Making Canada Relevant Again- The Economic Super-Thread

[Kirkhill]

Brad, normally I agree with your take but here I have to say that your use of numbers might be as selective as the author's.

To use a 1969 (Trudeau era) analogue for 1929 seems to me to be specious.

The problem, in my opinion starts with the fact the in 1929 Canada had a smaller population, the economy was effectively an export economy underpinned by access to the British Empire (pre Westminster) and the US market, the gold standard was in effect, the selection of goods in the market place was vastly different and GDP was calculated differently.   

It is difficult enough to compare 2012 to 1969.  To compare 2012, or even 1969 to 1929 is an exercise comparable to determining the impact of a pint of beer on a labourer's income in 1257. 

I don't doubt your numbers or the author's numbers but I do question whether or not either argument clarifies the situation currently.

With respect to the current situation I think it is safe to say that Canada is generally considered a successful country by the accountants not because our debt has declined since Chretien/Martin Mulroney/Wilson(?) came to power but because our debt has declined as a share of GDP in that era.  That is not because of the pittances that have been put against the debt (as I perceive them) but because our GDP has grown (and I can't clearly determine to my own satisfaction how much of that is "natural" inflation and how much of that is due to induced money supply - old debts cost less when new dollars are used).

Regardless of the validity of the GDP metric it is an accepted, and probably useful, metric in the short term.  And based on that, if the market is giving us credit for reducing the ratio of debt to GDP then surely it is acceptable to describe the relative cost of Government in the same terms?  Money pared from government costs ultimately means a reduction in the rate at which the debt builds potentially leaving more of the GDP in the hands of the taxpayer.

It may be more satisfying to wield an axe and watch the blood fly in all directions.  But ultimately it may be more productive to slowly bleed and pare the host at a pace that they don't detect.

I believe that everything we see about the PM suggests that he prefers to move quietly and pare rather than chop.  To this point, judging from commentary from statists like Jeffrey Simpson, Lawrence Martin and Gerald Kaplan, it would seem to me that he is being successful.

If they are annoyed then Harper must be doing something right. ;D

 

[Brad Sallows]

I used 1969 only because I did not readily find figures for the 1920s.

Granted the measure might be different, but the gist of my argument is that if 1969 is an upper bound for the 1920s and 1969 emphatically < 2011, it is ridiculous to conclude what the author proposed.  The only assumption needed is 1920s <= 1969.  My guidelines for an assumption are that it must be reasonable (I think it is), and it should be verifiable (with a little more research, perhaps the numbers can be found online).  I think it will be very much harder to show that per-person wealth creation in 1929 was greater than in 1969.

IOW: "size" of govt in 1929 <= "size" of govt in 1969 < "size" of govt in 2011.

I agree with the use of GDP share measures when the point of the discussion is "affordability" or "relative affordability".  But I can concede that we are further within the envelope of relative affordability at this time, without conceding that the degree of governmental inteference and involvement - direct or indirect - in my affairs is less now than in 1929.  They are not equivalent, nor is one even a proxy or approximation of the other.

The same discussion surfaced recently among some US pundits: the idea that hey, really the federal government is smaller and shrinking!  They are, from the tone of the articles I read, approaching the topic dishonestly with an ulterior and discreditable motive: to talk about relative spending levels when to most people "big government" means the absolute degree of involvement of government in people's lives.  They seek actively to conflate and confuse the two so that the "facts" of the former (spending) obfuscate the reality of the latter (control and intrusion).  It is the same debating tactic used by CAGW enthusiasts: to use the trivial and uncontroversial "fact" of current climate warming (the "GW" part) - or even the full "AGW" part (since some component must be man-made) - as a launching point to claim that people are science-deniers, when in fact they are deniers of the unproven "C" (catastrophic).

 

[Kirkhill]

OK, stipulated.

Government is bigger now than in 1929.  And it is more intrusive.  Relative wealth of the country.....I agree to wait out on that until useful numbers are seen.

WRT the trend recently: I think we agree that there is a useful move in the right direction.  Perhaps we disagree on the speed at which the change is happening and whether a faster rate is possible?

