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Making Canada Relevant Again- The Economic Super-Thread

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I been to New Zealand.  It is a most entrepreneurial country.  For example, Postal outlets are all privately run, usually as part of a store or shop.  Mail service is very efficient and quite cheap. They also do vehicle licensing and registration, which is ridiculously easy to do compared to any Canadian jurisdiction.

Small business seems to thrive and everyone seems to have a business angle going.  Even with a centre-left govt, there is a real energy down there.

The reason that New Zealand was able to beat down the size of their government has to do with the fact that they literally hit the debt wall around about 1990.  they literally could not borrow another cent internationally.  They were forced to dramatically reduce the civil service, sell off almost all crown agencies and stop all subsidy programs, just to survive.  Was it done pain free?  No- but I have to say that Kiwis are measurably better off than they were 20 years ago.  If I didn't live in Canada, the next place in the world I would live is NZ.
 
Our budget might be setting the stage for limited NZ style changes:

http://davidwarrenonline.com/index.php?id=1119

Baby steps

The Dominion budget tabled this week (or "federal" as we now say, in emulation of the Americans) was full of restraint. We have been assured of this by every media source I've seen, and the notion gains additional plausibility from the mild endorsements of the Canadian Taxpayers Federation and other worthy, fairly independent monitors. "Baby steps in the right direction" was the message from another policy think tank, that focuses on family issues.

And that's all very sweet. The ostentatious freezing of the salaries of prime minister, cabinet, members of House and Senate, will of course save very little money, in proportion to the whole. It is thus a gesture, a trick. Yet it sets the politically necessary example for what truly needs to be done: capping salaries throughout the public sector.

Which in turn is a gesture, a trick -- a cover for the greater task of "downsizing" the whole cumbersome apparatus. Mechanisms are being put in place, to create civil service options: "Cut this, or cut that, your choice." The government is approaching this as timidly as possible, for it is up against monopoly unions that can really ruin a politician's day.

Yet when we speak of "entitlements," or more precisely, against them, the first thing we face is public sector entitlements -- in Canada as in every other western or quasi-western country. The troubles the Greeks are now experiencing with their civil service, which is in a position to bring the country to a halt, is a warning for the road ahead.

And forget Greece, look at California. There one may see in clear North American daylight what a vast unspeakable public bankruptcy looks like. It was not an inevitable thing. Gentle reader need only compare, candidly, California with Texas -- which is flourishing, and whose voters know why. Economic decline is a choice, not a fate, and it has everything to do with big, intrusive government.

Said reader and I could argue till death about the numbers, playing selectively with the statistics; yet what is obvious remains obvious. Among the games at which I am most inclined to sneer, is the percentage of almost any published budget that is assigned to "administrative costs" -- in departments that are essentially all administration.

We have a huge, wealth-destroying, regulatory machine, that is constantly growing on its own internal inflationary principles, as well as by new mandates the politicians casually assign. Some of it may well be necessary. There is general consent for some degree of public regulation for snake oil salesmen; for a bit of testing and oversight of whatever is potentially lethal. And I, for one, retain a soft spot for the Geological Survey.

But only a tiny part of the bureaucracy is devoted to such useful tasks. The far greater part is devoted more purely to Nanny State functions: to the whimsical redistribution of people's incomes, in return for the imposition upon them of the perverse value systems of our post-Christian elites.

This is a task of generations, however, and I'd rather mark the trees than clear cut, while we still have the option. My impression is that the Harper government is trying, against the odds, to make beginnings, very late in the game; that it would not be going much faster if it had a majority. For the opposition does not come only from Parliament, but from massed vested interests which have themselves had generations to assemble.

Cutting public sector pay -- relative to private sector -- is more than a fiscal necessity. It is also a moral necessity, though using that word more in the sense currently conveyed by the word "morale." With money, job security, and administrative power, comes prestige. We need to reduce that.

This is one of the points that was grasped in the earliest stages of turning India around, by such as the late Rajiv Gandhi. The argument was that business and all other private activity suffered, because the country's "best and brightest" were magnetically attracted to the prestige of so-called "public service." It was what upwardly mobile parents prepared their children for.

But through that "public service" came the self-serving blindness and arrogance of India's "ruling caste." These were people who did not have to stoop to pleasing the labouring masses, in the way capitalists must, if they are going to sell anything. Instead they acquire the attitudes that I have found here, too, in almost every encounter with a "public servant," dressed in a little authority.

In the revenue-generating private sector, at least in principle, salaries must be justified by productivity, rather than by politically pressured "judgment calls." Nobody's life on this planet is entirely cushy, and almost everyone thinks he is not paid enough -- but not everyone can bluster the way Jack Layton can.

David Warren
 
Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from The Mark is a somewhat provocative article by former Clerk of the Privy Council Alex Himelfarb:

http://themarknews.com/articles/1029-canada-s-silent-transformation
Canada's Silent Transformation
Canada is changing – subtly, profoundly, and without a public conversation. It's time we start to shape that change, before it's shaped for us.

Alex Himelfarb

First published Mar 01, 2010

Without question, Canada is changing – change is a given, pervasive and accelerating. But the kind of change we are now undergoing, the kind not driven by a vigorous public debate, but by drift and barely perceptible incremental action, is profoundly risky. When we take stock on Canada's 150th birthday, in 2017, what will we see? Will we find a country firmly on a path we helped to choose or will we ask what happened – how did we get here?

We know the challenges – how to ensure good jobs for our children and theirs in a hyper-competitive, global economy, how to conserve our natural bounty for future generations and play our part in addressing climate change, how to restructure our health and social programs in the face of the demographic crunch, how to define our common citizenship in the global era, how to earn our place at the international table – and fundamental to all of this, understanding the role of government and how governments can rise to fill that role. So why aren’t we talking about these issues together?

The answer has to do in part with Ottawa’s failure to meaningfully engage Canadians around any of these challenges. Many look back with nostalgia at the big collective policy decisions that shaped post-war Canada - patriation and the Charter or Canada-U.S. Free Trade, for example – as moments where government was able to rise to the challenges, where, for better or worse, government mattered. But even in the absence of any “big bang,” a country does change and, whether it seeks to shape that change or simply let it play out, government does matter.

Much change in Canada happens without much talk. It happens through entropy, selective inattention, and incremental action – and it is no less profound, only less visible. It sneaks up on us and, unless we are paying attention, it shapes us far more than we shape it.
Given the current stakes and stark choices, whatever our views, we cannot afford to turn our backs on the political process or throw up our hands at Ottawa. If growing distrust or cynicism about government leads us to withdraw into our private lives as though the public sphere were irrelevant or impossible to influence, we will ask too little of our leaders and that’s what we will get.

Global and domestic forces don't wait for Ottawa to take note. Drift has direction: environmental degradation accelerates, inequality deepens, the productivity gap widens, our population ages, and health and social programs that served us so well fray.

How do we explain government’s inattention to issues that ought to be impossible to ignore? For one, Ottawa’s policy capacity has been in decline for some time, a result in part of cuts to research and in part of a growing divide between elected officials and public servants whose advice is less often sought or trusted. The federal public service, long a major, if largely invisible, Canadian strength, is increasingly described as in crisis, trying to serve in a climate of blame and mistrust masquerading as accountability.

No doubt governments, and minority governments in particular, are reluctant to take on the big issues because they inevitably raise thorny jurisdictional questions and highlight deep conflicts of interest and regional divides. Nowhere is this truer than of the challenges around education, energy, and the environment to which a Canadian approach would have to reconcile competing visions of the country and the profoundly different economic interests of our provinces. In these cases, as in most, inattention is easier than policy.

