‘Dead money’ rises again

The concept of “dead money,” coined by then Bank of Canada governor Mark Carney in 2012, simply won’t go away. Not even after Carney himself in 2013 disavowed the idea that firms were hoarding cash instead of investing. Recently, Dominic Barton, the head of Prime Minister Justin Trudeau’s advisory group on economic growth, discussed the idea on CBC’s Sunday Edition as if it was self-evidently true, egged on by host Michael Enright’s farcical claim that firms “are sitting on trillions of dollars of cash” asking “how do we get them off their arses?” Never mind that Canada’s total GDP is only $2 trillion.

What is most discouraging is that the notion that firms are sitting on piles of cash persists long after its alwaysshaky statistical basis has been swept away. It was August 2012 when Carney chided Canadian firms for hoarding “excessive” savings, saying “Their job is to put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.” As he spoke, net lending by firms, the conventional measure of “dead money,” amounted to $48.5 billion. Afterward, net lending by firms immediately nosedived to only $10 billion on average from 2012 to 2014, when it finally turned negative after oil prices collapsed.

By 2015, firms were spending more money than they pulled in, the very opposite of “dead money.” Why anyone discusses this walking-dead notion seriously anymore is a frightening demonstration of the unwillingness of some pundits to challenge ideas that fit a certain narrative — in this case, that of miserly corporations requiring government supervision — but which are demonstrably wrong.

The fact that 2012’s unusually large corporate surplus began vanishing virtually the same moment that Carney drew attention to it recalls Goodhart’s Law. Named after a British economist, this holds that whatever feature of the