterfeiting without inflation. They accomplish this magic by reducing the volume of money chasing a fixed quantity of goods and services. The paradigm disinflationary event is robbery. Whenever persons are robbed, wealth is illicitly seized and spent into circulation. The person robbed loses the opportunity to make consuming decisions. But why is this disinflationary, when robbers, sooner or later, spend their ill-gotten gains? We have to keep in mind the ‘velocity of circulation’ – how long it takes to earn and spend money, and for the next person to earn and spend money and so on. Whenever individuals are robbed, these nodes are eliminated and the volume circulating is reduced. If I am in the robbery business, or taking a living in less obvious ways, I am not likely to be much of a supplier to the economy. I will still, however, be a consumer of goods and services – why else risk robbing people? However, since I now have their money, the people I rob will not be able to demand as much.

More importantly, there is likely to be a difference in my consuming decisions compared to those my victims would have taken. For example, I will probably spend money on wine, women and song, ignoring the homely commodities and services that make up the consumer price index.

A further example may be useful. Suppose a third of the money in some hypothetical economy had been robbed during an especially violent week. Robbers typically deem it prudent to avoid drawing attention to themselves. During this period of laying low, demand for goods and services drop. since those who had been robbed no longer have (as much) money to spend.

It might even be the case, should thieves lay low long enough, (or choose to launder the cash into another currency), that those who had not been robbed would enjoy increased purchasing power summing to the amount removed from circulation by thieves. (More usefully, those with money would enjoy benefits in terms of inflation not suffered.)

Of course, those who have been robbed will take small comfort from knowing that their fellow stakeholders are enjoying increased purchasing power, even if these increases sum to the amounts stolen from them.


The following statistics set the scene for the remainder of the argument:

  • Gambling revenues have skyrocketed beyond all early projections to at least $10 billion a year. Canadians spend more on legal gambling than on clothing, shoes and medicine combined.
  • Eight out of 10 Canadian households gamble, spending an average of $423 a year.
  • Gambling accounted for 12 per cent of Canada's gross domestic product in 1997 and 4 per cent of new jobs.

With these numbers in mind, and with an admittedly crude disinflation balancing inflation story for motivation, we can begin to look for activities wherein people hand over money and receive little in return. We need ongoing activities, since plausible disinflationary factors would have to constantly siphon money away from the purchase of commodities and services. Only reliable, constant thieving could neutralize the inflationary consequences of traditional counterfeiting and the more important, recent proliferation of bogus remunerations.

What we seek is not the sly exchange of bogus money for products and services, but the handing over of good money for counterfeit products and fantastical promises,

Fortunately for the argument, and unfortunately for you and I, there are many instances of such activities. Examples occur daily, in every corner store on the continent. I refer, of course, to the lotteries and games of chance operated by provincial and federal governments. In addition, government-operated casinos are springing up everywhere, along with tens of thousands of ‘lesser gambling opportunities’, bingo halls, slot machines, pinball devices and video lottery terminals.

Corporations (and governments?) are just now beginning to explore the inflation-fighting potential of internet gambling.

There have, of course, been bingo halls, poker games and other games of chance run by criminals for decades. Economies still experienced inflation that had to be repaired with interest rate increases. Inflation did not come under preemptive control until governments began robbing tens of millions of dollars daily from citizens, trading cash for life fantasies for money.

Just as we were able to source the value traditional counterfeiters were enjoying, it is possible to track the consequences of the gambling industry. The people being robbed are obviously those purchasing lottery tickets. Who are the winners? They are not, as one might think, the small number brandishing million dollar cheques. In the gambling business, pay-offs have to occur so people will continue putting their money down. They are part of the industry’s advertising expense – overhead the underhanded must arrange to keep the rubes coming in.

The first round of significant winners are those who do not have to compete for goods and services with the millions handing over potential shopping dollars in vacuous pursuits. However, the true beneficiaries of government-led thievery are those leading fabulously remunerated lives while contributing little. (This is the place to advance pet peeves: the salaries of corporate CEO’s, professional athletes, movie stars ...) The disinflationary effect of gambling neutralizes the inflationary consequences of their bogus productivity.


By the same arguments used to condemn counterfeiters, governments convening gambling activities stand indicted. Indeed, the harms perpetrated by such governments are more widespread then any counterfeiting the world has seen. This thievery does not involve printing bogus money. Unscrupulous governments instead remove good money from circulation. They have contrived stratagems to do so which are viciously regressive – harming the majority for the advantage of the few.


Once the excitement of identifying examples of taking something and giving little or nothing in return is acquired, it is hard to resist sorting occupations into inflation causing and inflation fighting categories. Thus, diversionary activities and entertainments are disinflationary. Such activities fall easily into the “we was robbed” column – even though the individuals supporting (for example) the sports establishment usually insist that they are getting value for their dollar.