Kim Campbell was being forthright, if impolitic, when, during her election campaign, she said that such times are no time for talking about policy. Today, our minority governments and their opposition are in perpetual campaign mode, giving us an Ottawa that is all politics all the time. And so, instead of issues, we get partisan tactics, slogans, and slinging, sending the clear message that they care more about their survival than ours.

The media reflect and reinforce this preoccupation with tactics and political games. Big policy issues are complex: their resolution requires “the courage to be boring,” neither to simplify the complicated nor obfuscate the simple. In the competition for public attention and the demands to fill an ever-larger news hole, complexity is often the loser.

Partisan noise and apparent inattention do not mean that governments – smart governments – are not pursuing a clear plan. Inattention to issues may not simply be expedient. Indeed it may reflect deeply held views about the role of government in a federal system.
Ignoring big issues in Ottawa automatically favours private and local initiative and diverse regional solutions over national initiatives. The political racket just makes the plan harder to see.

Similarly we may be surprised when the cumulative impact of successive incremental decisions plays out. In the criminal justice sector, for example, sentences are getting tougher, judicial discretion is being reduced, conditional release is becoming more difficult. Year after year, small step after small step, our system is being transformed, without a real discussion, and in the face of experts who insist that public safety will in fact suffer, that these approaches do not work. Crime rates, they point out, have been coming down for about twenty years, at least partly a result of more balanced, less punitive policies. There are of course legitimate debates to be had about what is just and effective punishment – but we deserve, and ought to demand, a real conversation about the options and the evidence, the costs and the trade-offs.

Then there are the consequences of years of tax cuts, implemented in the absence of any sustained public conversation about their implications. Somehow tax decisions have been divorced from the services and public goods they buy. And politicians, with few exceptions, won’t talk about the need to revise the tax system for fear of being seen as “tax and spend”-ers, just as they are reluctant to question stringent crime policies lest they appear “soft on crime.” So we don’t debate what should be private and what should be public. We don’t discuss the kind of government we want and are willing to pay for.

Not so long ago, political scientist John Meisel referred to us as a “public enterprise” country, a country that trusted government, believed in a collective project and the sharing of risk. Is that how we would describe ourselves today? By selective inattention and incremental decisions, we are changing. How much better it would be, within the degrees of our freedom, to participate in shaping that change.

This will require that we demand more of our leaders. And now may just be the moment.

Notice that normally reticent former finance officials are entering the fray, trying to force a real debate on the role of government and our willingness to pay for it. Or that so many Canadians arereacting to the prorogation, perhaps a symptom of a deeper concern. It looks like those with an interest in public policy now have an opportunity to push the discussion – and a responsibility to do so.

We see other hopeful signs – new public policy schools and centres are popping up across the country, university leaders are engaging in the big debates, some of our best magazines and news outlets are creating more space and new approaches to tackling the issues that matter and reaching new audiences, online media are exploiting the possibilities of the internet to provide a new agora.

What we need now is a public discourse that neither dismisses nor panders to our private concerns, but rather links them to public issues. It’s time we override our impulse to paper over our differences and demand that our leaders participate with us in the dialogue, however difficult, we so need. We cannot let Canada change without a fight – or at least a vigorous conversation.


Himelfarb is right about all the symptoms: all politics, all the time, constant, unplanned change, lack of public engagement; but he’s wrong about the disease. He describes how the change is being made:  in Canada change “happens without much talk. It happens through entropy, selective inattention, and incremental action.” And, despite Himelfarb’s rose coloured look back, that’s how most change has always happened in Canada, in Britain, in Imperial Rome and, doubtless, when Og was figuring out how to manoeuvre his log across the river some 100,000 years ago.

What bothers Himelfarb is that the small, Central Canadian elite, to which he belonged, is no longer planning and managing things, “without much talk.” In fact, most of that elite is in the shadows, mistrusted – often unfairly – by the government of the day, replaced by bolder, colder ideologues from different places. Not that Himelfarb et al were not ideologues; they were; but their ideology was carefully hidden from view, camouflaged, as it were, because it was/is also the prevailing ideology of the mainstream media and the chattering classes.

Meisel’s view of Canada was, in my opinion, mostly wrong – although I will agree that he gave a fair representation of Canada from 1970 through to 2000 as being enamoured of and satisfied with coalition of big business, big government, big banks, big labour, big insurance and the Liberal Party of Canada (even when it wasn’t in power).

I think we are, simply, casting off the failed, statist model that Himelfarb et al love and reverting to a more liberal, independent of the elites, type of decision making.
 
I think Mr Himmelfarb was appointed Clerk of the Privvy Council because of the depth of his knowledge and experience in social policy. As such, I suggest his inclination was towards government control and social engineering, along with a tendency to believe that was good for Ontario and Quebec was good for the rest of the country. These are attitudes that are anethema to much of the small l liberals in this country.

I also believe he is sincere and feels deeply that his attitudes are or should be held by the people at large.

This is dangerous thinking unless you are a fan of the granny state. Thuc, after you read the piece, you can have a large drink on me. I will pay for it by buying you another when next we meet.
 
In the decade roughly '75 to '85 "they" ran up our debt; in the decade+ roughly '85 to '97 "they" had a very minor role in rectifying the revenue-expense gap and were fortunate that "invisible hands" led to conditions of falling interest rates and increasing revenues; in the decade roughly '97 to '07 "they" mismanaged the public finances by failing to prepare for the next downturn by sufficiently correcting prior overspending.  "They" are in the process of planning to follow estimates based on rosy assumptions that we can either grow or tax ourselves back into balance, and almost uniformly deaf to the notion that spending should or can be reduced.

"They" have had 30+ years to "plan" to deal with the most fundamental of "complex issues" - the public fiscal policies which enable all other public policies - and mostly failed.

>"Somehow tax decisions have been divorced from the services and public goods they buy."

Looking on the same evidence from a different vantage point, I see that somehow public spending was divorced from the revenue stream necessary to support it.

There are two intractable conditions "they" either can not or will not grasp:
1) None of "them" are as smart as they (and their enthusiasts) think they are, relative to the complexity of the issues to be considered.
2) "They" will never get inside the decision cycle of the populace (except by literally holding the populace in check at the point of guns).

Failure to acknowledge, accept, and work within those limitations leads to cascading subsequent failures.
 
Tory triumph: They know where they're going
Article Link
Lawrence Martin  Wednesday, Mar. 10, 2010

I recall some years ago,” Liberal MP Keith Martin was saying this week, “when Stephen Harper said he was going to change the face of Canada, that when he got through with it, you wouldn't recognize the place.” The former Reform/Alliance MP went on to say that, while he didn't agree with the direction, Mr. Harper is well on his way.

Sometimes lost in the continuing uproar over the way the Prime Minister does things – i.e., with all the subtlety of Vlad the Impaler – is what he's actually done.

A Conservative PM will be ultimately judged on how far he's advanced the conservative agenda. In this context, there are things to behold.

Start with taxation. Through their long history, Liberals usually felt they could propose increased taxes without fear of a scorched-earth backlash. The prevailing wisdom was that a higher tax regime was necessary to preserve a gentler, more compassionate society than the one next door. Look now, though, and watch the Grits, even with that big deficit out there, running from the subject, afraid to even mention it. The first four years of Mr. Harper has poisoned the ground they walked on.

A Conservative staple is law and order, a crackdown on crime, moving the penal system to the right. Even though crime rates slide, the Tories trot out bill after bill aimed at filling the jails. They spurn Supreme Court rulings on Omar Khadr. They go after the gun registry. Anyone who opposes them, anyone who puts in a word for civil liberties, gets hit with the “soft on crime” tag. It's crude, but it works. The Liberals stammer.