 

[Brad Sallows]

To be a heretic, I'm not certain it's a move in the right direction although I tend to favour it.  We might need more money for services and transfers to individuals.  However, I've noticed that when a government announces "new" money for health, education, infrastructure, whatever, the first people in line are the public sector unions.  (Applies in BC, at least.)  Unless they can demonstrate increases in productivity, I am unmoved by assertions that compensation needs to increase for more than the rate of inflation.  In a competitive market many of the compensation gains of the past 40+ years would not have occurred and the people who genuinely need the social safety net would have more access to more of it.

Government should not be a sinecure for people who belong in the "25%" (I think the bar of social outrage needs to be lower than "1%").  They (we) can look after themselves well enough without periodically holding taxpayers hostage.

 

[Redeye]

To be a heretic, I'm not certain it's a move in the right direction although I tend to favour it.  We might need more money for services and transfers to individuals.  However, I've noticed that when a government announces "new" money for health, education, infrastructure, whatever, the first people in line are the public sector unions.  (Applies in BC, at least.) Unless they can demonstrate increases in productivity, I am unmoved by assertions that compensation needs to increase for more than the rate of inflation.  In a competitive market many of the compensation gains of the past 40+ years would not have occurred and the people who genuinely need the social safety net would have more access to more of it.

Government should not be a sinecure for people who belong in the "25%" (I think the bar of social outrage needs to be lower than "1%").  They (we) can look after themselves well enough without periodically holding taxpayers hostage.

Great few posts. I don't think there's a great objective measure of government "size" but a nice, steady effort to chip away at bloat in the public service I think appeals to a lot of people, so long as the services the public expects are still being delivered. There are going to be some major demographic challenges there, of course, but such is life, and I'm sure we'll have lots of roaring debate about how to go about facing those challenges over the next few years (witness the uproar over OAS changes). The highlighted part is the most important thing. That applies to private sector employment (where even cost of living adjustments aren't necessarily an assured thing!), and should apply to the public sector. Compensation should be good enough to compete with private sector employers for good people. I don't like the idea of outright attacking public employees or trying to drive down their wages anymore than I like vilifying them as the source of all budget issues, because I want those people to be among the brightest and best. But I don't see where some might want to get off trying to claim anything more than inflation adjustments without a demonstration of merit. Of course, that doesn't happen in any union environment really, and that's the problem I have with them in general.

Well made points, Brad.

 

[a_majoor]

Two billion dollars worth of good news. While it is still a drop in the bucket, it indicates a positive trend line and a will to deal with the deficit as a minimum. How the government intends to deal with the long term debt and unfunded liabilities (totalling @ 1 trillion dollars) is the next question we need to start asking our MP's:

http://www.cbc.ca/news/business/story/2012/03/26/rbc-ottawa-deficit.html

Federal budget deficit less than feared, says RBC

CBC News Posted: Mar 26, 2012 2:49 PM ET Last Updated: Mar 26, 2012 5:15 PM ET Read 18 comments18

A report issued by RBC says the federal deficit could come in well below projections for the current fiscal year.     

Federal budget deficit narrows to $17.7B

Flaherty promises 'prudent' budget A new report from one of Canada's largest banks says the federal government's balance sheet is in better shape than previously projected.

A Royal Bank analysis says that Ottawa's deficit for the current fiscal year could come in as low as $20 billion, well below the $31 billion calculated by Ottawa in November.

The good news for the government comes just days before Finance Minister Jim Flaherty delivers the latest federal budget.

The projection is based on the three-quarters worth of the year's financial data. It shows government revenues coming in above expectations, while expenses have been well below.

If the pattern holds true, it could put Flaherty ahead of schedule for eliminating the deficit in 2016-17. RBC chief economist Craig Wright says it could shave off as much as two years from Flaherty's most recent projections.

When the minister met economists earlier this month, they advised him that the risks to the global recovery had diminished, mostly because Europe was dealing with its debt crisis and U.S. growth had resumed.

Since then, they have told Flaherty to plan for the economy to grow by 2.1 per cent this year and 2.4 per cent next year.

While risks remain, Wright says they have diminished. It's unlikely Flaherty will need to use the $3.5 billion he put on reserve during this fiscal year, he says.

