Canadian Government

The Law of Unintended Consequences

Published On May 8, 2013 | By Joseph (Ken) | Debt, Economy, Government

The Law of Unintended ConsequencesThere is a concept called “The Law of Unintended Consequences” where there occurs a negative, unexpected outcome to a [government] policy.  

An example of this is low-interest rates which are a policy of the Bank of Canada (aka government of Canada).

An article in the news today is Boomers taking on added financial burden by helping boomerang kids, poll finds which looks at “boomers are taking on more of the responsibility for their adult children struggling to obtain financial self-sufficiency in the post-recession years of high youth unemployment and low wage gains.

Why this relates to low-interest rates is that boomers have been forced to delay their retirement because they are not getting the same rate of return on their investments as past retirees. Their delay in retiring in turn prevents the upward movement of following generations.  The irony is not only are boomers forced to delay their retirement but they are left to support the same generations their delayed retirement is punishing.

Another article is Young adults really do have it tougher which states “But no group has been affected like young adults. People aged 20 to 24 years are 41-per-cent worse off financially than their counterparts were in 1976, Statistics Canada data show.”

Lower down in the article is your answer “[Boomers] also benefited from years of high interest rates on savings, and strong stock market returns in 1990s. Where they helped themselves was in their commitment to saving. Mr. Tal said the savings rate decades back was 20 per cent, compared with about 2 per cent now.

Since 1976 our purchasing power has dropped significantly and families have, in trying to make up for the drop, taken on all kinds of debt.  This has resulted in the need to drop interest rates and these low-interest rates are now having unforeseen consequences elsewhere.  This will get worse before it gets better.  Plan ahead, get out of debt now.

 

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.