On foreign policy, the Conservatives' aim was to turn soft power hard. They've largely succeeded, moving the country from its more traditional honest-broker role to a morality-based “us versus them” partisanship. If the Liberals object, say to Mr. Harper's one-sided policy in the Middle East, out comes the rhetorical sledgehammer. Their criticism means they're anti-Israel, maybe even anti-Semitic.

Almost everywhere you look on the starboard side of the spectrum, Team Harper is scoring. National programs such as daycare and the Kelowna Accord on native health and education have been scrapped. Multiculturalism, that old Liberal fundamental, is being curbed as limits to cultural tolerance are advocated. The country's new citizenship guide has a more conservative lean. A Conservative goal has been to take the flag from the Liberals. Their own brand of patriotism – The True North Strong and Free – is doing it.

On another long-time Tory staple, a revitalized and glorified military, it's the same. The government's big defence buildup, which began under Paul Martin, is only now set to taper off for deficit-fighting purposes. Anyone raising a dissenting voice is obliterated with the same kind of demagogic sloganeering as used on other issues. On this one, it's a shot at their patriotism: They don't support our troops.

Quietly, there is an advance on another front – decentralization, getting out of the way of big business, getting out of the way of provincial jurisdiction. Michael McBane, national co-ordinator of the Canadian Health Coalition, says a federal retreat on national health care is clearly detectable. Measures to have the provinces comply with the Canada Health Act aren't being enforced. The Health Council of Canada has had its mandate changed, Mr. McBane says, so it no longer monitors Paul Martin's health accord with the provinces. The feds' promise of a wait-times guarantee has been taken off the radar screen. The silence over the growth of private for-profit clinics is deafening and, says Mr. McBane, a national pharmaceuticals strategy has been all but abandoned.

One area in which the Conservatives lost their ideological way was their proclivity for big spending. But their new budgeting augurs a shut-off of the taps. Their consistent tax cutting, meanwhile, has resulted in a smaller revenue base that will inhibit future Liberal-styled big-spending initiatives.

Not one for fancy phrases, Mr. Harper has never articulated a vision. He just enacts one. To look at the country now – compared to the welfare-state, peacenik era of Pierre Trudeau – is to see a remarkably different coloration.

Whether or not the public likes it, right-side values are taking hold. The visionless party, philosophically at loose ends, is the Liberal one. The governing side knows where it's going and how to get there.
 
Keynes as the Wizard of OZ....

http://biggovernment.com/dmitchell/2010/03/13/keynesian-economics-and-the-wizard-of-oz/

Keynesian Economics and the Wizard of Oz
by Dan Mitchell

When Dorothy and her friends finally reach Oz, they present themselves to the almighty Wizard, only to eventually discover that he is just an illusion maintained by a charlatan hiding behind a curtain. This seems eerily akin to to the state of Keynesian economics. It does not matter that Keynesianism isn’t working for Obama. It does not matter that it didn’t work for Bush, or for Japan in the 1990s, or for Hoover and Roosevelt in the 1930s.

humbug

In the ultimate triumph of theory over reality, the Keynesians say all that matters is the macroeconomic model behind the curtain showing that more government spending leads to more jobs and growth. Consider the recent report from the Congressional Budget Office (CBO), which claimed that Obama’s stimulus created at least one million jobs. As Brian Riedl of the Heritage Foundation noted:

CBO’s calculations are not based on actually observing the economy’s recent performance. Rather, they used an economic model that was programmed to assume that stimulus spending automatically creates jobs — thus guaranteeing their result. …The problem here is obvious. Once CBO decided to assume that every dollar of government spending increased GDP…, its conclusion that the stimulus saved jobs was pre-ordained.

But surely this can’t be true, you may be thinking. Our public servants in Washington would not make important policy decisions based on a model that automatically produces a certain result, would they? Peter Suderman of Reason pulls aside the curtain:

…those reports rely on assumption-packed models that effectively predetermine their outcomes; what they say, in essence, is that the stimulus worked because we assume it did. …That’s especially true when estimating government spending’s productive effects, which is accomplished by plugging numbers into a formula that assumes that government spending produces a multiplier—an increased return for every government dollar spent. In other words, it extrapolates from how much money is put in rather than from what has actually come out. And it does so using a formula that dictates that if money is put in, even more money will come out. According to the CBO’s estimates, depending on how the money is spent, one dollar of government spending can produce total economic activity of up to $2.50. What a deal! …for all practical purposes, the same multipliers that were used to predict how many jobs would be created are being used to estimate how many jobs have been created.

Interestingly, CBO’s analysis is completely schizophrenic. Its short-run budget numbers are based on free-lunch Keynesianism that assumes deficit-financed government spending boosts growth, while its long-run numbers are driven by an assumption that government borrowing is terrible for growth (which is why CBO actually claims higher taxes boost economic output – see, for example, Figure 3 of this CBO analysis). It is impossible to know whether the people at CBO actually believe their own work, or whether they are simply trying to please their political paymasters by producing results that (conveniently) match up with political preferences for more spending today and higher taxes tomorrow. You can draw your own conclusions, but keep in mind that CBO is now making the absurd claim that a giant new healthcare entitlement will reduce budget deficits.

But I digress. Let’s now give the defense of Keynesian model. The folks at CBO and other Keynesian who publish estimates that inevitably turn out to be wrong (Mark Zandi comes to mind) will claim that they are right because they are predicting results compared to what otherwise would have happened. So when they claim that Obama’s so-called stimulus created jobs, they are really saying that the economy would have lost even more jobs if the government didn’t spend all that money. The problem with this approach is that there is no independent benchmark, but this is not why Keynesianism is wrong. Indeed, most of the economic profession relies on this kind of “counterfactual” analysis. Instead, the problem with Keynesianism is that it fails the empirical test. The Keynesians may be good at constructing models, but that doesn’t mean much if the models don’t match the real world. Here’s what Kevin Hassett of the American Enterprise said in recent congressional testimony:

…most economists learned in graduate school that models like those relied upon most heavily by the CBO provide nonsensical results. The reason the original large scale Keynesian Macro forecasting models were discarded by most of the profession is that they make a simple logical error in assuming that individuals do not change their behavior based on the expectation of future policy. …Professor Barro has been one of the primary contributors to the macroeconomic time series literature that has tried to estimate effects from observed economic data, rather than assume affects, as is done by the Keynesian models. …Barro’s analysis is based on econometric evidence, a reliance on experience.

The CBO analysis is based almost exclusively on speculation within the context of Keynesian Macro models that were discredited decisively in the 1970s. …Dating at least back to the seminal work of Nelson (1972), economists have known that the empirical time series approach significantly outperforms macroeconomic models in forecasting competitions. …Ashley (1988) compares data based time series forecasts to those from the large macro forecasters and concludes not only that the time series approach is superior, but that the macro forecasts were so bad that, “most of these forecasts are so inaccurate that simple extrapolation of historical trends is superior for forecasts more than a couple of quarters ahead.”

…Finally, one should note that this literature, combined with an earlier public finance literature, raises questions concerning the welfare gain associated with short-term increases in spending. …Browning (1987) finds that the marginal cost ranges widely, between 10% and 300%. Thus, the welfare costs of paying the bill may be greater than the short-term boost to the economy from the most optimistic estimates. This literature would be consistent with Barro’s analysis that suggests the stimulus makes us worse off in the long run.
 