 

[Edward Campbell]

Here is some good news, reproduced under the Fair Dealing provisions of the Copyright Act from the National Post:

http://fullcomment.nationalpost.com/2012/03/16/andrew-coyne-canada-is-poised-to-win-front-door-access-to-a-billion-person-market/

The historical evidence suggests, quite strongly, that free trade brings greater prosperity, even when the free trade is one sided: in other words we would, in the longer term, do better of if we unilaterally dropped all tariffs ~ there would be sort term pain, to be sure, but history suggests there would also be long term gain ... shades of John Crosby and the 1980 budget.

Further: free trade is a liberal policy ~ liberal being defined as a mix of utilitarianism and individualism, while protectionism is a very conservative instinct ~ which is why the famous liberal thinker John Stuart Mill said, "I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it." In 2012 a liberal of Mill's stripe, someone like me, is lumped in with what a lazy, ill educated media calls conservatives  while the real conservatives, Mill's "stupid people," are members of or vote for the Liberal Party of Canada and the New Democratic Party of Canada and the Democratic Party in the USA. (That does not mean that all, or even many, Canadian Conservatives or US Republicans are either liberal or smart.)

Although I agree it, the tactics referred to in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is "bullying," I happen to agree with dropping the "supply management" system even without concessions for the reasons I have cited above:

http://www.theglobeandmail.com/news/politics/john-ibbitson/being-a-spoke-in-american-trade-isnt-enough-for-canada/article2382331/

Being a spoke in American trade isn't enough for Canada

JOHN IBBITSON

Globe and Mail Update
Published Tuesday, Mar. 27, 2012

Canada is launching free-trade talks with Thailand and Japan in case Plan B must turn into Plan A, because Plan A is in trouble, thanks to what is being described as American bullying.

Plan A is the Trans Pacific Partnership, a set of trade talks currently involving the United States and eight other Pacific nations that Canada badly wants to join. Negotiators from the two countries are attempting to secure a pre-agreement so that the Americans will support Canada’s accession to the talks.

But the Americans are being particularly bloody-minded, from the Canadian perspective. Supply management is the biggest issue. This is the system of quotas and tariffs that protect the Canadian dairy and poultry industry from competition.

Canada is willing to put everything, including supply management, on the TPP table, but only after reaching that table. The Americans, however, insist that Canada must signal its readiness to abandon supply management as a condition for joining the talks.

The American intransigence – “bullying” is the word that gets most often used – has led to a theory that is making the rounds in Ottawa circles.

According to that theory, the Obama administration is employing a hub-and-spoke approach to foreign trade.

That is, as the Americans pursue new trade agreements, they seek to place the United States at the hub of any relationship, with smaller nations serving as spokes.

The spokes supply the U.S. with whatever it needs to make things, and the U.S. then sells the finished product back to the spokes and to other countries.

The Americans see Canada as a valuable spoke, safely secured through the North American Free-Trade Agreement. But that agreement is imperfect, in American eyes, because Canada continues to protect certain sectors of the economy, including dairy and poultry.

The Americans seem to think that if the Harper government is willing to surrender those protections in order to get America’s blessing to join the TPP, all well and good. If not, then there’s no need to let Canada into the TPP, since it is already joined to the American hub through NAFTA. This, at least, is how the Canadians characterize the American position.

From this side of the border, it looks as though the American are attempting to negotiate a NAFTA 2, with everything to the American’s advantage and nothing to Canada’s. Such a position for Canada is a non starter. Stephen Harper may be willing to sacrifice supply management as the final stage of signing a Trans Pacific Partnership treaty. But he is not going to make such a politically charged decision until all other options – including entrenching protections for Canada farmers within that treaty – are exhausted.

There is still plenty of space, and several months of time, for the Americans and Canadians to forge a compromise on TPP. In the meantime, there’s Plan B, which involves negotiating a separate set of bilateral agreements with Asian nations. A free-trade agreement with India is already underway, and exploratory talks have started with China. The South Korean talks are stalled, but could restart if there is real progress with the Japanese. And Thailand offers another opportunity to deepen trade within the Asian market.

These one-on-one deals are not easy. The countries involved are afflicted with complicated domestic politics; non-tariff barriers that are hard to capture in a free-trade agreement are rife; in some cases, corruption undermines the government’s ability to stand by its word.