No reasonable person argues that consumer choices are anyone’s business but their own. However, this does not prevent our noticing the consequence that millions of such choices daily have in terms of decreasing demand for the value-rich commodities and services the well-to-do enjoy – when they are not busy watching fans watching games!


There are other ramifications. All across Canada, farming communities are in crisis. Wheat prices have fallen so low western farmers cannot recoup costs of operation. Increasingly desperate, they have been demanding government assistance. Roadblocks are in the works, demonstrations at provincial and federal legislatures are frequent and there is a growing feeling of alienation. One disgruntled farmer is planning to drive his combine to Ottawa, where he hopes to separate some wheat from the chaffing going on there.

Elsewhere, most notably in Ontario, family farms continue to be amalgamated into large operations. The results exhibit more and more corporate characteristics – including a penchant for high tech (toxic) animal and plant husbandry. The current furor over genetically modified foods would not be possible without farming communities previously having transmogrified into corporations – at least in sufficient numbers to allow such adventures a window of opportunity.

Explanations for these troubling developments usually focus upon subsidies other nations are providing to farmers and, of course, the globalization of trade. Other nations are also said to be more efficient, to have more favourable climatic conditions or enjoy populations willing to work for less. All of these observations tell part of the story. However, the rising tide of bogus products and services – spearheaded by government-convened gambling ‘opportunities’ – are an unindicted source of difficulty. Such disinflationary factors lower demand for actual goods and services.

This contributes to regressive competitive pressure – joining technology and globalization in favouring corporations with deep pockets and gimlet-eyed fascination with bottom lines.

The bogus products governments now directly serve up for public consumption join globalization and technological development as disinflationary factors. There is, however, a difference: No matter what one may think about globalization and the information revolution, they could have benefited the general population. It does not matter that statistics of poverty and Mcjobs describe a growing population of losers. The difference between these initiatives and counterfeiting – whether the traditional variety or bogus ‘consuming opportunities’ – is that counterfeiting always sorts populations into winners and losers. No other outcome is possible.

There is a further connection. An equilibrium has been established between bogus money and illicit remunerations on the one hand and bogus goods and vacuous entertainments on the other. For the last couple of decades, this balancing act has been a boon to brighter, or at least better positioned, populations.

They have been the beneficiaries of stock market growth in the context of low interest rates.

Far more importantly, they have been enjoying compounding remunerations. An annual 5 per cent wage increase will move a $25,000 wager earner to $50,000 in fifteen years. Her superior, beginning at $50.000 will earn $100,000 at the end. Their respective incomes maintain a 1:2 relationship, but the spread will have increased from $25,000 to $50,000.

Even if these wages fairly represented their respective productions at the beginning, they would not be so at the end. Such compounding stratagems mean that superiors, sooner or later, become de facto counterfeiters.

Those who fall into the bogus product trap not only support disinflation, they diminish the likelihood that small businesses will survive, leaving a clearer field for large corporations.

We shall conclude by applying the bogus activity test across the market place. Many practices – such as hyperbolic advertisements and the destruction of family businesses to make way for corporate establishments – add little to the value of products. At the same time, convenience, social opportunities, displaying of products ... are valuable adjuncts to consumers’ experience. We need to consider the continuum of commercial activities, with a view to separating legitimate from arbitrary or frivolous practices. Needless costs form part of business overheads and are passed along to consumers. This is disinflationary because – like government lotteries and casinos – consumers’ purchasing power is diminished. This is accomplished not by inflation but by virtual thievery – since consumers pay all costs, both legitimate and bogus, embedded in retail prices.


Deliberately or unwittingly (it is impossible to say and it matters not), politicians and corporations have contrived to diminish the purchasing power of ordinary people. Bogus consuming ‘opportunities’ control inflation and avoid the need for interest rate increases . Inflation erodes equity indiscriminately and is one of the few fiscal phenomena afflicting the wealthy more than the poor. Interest rate increases are problematic for everyone, but they dramatically impact stock markets and the value, at least the paper value, of corporations.

During the first couple of centuries after North America was ‘discovered’, little economic activity occurred that could be described as either inflationary or disinflationary. To be sure, the occasional robbery took place but people generally paid close attention to getting their money’s worth; and the work ethic was rigorously enforced. During the last half century however, corporations and governments began inventing imaginative interdictions of the flow of value from manufacturer to consumer. How was this accomplished? The answer includes gradually increasing the incidence of bogus occupations; or, more commonly, the proliferation of legitimate occupations wherein remunerations had outstripped value.

Eventually the counterfeiters grew so confident that they came to the conclusion that they could safely work both sides of the fence. The coup de grace occurred when governments got into the business of bogus consuming opportunities.

What should frighten us the most? We must ask whether those flogging bogus products recognized the need to offset counterfeit occupations and remunerations with thievery on the other side of the economic balance sheet. If so – and since they have certainly been adroit and vicious enough to accomplish this goal – there is little hope.

On the other hand, if these disinflationary activities reflect merely pedestrian cunning, governments are only guilty of thievery in the second degree.