Ezra Levant on opening our options. I'd go one further and say run a trans national pipeline to provide for all the provinces and allow access to the European market as well (this neutralizes the Russian oil card), and of course I fully agree with widening our customer base and including nations with common interests (like India) as a priority:

http://www.nationalpost.com/story.html?id=2908078

A pipeline to Asia

Ezra Levant, National Post  Published: Thursday, April 15, 2010

The Chinese government, through a corporate front called Sinopec, has announced plans to invest another $4.5-billion in Canada's oil sands. China's going to buy ConocoPhillips' 9% stake in the giant Syncrude project.

The Sinopec deal brings to $10-billion the Chinese investment in the oil sands in recent years. Is it a hostile takeover?

No, for several reasons.

First, 100% of Canada's oil exports go to the U.S. -- that's the only place the pipelines lead. China isn't buying oil sands companies for the oil. It's buying them as a place to put its money in long-term, strategic investments, as it backs away slowly from increasingly wobbly U.S. treasury bills. China's not buying our oil; it's buying the reliable flow of Canadian corporate profits and our stable economic outlook.

Is it a national security risk to Canada?

No, again. It is true that, according to CSIS, the Chinese government represents the largest espionage threat to Canada, stealing the equivalent of $1-billion a month from our country in industrial secrets. (That's more than our annual exports to China.)

But that espionage is done illegally by Chinese students, expats and other sympathizers, not through the legal ownership of share certificates. No doubt our high-tech energy secrets are being stolen and will continue to be stolen, but that is not happening because of a Wall Street deal. The central strategic value of the oil sands is not at risk.

And there is little room for corporate mischief, even if that were the Chinese strategy. For one thing, all of the Chinese ownership so far is fractional, with other shareholders involved in each of the companies. Canadian business law protects the fiduciary interests of those other shareholders. The Chinese, even if they had a majority stake in any company, couldn't operate in any manner other than to maximize profits -- which means operating normally and exporting oil to the U.S.

So a Chinese shutdown of the oil sands is not a legal possibility. Even if China were to buy, outright, a large number of oil sands companies, and in a moment of crisis took some concerted action against Canada's national interests, the companies could simply be expropriated. Even American customers are protected, through our free trade agreement that ensures the U.S. has market access to Canadian oil.

So there's no risk of China simply taking our oil, or stopping us from selling it to anyone else. But that raises the question: If countries like China can't buy our oil now, is it in our interest to be able to sell it to them?

The answer is yes.

It's an economic blessing living next to the world's greatest economy. And it was investors from Texas, Oklahoma and Kansas, not from Ontario or Quebec, who first took a chance on Alberta's oil patch. After nearly a century working together, the cross-border cultural and economic ties are strong. The fact that both president George W. Bush and vice president Dick Cheney were oilmen only made the relationship closer.

But President Barack Obama is a community organizer from Chicago, as culturally distant from the oil patch as possible. And Obama has said that, after health care reform, his carbon tax proposal (called "cap and trade") is his highest priority.

In 2004, oil sands production vaulted Canada ahead of the Saudis to become the largest source of U.S. oil imports, so he's talking about us. All of a sudden having the U.S. as our sole customer for oil exports is a lot less reassuring. Canada's Conservative government has admitted the obvious: We will have to follow the U.S. lead on a continent-wide energy policy, which means we might yet see Stephane Dion's disastrous Green Shift enacted.

Which brings us back to China -- and Japan and Korea, which also have oil sands stakes, and India, which has announced it's in the market to buy oil sands too.

Those four countries together import more oil than the U.S. does. So at what point does it make sense to build a pipeline from Fort McMurray to the West Coast, and offer our bounty to Asia, too?

Pipeline operator Enbridge thinks the time is now. They've proposed a 525,000 barrel per day pipeline from Bruderheim, just northeast of Edmonton, to Kitimat, on British Columbia's northern coast. The project, dubbed Northern Gateway, would be almost completely buried underground, minimizing its environmental impact.

Needless to say, it is being opposed by the usual environmental groups, a handful of aboriginal bands and Kitimat's NDP MP, Nathan Cullen. But the pipeline itself would create 4,000 construction jobs, and hundreds more on a permanent basis. Like the oil sands itself, its employment would disproportionately favour aboriginal bands -- not to mention Kitimat itself, reeling from the recent closure of a major pulp mill. And then there's the value of the oil: Even if prices stayed at the current $85 a barrel, the pipeline would ship $16-billion a year.

If the Northern Gateway receives regulatory approval, it wouldn't be operating until 2018 -- likely too late to save Canada's oil patch from any U.S. carbon taxes. But the mere prospect that the U.S. would have to compete for Canadian oil would be salutary in itself -- and it might make Congress think twice before designing taxation policies to apply to Canadian industry.

Few international relationships in history have been as close as that of Canada and the United States. At first glance, shipping oil to Asia might seem like an anti-American slight. But if opening up a small pipeline to Asia causes Washington to rethink its plans to foist another National Energy Policy on us, it's actually the best guarantor of a healthy Canada-U. S. relationship for decades to come.

- Ezra Levant is the author of Ethical Oil: The case for Canada's oil sands, to be published this summer by McClelland & Stewart.

Read more: http://www.nationalpost.com/story.html?id=2908078#ixzz0lAHAg6H2
 
A humorous(?) look at the way the economy is run these days:

Q.  What is Ontario 's Economic Stimulus payment?
A.  It is money that the provincial government will send to taxpayers.

Q..  Where will the government get this money?
A.  From taxpayers..

Q.  So the government is giving me back my own money?
A.  Only a smidgen.

Q.  What is the purpose of this payment?
A.  The plan is for you to use the money to purchase a high-definition TV set, thus stimulating the economy.

Q.  But isn't that stimulating the economy of Asia ?
A.  Shut up or you don't get your cheque.

Below is some helpful advice on how to best help the Canadian economy by spending your stimulus check wisely:       
1.  If you spend the stimulus money at Wal-Mart, your money will go to China
2.  If you spend it on gasoline, your money will go to Saudi Arabia ..
3.  If you purchase a computer, it will go to India . 
4.  If you purchase fruit and vegetables, it will go to Mexico, Honduras or Guatemala ..
5.  If you buy a car, it will go to Japan or Korea
6.  If you purchase useless plastic stuff, it will go to Taiwan .
7.  If you pay off your credit cards, or buy stock, it will go to pay management bonuses and be hidden in offshore accounts. 

Or, you can keep the money in Canada by:
1.  spending it at yard sales or flea markets, or   
2.  going to baseball or football games, or   
3.  hiring prostitutes, or   
4.  buying cheap beer or   
5.  getting tattoos.
These are the only wholly-owned businesses still operating in Canada .

Conclusion:
The best way to stimulate the economy is to go to a ball game with a prostitute that you met at a yard sale and drink beer all day until you're drunk enough to go get tattooed.
 
Make no mistake, Canada is in the same boat as Greece and the PIIGS, we have just been bailing a bit faster. Demographics alone tells a frightening future story for us, and our economy is tightly entwined with the other western nations facing these problems so even if we are somehow able to avoid the trap on our own, we could still be pulled down like a lifeboat on the Titanic:

http://www.realclearpolitics.com/articles/2010/05/10/the_welfare_states_death_spiral_105503.html

The Welfare State's Death Spiral
By Robert Samuelson

WASHINGTON -- What we're seeing in Greece is the death spiral of the welfare state. This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.

Americans dislike the term "welfare state" and substitute the bland word "entitlements." The vocabulary doesn't alter the reality. Countries cannot overspend and overborrow forever. By delaying hard decisions about spending and taxes, governments maneuver themselves into a cul de sac. To be sure, Greece's plight is usually described as a European crisis -- especially for the euro, the common money used by 16 countries -- and this is true. But only up to a point.