But the Harper government’s determination to expand trading relationships is a hell-or-high-water priority. If multilateral agreements are unavailable, then bilaterals will have to do.

And increasingly there is another aim to Plan B: to show the Americans that Canada is no longer willing to be just another spoke.

Follow John Ibbitson on Facebook and Twitter @JohnIbbitson

Both Plans A and B should be pursued at the same time ... they both make good economic sense.

Supply management must go, sooner or later, it is a dumb policy - unless you happen to be one of the lucky few who are allowed to fix the prices the 99%+ pay for milk and eggs. The farmers concerned have been quite vocal, going so far as to threaten violence, and when, in past years (e.g. 1976), Ottawa even dared to talk about eliminating supply management those farmers did demonstrate, with violence, on Parliament Hill.

Source: CBC News http://www.cbc.ca/news/business/story/2012/01/04/pol-supply-management-trade.html?cmp=rss

What better time to move than now, during the first two years of a mandate ~ by the time the 2015 election rolls around 99%+ of Canadians will be grateful for lower milk, butter and egg prices.

 

[Infanteer]

"Hub and spoke"?  Isn't that merchantilism?  I thought Adam Smith killed that theory in the 1700s?

 

[Rifleman62]

Now who would want to pay a $1.57 a gallon of milk, $2.29 a lb of butter, $1.89 for a dozen large eggs ($0.97 on sale), $0.67 a lb for a whole chicken, or $11.97 for a dozen Heineken, etc?

 

[a_majoor]

"Hub and spoke"?  Isn't that merchantilism?  I thought Adam Smith killed that theory in the 1700s?

Mercantilism and it's close cousin Crony Capitalism are officially debunked, but continue to exist in the real world since the incentives (if you are on the right side of things) are so great to the people who benefit. Who cares about the economy as a whole or the taxpayers when you are bringing in the big bucks because of these policies?

 

[a_majoor]

If there ever was a reason to drop marketing boards as detrimental to the interests of consumers and farmers alike, this one is it. In the first section of the National Post, the story is expanded, and one breath taking fact emerges; there is a huge oversupply of skim milk which this factory could tap into, but farmers are forced to sell it for processing as lower value skim milk powder and animal feed; costing them a potential bonanza in income:

http://opinion.financialpost.com/2012/03/30/terence-corcoran-chobanis-greek-yogurt-drama/

Terence Corcoran: Canada’s Big Fat Chobani Greek yogurt drama
Terence Corcoran  Mar 30, 2012 – 10:41 PM ET | Last Updated: Mar 31, 2012 11:26 AM ET

In this case, supply management is protecting processors at the expense of farmers

You’ve got to wonder what the agri-bureaucrats in Ottawa and Ontario were thinking when they decided to green-light the entry of Chobani Greek yogurt into the Canadian market. First Ottawa approved temporary imports of the U.S.-made product, as a preliminary step. Then Ontario granted the company that makes Chobani — Agro Farma of Norwich, N.Y. — a licence to build a $76-million yogurt making plant in the province. Then all hell broke loose.

Perhaps the bureaucrats were under the impression that $76-million in new investment and an expanded market for diary products would be good for the economy. Where would they get such ideas?

Instead of support, the approvals created panic in the Canadian dairy herd and a stampede of supply-management protectionists into Federal Court. In Saturday’s National Post, Hollie Shaw tells the Chobani Greek yogurt story and how the company that makes it has landed in a major battle with Canada’s legendary farm-product supply management system.

Perhaps the most instructive element in the unfolding Chobani Greek yogurt saga is the degree to which Canada’s supply-management system is not about farms and farming. In fact, the Chobani expansion would be great for dairy farmers, who would see increased demand for milk. In principle, the Dairy Farmers of Ontario should be right behind the expansion of Agro Farma into Ontario. It’s in the best interests of farmers, the alleged purpose of supply management.

So it’s not farmers who are out marching to the courts and regulatory tribunals to block the arrival of a 940,000 square foot plant in Ontario. Instead, opposition comes from a cabal of milk processors, including some entrenched industrial giants, further down the food-supply chain.

The Chobani case, in short, unravels to demonstrate once again that supply management keeps consumer prices high, restricts growth in markets and acts as an obstacle to competition. And now, it seems, it’s a policy that threatens to prevent growth and expansion, turning the policy intent upside down, protecting processors at the expense of ­farmers.

In Federal Court, the big cheeses of dairy and yogurt processing — the makers of Danone, Yoplait and others — have filed multiple briefs to get the court to reverse the temporary import permit granted last September by the Minister of International Trade. It allows the U.S. company to import Chobani yogurt outside the 237% supply-management tariff barriers. The permit would last for a year to test the Canadian market and build market acceptance before it built a plant.

Objections to the permit are filled with anti-Chobani comments. Caution: some of this language may be offensive to readers who favour free trade and competition.

An affidavit from Gerry Doutre, CEO of Ultima Foods of Montreal — which holds the Yoplait name in Canada — dismisses Chobani yogurt as just another yogurt. They’re all the same, he said. “There is absolutely nothing new or unique about Chobani brand yogurt.”

Another established Canadian yogurt maker, Danone, said there is nothing unique about Chobani: “It is simply another brand of yogurt and Canada already has a plethora of Canadian-produced yogurt.”

Along with blocking Chobani’s temporary test-market ­imports, the established processors are attempting to overturn Ontario’s decision to grant Agro Farma a licence to build a 940,000-square-foot plant. As part of this effort to block the Ontario plant, the processors joined together last November to lock down the supply of milk Agro Farma would need to supply its new plant.

For the first time, yogurt became subject to a processor plant quota system set up under the Dairy Farmers of Ontario. All existing processors were assigned milk based on recent production levels, effectively locking out any new companies. Agro Farma apparently was allocated some of the quota, but only enough to get its new plant up and running. It will need more in future to fill the Chobani demand.

The Dairy Farmers of Ontario have an interest in expanding the supply of milk to supply Chobani. But the other processors are attempting, via an appeal, to reverse the Chobani allocation and prevent it from getting more yogurt in future.

Where all this leads is a bit of mystery at the moment. Ontario is part of a harmonized Eastern Canadian dairy market, and holds the rights under the system to some 32% of the market. Quebec holds 44%. Ontario clearly needs more milk production capacity, something that can only happen if national dairy milk production levels are increased.

Ontario wants more milk production, existing processors are fighting the increase, and the consumer is being left in the dark — and worse off.

The high cost and lost economic opportunity of supply management is well documented. On yogurt alone, according to one court document, the retail price of a kilo of Chobani yogurt in the U.S. would be $2 to $2.50 lower than it will be in Canada under supply management.

Chobani may be a market revolution in the yogurt industry, but it should become the basis for a revolution in Canada’s supply management system.

 

[GAP]

According to this, the budget was just really a shell game................

Fiscal fight left for another day
Terence Corcoran  Mar 29, 2012
Article Link

Flaherty takes advantage of low interest rates to keep spending, while warning Canadians not to do the same

This is no budget for fiscal conservatives and small-government libertarians, but Jim Flaherty’s flabby big “L” liberal puffball of a 2012 fiscal plan is guaranteed to knock the platforms out from under the opposition parties.

That’s a good thing, at least for the short term. Certainly Bob Rae and Thomas Mulcair have nothing to stand on today in the wake of Mr. Flaherty’s fiscal card tricks. But time may be on their side. When the next election rolls around the Tory financial picture could begin to look a little creaky and unsustainable.

For all its superficial achievement of budgetary balance by 2015, the Harper Tories remain on a risky fiscal track. Mr. Flaherty, in fact, is doing exactly what he has been warning Canadians about on mortgages. As he said in one of his finger-wagging sessions with Canadian home buyers last January, “We want to make sure we don’t have the kind of medium-term problem that has been experienced elsewhere … to assume large indebtedness at low interest rates,” Mr. Flaherty said.

Good bit of advice, but not one the government is taking. Running up debt and claiming victory over deficits on the basis of low interest rates is exactly what Mr. Flaherty’s new budget does.

By my count, the big-spending Flaherty budget holds on to its balanced-budget targets only because it has been able to cash in on more than $27-billion in interest rate charges on $600-billion in national debt — interest Ottawa now forecasts will not have to be paid this year and over the next few years.