Euro coins and notes were introduced in 2002. The currency clearly hasn't lived up to its promises. It was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel "European." Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.

None of this has happened. Economic growth in the "euro area" (the countries using the currency) averaged 2.1 percent from 1992 to 2001 and 1.7 percent from 2002 to 2008. Multiple currencies were never a big obstacle to growth; high taxes, pervasive regulations and generous subsidies were. As for political unity, the euro is now dividing Europeans. The Greeks are rioting. The countries making $145 billion of loans to Greece -- particularly the Germans -- resent the costs of the rescue. A single currency could no more subsume national identities than drinking Coke could make people American. If other euro countries (Portugal, Spain, Italy) suffer Greece's fate -- lose market confidence and can't borrow at plausible rates -- there would be a wider crisis.

But the central cause is not the euro, even if it has meant Greece can't depreciate its own currency to ease the economic pain. Budget deficits and debt are the real problems; and these stem from all the welfare benefits (unemployment insurance, old-age assistance, health insurance) provided by modern governments.

Countries everywhere already have high budget deficits, aggravated by the recession. Greece is exceptional only by degree. In 2009, its budget deficit was 13.6 percent of its gross domestic product (a measure of its economy); its debt, the accumulation of past deficits, was 115 percent of GDP. Spain's deficit was 11.2 percent of GDP, its debt 56.2 percent; Portugal's figures were 9.4 percent and 76.8 percent. Comparable figures for the United States -- calculated slightly differently -- were 9.9 percent and 53 percent.

There are no hard rules as to what's excessive, but financial markets -- the banks and investors that buy government bonds -- are obviously worried. Aging populations make the outlook worse. In Greece, the 65-and-over population is projected to go from 18 percent of the total in 2005 to 25 percent in 2030. For Spain, the increase is from 17 percent to 25 percent.

The welfare state's death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day -- no one knows when -- doubt governments' ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

Greece illustrates the bind. To gain loans from other European countries and the International Monetary Fund, it embraced budget austerity. Average pension benefits will be cut 11 percent; wages for government workers will be cut 14 percent; the basic rate for the value added tax will rise from 21 percent to 23 percent. These measures will plunge Greece into a deep recession. In 2009, unemployment was about 9 percent; some economists expect it to peak near 19 percent.

If only a few countries faced these problems, the solution would be easy. Unlucky countries would trim budgets and resume growth by exporting to healthier nations. But developed countries represent about half the world economy; most have overcommitted welfare states. They might defuse the dangers by gradually trimming future benefits in a way that reassured financial markets. In practice, they haven't done that; indeed, President Obama's health program expands benefits. What happens if all these countries are thrust into Greece's situation? One answer -- another worldwide economic collapse -- explains why dawdling is so risky.
 
Hey, who knew?...................

‘Not a bailout’: the great Canadian bank caper
RALPH SURETTE Sat. Jun 19 - 4:54 AM
Article Link

You know how wonderful Canadian banks are. They didn’t fail when others did, and didn’t need to be bailed out. We are standing tall among nations in that regard, and the Harper government can stick out its chest and preach the Canadian model of prudence and caution to a profligate world. Even the Americans are agog at our fiscal virtue.

Plus, our economy has been recovering from recession faster than others just in time for the G20 meeting in Toronto. It’s wonderful, fake lake and all.

Does this sound too cute? Here’s the inevitable other side of the story. The banks were actually "bailed out" to the tune of $125 billion just before and after the 2008 election — in the form of a massive purchase of questionable mortgages and other "rotten paper," in the words of one economist, held by them. This was done through the Canada Mortgage and Housing Corporation, a federal agency. The taxpayer is now on the hook for these mortgages, 40 per cent of which are considered at risk, with more to come if interest rates rise and the economy dips again.

But the kicker is this: Hardly anybody noticed. It wasn’t an issue in the election, and the financial press said nothing. A few tried, and are still trying, to raise the alarm. Michel Chossudovsky, a retired University of Ottawa economist and head of the Montreal-based Centre for Research on Globalization, pointed out that Finance Minister Jim Flaherty had announced a $2.3-billion surplus in the offing before the election, then quickly changed it to a $64-billion deficit. He argues that the entire deficit was for the first installments of the bailout, which the prime minister described as "not a bailout" but a "market transaction."

Some other economists give the government more leeway, saying it was doing what others were doing — injecting "liquidity" into the banking system at a time when credit was threatening to seize up. But the sheer scale of the amount, plus the continuation of the banks’ excessive lending practices (despite their image of prudence relative to the Americans), have led to something else. Remember that government money was supposed to stimulate infrastructure projects. What we got instead looks like a housing and consumer credit bubble — and the illusion of economic growth while other countries faltered.

Alarmed, last winter the government and the banks clamped down on lending with new rules. The May figures show a nearly 10 per cent drop in housing values across Canada. Did they move too late and pop the bubble — and the "recovery" with it? Just in time for the G20?

That’s the economics, and we’ll wait and see on that. What’s more disturbing is the politics — this business of nobody noticing. Here’s a related story for you. Laugh or cry, as you wish.

It’s apparently just dawning, but in the 2007 budget, Parliament unwittingly gave away its right to oversee government borrowing. That’s right, it didn’t know. For 140 years, government had to bring borrowing bills before Parliament. Now it doesn’t have to. "Shame on us" for not catching it, says Senator Lowell Murray, who has introduced two private member’s bills to reverse this to no avail. Tough luck, says the government. Parliament voted and that’s that.

The fact that the Harper government has taken to presenting budgets in huge U.S.-style omnibus bills with everything but the kitchen sink in them, and daring the muddled opposition to vote them down and trigger an election, is considered the trick that led to the oversight. I have another theory. Opposition and media are so addled by scandals and other shenanigans — Mulroney/Schreiber, Guergis/Jaffer, Maxime Bernier and the biker lady etc. — that everything crucial is passing them by. Stephen Harper loves this.

As for the banks, here’s the rest of the story. Bank profits have boomed after the "not a bailout." The Big Six have made some $5 billion in each of the last two quarters. Last year, the banks gave their top dudes over $8 billion in bonuses. This year, they’ve put away $5 billion so far for this exercise in legalized theft. Meanwhile, the Harper tax cuts — which will have Canada with the lowest corporate tax rates in the G7 by 2012 — is giving the banks a gift of some $200 million per quarter at present rates of profit.

Voices in the wilderness call for banks to be regulated like a public utility, which is what they are, in order to stop this "wealth by stealth" operation. Others call on the federal government to resume borrowing, on its own behalf and that of the provinces and municipalities, from the Bank of Canada, bypassing commercial rates — as it did before 1974. With Harper in power and nobody noticing anything, good luck with that.
end
 
"Banks a public utility"?

Please get that person a pass to the nearest Economics 101 class.

The biggest danger is the centralization of economic power and the ability of the State to intervene in the economy (usually for the benefit of their favored clients). If "we" really wanted to ensure the economic debt bubble crisis won't happen again, we could look to the idea of "free banking", where individual banks set their own interest rates and lend according to whatever criteria they choose. Market forces would ensure banks would tend to be prudent and match borrowers to depositers, any bank which didn't do this well would eventually go bankrupt. Only the bank, its circle of depositers and loan clients would be affected, and other institutions would be able to step in and quickly pick up the pieces.
 
"The banks were actually "bailed out" to the tune of $125 billion just before and after the 2008 election — in the form of a massive purchase of questionable mortgages and other "rotten paper," in the words of one economist, held by them. This was done through the Canada Mortgage and Housing Corporation, a federal agency. The taxpayer is now on the hook for these mortgages, 40 per cent of which are considered at risk, with more to come if interest rates rise and the economy dips again."

What sort of arrant stupidity is that?  The CMHC - and hence the taxpayer - was already on the hook for the CMHC-insured  mortgages.  The banks were already protected by the CMHC insurance - how is that a bailout?  The banks sold the mortgages to the government - how is that a bailout?

Another paragon of the journalistic "profession" makes his mark.

I'd like to see the "questionable mortgages" and "rotten paper" documented - its existence described and proven - before believing in any such thing.  Who is the "one economist" whose credibility is on the line?

See: The Insured Mortgage Purchase Program
 
One from the GlobeInvestor.com buisness articles...have bolded some portions of the article that stood out for me.

In Quebec, IBM finds a better way to get things done
Jeremy Torobin
20:09 EST Tuesday, Jul 06, 2010

/servlet/ArticleNews/print/GI/20100706/escenic_1630919/stocks/news /servlet/ArticleNews/print/GI/20100706/escenic_1630919/stocks/news
Ottawa — For the 2,800 technicians and engineers at IBM’s sprawling plant in the idyllic Eastern Townships, finding new and better ways to operate isn’t a luxury. It’s a necessity.
Every product the Bromont, Que., factory makes quickly becomes obsolescent – which means the plant must constantly adapt to new technologies and apply new skills if it is to survive.
The factory, 75 kilometres east of Montreal, started out in 1972 making Selectric typewriters. It has worked its way up to become IBM’s biggest facility for testing and assembling advanced microchips. Its products go into the planet’s most popular video-game consoles and fastest supercomputers.
Arch-rivals Sony, Microsoft and Nintendo entrust the Bromont plant with testing and assembling the ultra-powerful microchips that go into the PlayStation 3, Xbox 360 and Wii. That’s like Coke and Pepsi using the same lab to test their formulas.
IBM has provided a solid foundation for the factory’s success, having invested nearly $1.3-billion in the Bromont plant since its founding. Still, manufacturing director Ray Leduc argues that it’s a combination of relentless training and an egalitarian philosophy that has allowed the Bromont plant to boost its productivity while cutting costs and keeping its head count stable through the recession.
“We don’t compete on labour rates, we compete on skill, on innovation, on time to market,” said Mr. Leduc, a veteran from the typewriter days, who was appointed last year to be a part-time adviser to Canada’s National Research Council. “A Formula 1 driver is also a machine operator. That’s the model we use: We take a very sophisticated piece of equipment that costs a lot of capital, and we give it to a very highly skilled person in whom we’ve invested a tremendous amount of development, and have them run it better than anybody in the world.” FMSTART Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:2d13dc33-9921-4d4a-815f-e809277631e4FMEND
Bromont’s high-performance model could provide clues into how to increase labour productivity in other parts of Canadian industry. Bank of Canada Governor Mark Carney has repeatedly warned that Canada must boost its output if we are to maintain our standard of living in the face of foreign competition and an aging population.
Mr. Carney notes that productivity growth declined during the recent recession, the first time that has happened in three decades. Productivity usually grows during slowdowns because companies are forced to do more with less.
“Canadians don’t understand how productivity relates to them, and as a result it has a bad connotation,” said Craig Alexander, chief economist at Toronto-Dominion Bank. “But productivity ultimately means Canadians being able to have a better standard of living … It’s the most fundamental thing in terms of the economy, and the really discouraging thing is Canada’s performance over the last decade-and-a-half has been absolutely atrocious.”
While Canada’s productivity has crept ahead by only about 0.7 per cent a year during the past decade, managers at Bromont say their ability to harness the creativity of their work force has allowed some units to boost productivity by an impressive 10 per cent or more a year.

Investor Education: Productivity
Part 1: Why investors should care about productivity
Part 2: Want to get paid more? Higher productivity could lead to that
Part 3: Getting more from less: Productive companies for investors
Part 4: What businesses can learn from hockey history
An important part of the plant’s productivity recipe is a constant emphasis on looking for new and better ways to do things. In an average year, the plant’s innovative practices result in 12 patents, usually in advanced areas of microtechnology.
Another element of the Bromont formula is maintaining a stable, happy work force. The plant has gone through constant, sometimes radical transformations with many of the same people. Turnover is a mere 1 to 2 per cent a year, compared with rates closer to 20 per cent at Asian manufacturers.
“In a lot of places in southeast Asia there’s the operators, there’s the engineers, there’s the management, and it’s very hierarchical,” Dave Danovitch, the plant’s chief engineer, said. “Here, we try to eliminate the hierarchy and get these people together to listen to what they’re saying and respect each other’s ideas.’’
Regular meetings infuse staff with Japanese ideas such as kaizen, which emphasize brainstorming and continuous small improvements. Employees are encouraged to bring their ideas to management
.
For instance, one of Bromont’s many patents came after three employees huddled together to solve a problem they ran into when they were testing thumbnail-sized chips. The traditional pieces used to hold the modules in the test bed couldn’t adjust for slight differences in size from part to part, which resulted in the tester rejecting potentially good parts.
The team came up with a self-centring, spring-loaded concept, which, after several trials and designs, was able to solve the problem using such a novel approach that IBM decided to seek patent protection.
“It really is from the employee base up,” said Maureen Jodoin, Bromont’s controller. “Everyone on that floor is a problem-solver.”
People in the plant receive an average of five days a year of formal training in skills development, but that figure doesn’t include on-the-job training. IBM encourages staff to take on new roles and responsibilities.
A program dubbed “three by 10” aims to have employees’ responsibilities change three times every 10 years. “You get more efficient problem-solving, and more efficient team-working, because you know the impact an idea of yours might have on another group,” said Claire Langan, manager of innovation, who is an embodiment of the program, having held 10 different jobs in her 28 years at the plant.
Andrew Reid, founder of Toronto-based corporate training firm Big Fish Interactive, says companies of all sizes stand to benefit from fully engaging their employees.
“One of the greatest competitive edges a company can give themselves, especially these days, is getting each staff member to see their role in contributing to positive change,” Mr. Reid said. “There’s a massive difference between just doing the job and being a high-performance culture.”

Christinne Muschi For The Globe and Mail
Microelectonics for the gaming industry, being inspected at the IBM plant in Bromont, Quebec.

Harnessing university brainpower
While IBM Bromont managers try to make full use of the expertise inside their plant, they also want to capitalize on outside intellects to help bring products to market more quickly.
IBM is teaming with Dalsa Semiconductors Ltd., Sherbrooke University and the federal and provincial governments to build a centre that will focus on a new generation of microtechnology.
The centre, which will open next year in Bromont, is intended to harness university brainpower, says Normand Bourbonnais, Bromont’s director of technology development. It will aim to speed up development of crucial applications such as 3-D technology that could be used to help doctors find and treat cancers and other diseases, Mr. Bourbonnais said.
“There’s unbelievable knowledge in the universities and the network of research associations that we have in Canada, but these guys don’t know what are the real problems that we’re facing because we don’t work with them,” he said. “So they work on stuff that they believe is important, and it is – it may become a product in 10 years or 15 years from now. With this centre, what we want to do is bring researchers right with us so they start working on projects that we need in five years.”
About 250 people will work at the centre, including 200 postgraduate students who will rotate through the centre over five years. IBM and Dalsa have committed a combined total of almost $41-million to help fund the centre over its first five years, while Industry Canada has pledged $83-million and the Quebec government is spending $95-million. The partners are also working with other companies in the area and in the microtechnology field to get additional support, Mr. Bourbonnais said.