In other words, Ottawa is being bailed out by windfall rock-bottom interest rate policies maintained by the Bank of Canada and the U.S federal reserve, rate policies that will not be around forever. But instead of using the low-rate environment to help balance the budget sooner, the Harper government just keeps on spending.

One budget list of new spending items totals $2-billion over two years, including $760-million in subsidies for job creation and innovation. More backing ($100-million) for the government-owned Business Development Bank and $400-million to promote the creation of “large scale venture capital” and $67-million this year alone to transform the National Research Council into a product commercialization outfit.
More on link

 

[GAP]

Time will tell, but the sense I get from most people is that they are comfortable with it. If they have issues it is around a single issue, or is a provincial/municipal responsibility, not Federal.

David Frum: Canada can fairly claim to be the best-governed country in the world
David Frum  Mar 31, 2012
Article Link

Under Stephen Harper, Canada can fairly claim to be the best-governed country among advanced democracies in the world. Thursday’s federal budget locks up Canada’s lead.

Right now, the major economies share a common economic problem: With the world slowly and fitfully emerging from the worst economic crisis since the 1930s, they must begin to plan to reduce their debt burdens — but not so fast that they crush demand and abort the recovery. The United Kingdom exemplifies the dangers of moving too fast: your recovery falters.

The United States exemplifies the risks of moving too slow: The inability of its political system to agree on any plan to balance the budget has cost the world’s biggest economy its Triple-A credit rating.

Canada has been seeking to move at a pace that’s just right — and with the 2012 budget, Canada continues to succeed. Barring an unexpected slump into renewed recession, Thursday’s budget moves Canada to budget balance over the next three years. There will be no tax increases. Federal spending growth will be restrained, but outlays will still rise: from $272.9 billion in the year just ended to a projected $296.6 billion in 2015-2016.

This “steady as she goes” course has disappointed some. The Edmonton Sun denounced the budget as “Trudeauesque.”

Such an assessment is upside-down. Trudeau’s budgeting was notorious for its recklessness. Harper’s budgeting is impeccable in its caution. By 2015-2016, Canada will have reduced both spending and debt to pre-recession levels. Nobody else on earth will be able to say anything like that.

The austerity economies of the Eurozone have cut and cut their budgets. Yet budget balance eludes them. They’re in a trap. If you reduce spending too fast, you crimp your economy — and thus also and inadvertently reduce your revenues.

A less dramatic economic policy can support growth and boost revenues. Here’s a trade that a lot of other countries would gratefully accept: Jim Flaherty’s plan allows spending to rise by 11.65% over 5 years. Over those same five years, revenues are expected to surge by 26%.

Would anyone benefit from a smaller rise in the expenditure line if it is true that ­­— as most economists agree — a reduction in expenditure pulls down the revenue line by even more?

The Harper government has already accomplished the second hardest task in government fiscal management: It responded to the economic crisis by supplying just enough fiscal stimulus. Miscalculate that dosage, and you risk careening from economic crisis to debt crisis.

Now it is settling to the very hardest task: Mustering the discipline to recall the stimulus when it is no longer wanted. Overdo it, and you get the relapse into recession that the U.S. suffered in 1937. Underdo it, and you miss your targets and waste your effort.

On these fiscal calculations hang the prosperity of tens of millions of people and the future of a great country. OK, yes, sure — after it’s all over, we’ll be able to look back in time and see with hindsight how this decision or that might have been made better.

From the perspective of today, however, the important news is: how much has already been done right, under the most extreme difficulty, in a time of supreme danger.
More on link

 

[Brad Sallows]

>By my count, the big-spending Flaherty budget holds on to its balanced-budget targets only because it has been able to cash in on more than $27-billion in interest rate charges on $600-billion in national debt — interest Ottawa now forecasts will not have to be paid this year and over the next few years.

So we're basically going to get out of this hole the same way we got out of the last one - low/lower debt servicing costs, and GDP growth, with a little assistance from fiscal restraint/cuts.  The LPC should recognize and applaud this, it being imitation.

But it does nothing to develop fiscal freedom of manoeuvre for the next crisis.  The only things that can do that are healthy operating surpluses, lowered debt (less vulnerability to debt servicing cost increases), higher interest rates (so that there is room to cut them), and relentlessly pro-business (GDP growth) policies.