Smart manufacturing
10%-plus
Average annual productivity gain for IBM Bromont’s business units
16%
Reduction in the plant's energy consumption from 2007-2009
40 to 50 million
Parts produced per year
$650-million
Export value per year
12
Average number of the plant's innovative practices that are translated into patents each year

 
Army.ca regulars will know that:

1. I harp, mercilessly, on productivity (or lack of same in Canada) – which just might be the most boring subject in the world; and

2. I am a ‘fan’ (I guess that’s the right word) of Kevin Lynch. I had the pleasure of working for him, for a bit, while still in uniform and we still meet, less and less frequently as I get older and older, at a handful of social events.

This opinion piece, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Globe and Mail is classic Lynch: it’s cogent and tightly reasoned and it’s all about economics:

http://www.theglobeandmail.com/news/opinions/another-new-world-order/article1695863/?cmpid=rss1
Another new world order
The planet has been completely reshaped in the first decade of the 21st century, and Canada mustn't squander its opportunity to reposition

Kevin Lynch

From Saturday's Globe and Mail

As the ballad goes, “the times, they are a-changin’,” and so too is the context that shapes our national interests and our global relationships. In just 20 years we have gone from a bipolar world of two military, if not economic, superpowers, to a single-polar world of an economic, political and military hyper-power to today’s multipolar world with competing centres of economic and political power, and evolving military balances. It has also been an intellectual roller-coaster ride from Francis Fukuyama’s The End of History in the mid-1990s to Fareed Zakaria’s The Post-American World a short decade later.

Clearly, the first decade of the new millennium will cast a long shadow over the 21st century. It was a decade marked by jarring and unsettling events: Y2K; terrorist attacks; Enron and a host of other corporate debacles; horrific natural disasters showcased by the digital information age; the invasion of Iraq and the absence of weapons of mass destruction; the dot-com bust; and the global financial crisis. Cumulatively, these events have sapped public trust in leadership. Overwhelmingly, they have changed the public’s expectations for their governments. Paradoxically, they have created gaping fissures in the body politic about how best to meet these changed public expectations.

And while these very public events naturally captured the headlines, they represent only the tip of the proverbial iceberg of the “global drivers of change” that are now reshaping economies, societies and politics. There are four core structural trends driving this change: globalization, demographics, the information revolution and climate change. These, together with the events of the past decade, are inexorably changing the world order.

So, what shape will this new world order take? Let’s start with globalization. Today’s pervasive globalization has been made possible by the information revolution. It is bound together through global supply chains, global capital markets, the global Internet and unprecedented movements of people. We now inhabit a flatter, more interconnected, more wired and more competitive world than was imaginable just a decade ago.

Without this pervasive globalization, the global financial crisis would have been an American banking crisis. Without this pervasive globalization, the United States would not have been able to live beyond its means at no apparent cost for the past decade, nor would China have been able to export its way to two decades of double-digit growth. Without this globalization, supply chains would still be national rather than worldwide, and costs would be higher.

The global restructuring that globalization has facilitated will see Asia account for 50 per cent of world GDP by the end of this decade, an economic prominence last seen three centuries ago. Indicative of the pace of change is that China became the second-largest economy in the world in 2010, moving another Asian economy, Japan, into third place.

At the same time, the information revolution is reshaping how we work, how we communicate, and how we interact. We are creating a 24/7 global digital universe that is changing our concepts of markets, the value of information, our systems of social networking, political dynamics.

And the revolution is far from having run its course. Twitter will be obsolete before I ever get around to using it. The Internet and blogs are changing political campaigns. Blogs are beginning to lead – not follow – traditional news media. The growth of data on the World Wide Web is an unimaginable order of magnitude greater than trade and investment.

Overlay on this the demographics of aging. While aging has always been a personal reality, it had never been a problem for whole societies. Today, things are different. All industrial countries are aging, with impending declines in the working-age population. The impacts will be profound, affecting not only pensions systems and health care but also education, housing, immigration and economic growth. Aging will put an incredible premium on skilled workers, and will shift the “wealth of nations” to countries with younger, educated populations. The hunt for talent will become more global and more of a preoccupation of companies and countries.

If the impacts of aging are profound, the potential consequences of climate change are uncertain and unsettling. While the answer is obvious – that is, to change behaviour you have to change the price of that behaviour in a market-based system – the way forward is not. Copenhagen didn’t inspire confidence that the multilateral system can manage climate change. And the responses of the major emitters don’t inspire confidence that they are willing and able to tackle climate change domestically, let alone collectively. Climate change may become the litmus test of whether the G20 is effective and durable.

The world economy is now in recovery after the great recession. But just as this was not a typical recession, nor will it be a standard recovery. This global recovery will be remembered for its uncertainty, volatility and overhanging imbalances.

The U.S. recovery will be tepid by comparison with previous cyclical rebounds, constrained by lingering unemployment, too much debt, too little savings and too large government deficits. Canada should outperform the U.S., supported by strong commodity prices and healthy balance sheets, but there are limits to our potential to decouple from U.S. performance. Asia will be a much faster-growing region, buoyed by demographics and low-cost production, but hampered by too much savings, too little consumption and too much reliance on trade-led growth. Europe will be a slow-growth area, weighed down by demographics, unaffordable entitlement programs, and large deficits and debt. Financial markets seem predisposed to react vigorously to each unexpected economic tea leaf, reinforcing the volatility of the recovery.

Fiscal-policy exit strategies are equally challenging. Deficits are high and structural in a number of G7 countries, and higher still in a number of smaller industrial countries. Estimates suggest a doubling of U.S. debt levels over the next five years, with similar projections for Japan and the euro zone. With pervasive globalization, unsustainable fiscal situations in small countries such as Greece can threaten systematic stability, and growing debt burdens – even in reserve currencies – can unsettle markets if there is no clear light at the end of the fiscal tunnel.

With political gridlock in the U.S. and elsewhere, combined with renewed worries about the strength of the recovery, the risk is that deficits will remain large for longer periods. The ensuing debt imbalances will only reinforce the shifting economic centre of gravity away from low-saving, heavily indebted, industrial countries.

To an extent that we had not seen in the postwar period, the Canadian economy outperformed the U.S. in the recession and is continuing to do so in the recovery. Canada’s strengths are impressive and extend well beyond our strong fiscal situation, stable financial sector, bountiful resources, agriculture capacity and proximity to the richest market in the world.

They include our “public infrastructure” of resilient institutions of government and governance: Canada’s professional and non-partisan public services; our social safety nets that reassure in times of turbulence; our values, rule of law and respect for diversity; our largely non-ideological approach to public policy; and our civility and openness in political discourse. Yet some of these strengths of our Westminster model of governance are beginning to fray, and this should be cause for public concern.

While Canada stands out, the shifting global economy presents opportunities and risks. Our challenge will be to leverage Canada’s strengths, tackle its weaknesses and take initiatives to reposition ourselves for the changing world order.

On the economic horizon, a key weakness is Canada’s poor productivity performance. Consider: Canada’s business sector has an average productivity level that is now only 75 per cent of that of the U.S. A dollar near parity and aging demographics place an urgency on improving our productivity performance. This “productivity deficit” relative to the U.S. costs Canadians more than $300-billion a year, or $10,000 per capita. And yet governments are not seriously contemplating how to close it.

The broader challenge is about how well and how quickly Canada will adjust to the global drivers of change affecting all countries: tackling demographics and their wide-ranging impacts from health care to education to pensions; tackling the rise of Asia and its implications for our foreign policy; tackling climate change in all its immense ramifications. But a risk to early and effective action is a political environment in Canada that has shifted to a short-term focus, leaving few forums to discuss and achieve consensus on the broad structural trends that are reshaping our world.

While the world economy is emerging from the great global recession, the global environment is volatile, and global drivers of change are propelling us toward new global alignments. In the midst of this changing world order lies the opportunity for Canada to stake out new markets in emerging-economy giants like China, India and Brazil, to refocus our market presence in the United States toward rapidly growing regions and sectors, and to make Canada more innovative in what we produce and more productive in how we produce it. It is an opportunity we cannot afford to squander.

Kevin Lynch is vice-chair of BMO Financial Group, former clerk of the Privy Council and secretary to the cabinet.


A couple of quibbles:

1. Mr. Lynch misrepresents Francis Fukuyama. I’m about 99.9% sure that Lynch knows better and so I guess that he’s using the End of History as shorthand for the “irrational enthusiasm” that pervaded policy thinking in the later ‘80s and early ‘90s. Fukuyama actually predicted an evolution away from the worst sort of illiberal political systems because, quite simply, they don’t work. He thought that Western liberal democracy was (is) the best of the available models but he did not predict that it, and it alone, would reign supreme. There is not a complete disconnect between e.g. Fukuyama and Fareed Zakaria – one leads to the other and Zakaria uses Fukuyama, amongst others, to illustrate why liberal democracy is not the only acceptable model for the future but why capitalism, albeit heavily tempered (regulated) capitalism, probably is; and

2. Lynch says that there is an “opportunity for Canada to stake out new markets in emerging-economy giants like China, India and Brazil, to refocus our market presence in the United States toward rapidly growing regions and sectors, and to make Canada more innovative in what we produce and more productive in how we produce it.” I have no argument with the last bits - refocusing our relationships (there are many) with America and being more innovative and productive – but I think that it is time we decoupled Brazil (and Russia) from the list of emerging great, even super powers. China and India will, almost certainly, join America, by 2035 or so, as global superpowers. Brazil and Russia will, I am certain, find ways to fail.

Staking out new markets, especially in Asia, requires more than just trade negotiations; it requires a political/policy shift, too. If we want to expand our Asian markets we must, first, expand our ‘connections’ with Asia – diplomatic and political, to be sure, but personal and business, too. We need to exploit our growing Asian-Canadian business community to ‘spearhead’ our expansion into Asia. And it’s a two way street; if we want to sell we must (continue to) buy, too. We also need to be more ‘balanced’ in how we treat Asia in the world. China is not always wrong and the USA is not always right; the Chinese are very sensitive to foreign reactions; they hope for nuance; too often they get mindless ‘lockstep’ with whatever the US says.
 
Mr Lynch may not have given enough weight to the "information revolution". The ability to dis-intermediate virtually everything has essentially ended State monopolies and capitalist monosopies, cartels and oligarchies.

A very stable structure built up over decades and more is finding the foundations crumbling, as people can now successfully challenge the centralized structures of the old order, countering "narratives", exposing corruption and bad dealing, moving capital and labour around at speeds that confound all expectations and generating new technologies which supplement and replace the old. Globalization is really a manifestation of the information age (finding the best products and best prices is so much easier now).

Demographics is certainly an important factor, but much longer term (the demographic crash in Russia and the West will be underway in the mid 2020's, while China's "One Child" policy will generate social instability rising about the same time).

As for climate change, a "little ice age" will certainly be a disaster as cooling conditions affect global crop yields, but the timing of this is highly uncertain, as are the potential remedies. Canada was first explored and settled during the last "little ice age" with 16th century technology, so I think we should be able to dig in and carry on in this regard.
 
I think Lynch acknowledges the importance of the information revolution as an agent of change but I think most senior economists are still uncertain about how important it remains in that role. There are so many diverse elements of the information revolution: some, clearly, have a major economic impact and Lynch described them. Others, including how information might change politics which might then produce policy changes are less obvious.

China's one child policy has, pretty much, run its course. While there is/will be a 'bubble' of too many single men passing through the system the Chinese have adapted: girls are now as, maybe even more, valuable than boys - even in some rural areas - and non Han Chinese East Asian brides are appearing, more and more often in China, today. I really, really doubt that the one child policy is going to produce serious problems. The Chinese, like everyone whose GDP gets them past 'third world' status, are now having fewer and fewer children - which is what Zhou Enlai (who died before the one child policy was, finally, implemented) intended.

Lynch examines climate change, of whatever sort, in purely economic terms - which I believe is the only way to treat it.


Edit: typo
 
E.R. Campbell said:
I think Lynch acknowledges the importance of the information revolution as an agent of change but I think most senior economists are still uncertain about how important it remains in that role. There are so many diverse elements of the information revolution: some, clearly, have a major economic impact and Lynch described them. Others, including how information might change politics which might then produce policy changes are less obvious.
...

Is Mr. Lynch's opinion coloured by his life as a planner?


The ability of the communications revolution to overcome boundaries, barriers and other obstacles (both physical and civil) poses the same challenges that buccaneers, corsairs, sea beggars, Angevins, victualling brothers, vikings, Batavians, Illyrians, Delians, Phoenicians and Minoans posed to his counter-parts  over the millenia.

Successful counterpoint to them were to come to terms with taxpaying traders like the Radhanites or to establish tax exempt institutions like the Cluniac abbeys and the Templars.  Or they could establish taxhavens like the Freistadts of the HRE, the communes of Angevin France or the Burghs of Willliam I's Scotland in imitation of the maritime republics of Italy.

Can he envision a world where, if only for a generation or so, society is allowed the freedom to breathe and also to discover the sting of necessity, the mother or all invention?

Not doubting the best intentions of him and his ilk, they can't protect everybody from everything all the time.  Just like trying to defend everything.....

William Webb Ellis, student at Rugby school, inventor of the game of Rugby "who, in flagrant disregard for the rules, picked up the ball and ran with it".

Buccaneers advance humanity.

 
I think Mr. Lynch's opinion and indeed his life as a planner and bureaucrat are informed by his education as an economist. He has a passion for rationality and for productivity in theory and practice. He is, in other words, a utilitarian. That's probably why I agree with him. We throwbacks to a clearer, 19th century point of view are few and far between.

There's nothing wrong with buccaneers (or barbarians) changing the rule so long as the 'greater good' for the greater number is advanced.


Edit: sentence structure (added the word "for")
 
E.R. Campbell said:
....There's nothing wrong with buccaneers (or barbarians) changing the rule so long as the 'greater good' for the greater number is advanced.

Unfortunately freedom to experiment means bad new ideas get thrown up with the good ones.  But without seeing the new ideas in practice how would you have the opportunity to distinguish the good and the bad?

Were New Lanark and New Harmony good ideas or bad?  One succeeded. One Failed. They generated an educated working class, a philanthropic middle class, the Co-operative movement and underpinned socialism.


David Dale and Robert Owen, economic and social bucaneers that were prototypical Hanoverian models for Horatio Alger, could only have done what they did in the deregulated Whiggish society of Britain of the early 1800s.


By the time Mills, both James and John could start putting Jeremy Bentham's notions into common usage it could by argued, by Ferguson amongst others, that Britain was already approaching its best before date and that Victorian Britain represented merely the autumnal harvest of Adam Smith's fruit.

That suggests to me, a long time supporter of the advantages of Empire, that Britain would have been better served if the Methodists had had less success and the Little Englanders more.  Merchants then Missionaries then the Military: with the last being the most costly.

I believe it might be time to let the free-booters have a looser rein for a while.
 
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