 

[GAP]

I agree.

There is no secret mantra they followed, just different rhetoric. The one thing they are doing is getting away from the "big brother/government will do it all" attitude. Nowhere near fast enough, but if they stay in power long enough people will grow accustomed to it.

 

[Edward Campbell]

...
But it does nothing to develop fiscal freedom of manoeuvre for the next crisis.  The only things that can do that are healthy operating surpluses, lowered debt (less vulnerability to debt servicing cost increases), higher interest rates (so that there is room to cut them), and relentlessly pro-business (GDP growth) policies.

I agree we want temporary operating surpluses to lower the total debt (national + provincial) to something around 25% of GDP, but:

1. interest rates should be set to control inflation, period; and

2. the "relentlessly pro-business (GDP growth) policies" require returning the surpluses to business by lower corporate taxes thus, eventually, eliminating operating surpluses.

The cost of governing the country can and must be born almost exclusively* by the people who live and work in the country, through the taxes they pay. The business of extracting the necessary money from them must be done expeditiously and efficiently, i.e. in a cost effective way. The tax system must be run with an eye to collecting the necessary money at the lowest possible cost to the taxpayer - it may not be popular (people actually like corporate taxes because it makes them feel good - it makes them feel like "the man" is getting screwed, the fact that corporate taxes are inefficient and wasteful and are, eventually passed, 100% + costs, to the individual consumer/taxpayer is forgotten) but a good, efficient tax system benefits us all.


_____
* There are a few pennies "earned" through e.g. immigration fees that are not paid by individual Canadian taxpayers.

 

[Kirkhill]

GAP:

I believe you have it right.

Many people were expecting Harper to take this opportunity to show his "true colours".  His detractors were looking forward to the "I told you so" moment so they could lead the herd away from him.  His supporters, some of them, were looking forward to the emotional release of the "In your face" moment. 

I believe that Harper has shown that the colours he currently displays are the colours he has already displayed in government and they are characterized by the expression "No Surprises".  Caution.  Incrementalism.  Action if necessary but not necessarily action.

He can't turn around a system that developed over a century* in one term, much less one budget.  He needs to keep the herd with him long enough to get them to where he wants to take them.  And that will take time.

He wants/needs to emulate William Lyon MacKenzie King - a conservative if ever there was one.

*In my opinion the Canadian 20th century was dominated by William Lyon MacKenzie King - for good or ill.  Laurier made King possible by making Quebecers acceptable to the rest of Canada with his pro-Empire positions.  King joined Quebec and Ontario (and the prairies be dam'd) and created the Liberal state that was/is Canada. He made possible St-Laurent, Pearson, Trudeau and Chretien.

 

[Edward Campbell]

Canada's long-term energy security interest is to ensure that it shares (develops and exports, for sale) its energy with the rest of the world over the long term.  The alternative, if things get bad enough, is war.  You want peace?  Exploit resources.

More on this, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/opinions/opinion/the-keystone-xl-delay-was-a-gift-to-canada/article2391122/

The Keystone XL delay was a gift to Canada

ADAM WATEROUS

From Wednesday's Globe and Mail
Published Wednesday, Apr. 04, 2012

Vladimir Putin spent much of 2008 in a dispute with Ukraine over the price of natural gas supplied by Gazprom, the state-owned Russian energy company. Negotiations culminated in early 2009, when, in a moment of brinkmanship, Mr. Putin briefly cut off supplies to Ukraine, through which Russia ships 80 per cent of its Europe-bound gas.

While this muscle-flexing may have given Moscow a short-term political boost, the incident signalled to Europe the danger of depending on Russia for its gas supplies. Europe has since worked to diversify its energy sources, including potentially restarting nuclear facilities and increasing the amount of imported gas from Norway and the Caspian. Major European oil and gas companies (including Shell, BP, Total, Statoil, BG and Repsol) have all since invested tens of billions of dollars in U.S. shale gas, in part to learn techniques for developing that resource in Europe.

The results are clear: Ukraine has pledged to reduce Russian gas imports by two-thirds, and the European Union as a whole reduced Russian gas imports by 30 per cent last year. In other words, Mr. Putin’s political grandstanding backfired – it has actually made Europe more energy independent.

U.S. President Barack Obama’s decision to delay, for a second time, approval of the Keystone XL pipeline has become his Putin moment.

For most of the previous 80 years, Canada and the United States enjoyed a mutually beneficial supplier-customer relationship. In 2011, Canada supplied the U.S. with 2.1 million barrels of oil and 8.9 billion cubic feet of gas a day, making Canada the largest source of imported U.S. oil and gas.

Keystone XL was designed to further strengthen the Canada-U.S. relationship by shipping bitumen from Alberta’s oil sands to Gulf Coast refineries for upgrading. It received Canada’s National Energy Board approval in March of 2010, and South Dakota Public Utilities Commission approval in February of 2010. Later that year, the Environmental Protection Agency said that, with proper safeguards, the pipeline would present “no significant impact” on most resources.

Since Mr. Obama’s decision, the Canadian government and private enterprise have been doing what any supplier would do when it discovers that a customer is not reliable – they are working to diversify their market. Fortunately for Canada, Asia is more than willing to step in. Prime Minister Stephen Harper went to China in February to encourage Chinese investment in the oil sector. He has declared that regulatory approval for Northern Gateway, a proposed oil sands pipeline to the West Coast, is a national priority.

Asia has responded enthusiastically. Since Mr. Obama first raised concern about Keystone in September, the pace of Asian investment in the Canadian energy sector has increased. In October, Sinopec announced it was acquiring Daylight Energy for $2.1-billion. In February, Mitsubishi invested $2.9-billion in a joint venture with Encana on its B.C. gas assets. Both are looking at the potential to ship gas to B.C. for the Asian liquefied natural gas market. In January, PetroChina expanded its oil sands investments by acquiring, for $680-million, additional oil sands assets from Athabasca Oil Sands Corp. In February, PetroChina acquired a 20-per-cent interest in Shell’s Groundbirch asset for an undisclosed amount. Sinopec is also a major investor in the Canadian oil sands market and an investor in the Gateway pipeline.

In addition to diversifying away from its unreliable customer, Canada will get two additional benefits of forging a relationship with Asia.

First, Canada will get better oil prices. Canadian oil currently sells at a discount to world markets due to lack of capacity out of the U.S. Midwest at Cushing, Okla. In 2011, this discount between West Texas Intermediate and Brent cost producers amounted to $4.6-billion, according to oil consultant Peter Tertzakian. Keystone XL would help to alleviate this bottleneck. Canada has awakened to the fact that it does not need to be a price taker, dependent on internal U.S. price dynamics. According to a December report by oil consultant Wood Mackenzie, Canadian producers will lose $8-billion in revenue a year by 2020 if U.S. bottlenecks are not loosened.

Second, Canada will get cheap capital. As Canada shifts its focus away from the U.S. to Asia, the Canadian oil and gas industry is getting access to lower cost Asian capital. With more than $134-billion in oil sands projects under construction or about to start, Canada needs to find investment dollars with the lowest investment hurdle rate.

Perhaps sensing his foolishness, Mr. Obama recently welcomed TransCanada’s proposal to build the southern leg of Keystone XL. Unfortunately, his actions may be too little, too late. Even with the likely eventual approval of Keystone XL in 2013, Mr. Obama will be closing the barn door after the horses are gone. He has clearly given Canada (and China) a wonderful gift.

Adam Waterous is vice-chairman, head of Scotiabank Global Investment Banking, and president and head of Scotia Waterous, the oil-and-gas mergers and acquisitions division of Scotiabank’s Global Banking and Markets division.

I am pretty much 100% onside with Mr. Waterous' analysis - Obama served us well.

 

[Kirkhill]

More on this, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/opinions/opinion/the-keystone-xl-delay-was-a-gift-to-canada/article2391122/

I am pretty much 100% onside with Mr. Waterous' analysis - Obama served us well.

Fair Comment.  Clouds with silver linings etc.....

 

[Infanteer]

It looks like Mr Harper will succeed where Mr Trudeau failed - due to the strength of our resource market, we will lessen the effects of sleeping with the elephant.