Making Canada Relevant Again- The Economic Super-Thread

[Edward Campbell]

I guess that this might belong here; it is in the category of "disruptors" about which our friend Thucydide has written now and again and about which e.g. CNBC regularly reminds us, but this is not Space X or Etsy (I have used the latter two or three times and was entirely satisfied each time, by the way), rather is is about established giants, the Detroit based auto industry, and a new Internet giant, Google and the future of the automobile: http://www.theglobeandmail.com/technology/tech-news/google-detroit-reach-fork-in-the-road-to-self-driving-cars/article19389917/#dashboard/follows/

Google wants to change the way urban man moves about.

For 100 years or more Detroit has driven us in one direction (pun intended): the driver controlled, private automobile. Now Google wants an automatic public (it will, essentially, be public because it will require public infrastructure and regulation) custom transport system.

In some respects this is like the green tax discussion. It doesn't impact on some of us ... only on those (a majority, in fact) who live in urban/suburban cities and towns.

I can well imagine that there is a lot of heartburn in Mountain View, Detroit and, especially, in Wall Street, the City and HK where bankers will have to make some bold decisions ... something most bankers, in my (limited) experience are loath to do.

Someone, somewhere, is going to get very rich by backing the right horse ... I wonder if that someone is Canadian in somewhere like, say, Waterloo or Kanata or Richmond, BC.

 

[a_majoor]

Greens and American groups like the Tides Foundation regularly play aboriginal theatre in order to try to influence the debate against developing hydrocarbon energy sources or transportation systems like pipelines. This article from Australia shows that some in that aboriginal community understand what is going on. I wonder how long it will take for most Canadian aboriginals to catch on to what is really happening:

http://www.afr.com/p/opinion/green_groups_keep_aboriginal_people_dyQc0k0oqQYyVwUpl7qhLM

Green groups keep Aboriginal people in poverty
PUBLISHED: 02 JUL 2014 00:05:00 | UPDATED: 02 JUL 2014 15:49:06

The greatest threat to their languages and culture, their way of life and their desire to live on country, is the inability to build a real economy.
NYUNGGAI WARREN MUNDINE


It was great to see Cape York traditional owners defeat Queensland’s Wild Rivers legislation in the Federal Court last month.

In 2009, the Bligh Labor government declared three major Cape York rivers as “wild rivers”. It was a politically motivated decision to secure Greens preferences in a close state election. It locked up major areas of Queensland’s far north making it impossible for traditional owners to pursue developments, including things like horticulture and tourism. It made a mockery of the Labor party’s support for land rights. Aboriginal people in Cape York had their land but, unlike every other landowner in Australia, weren’t allowed to prosper from it.

The Wilderness Society was the main agitator for the 2009 declaration. In a statement after the decision, it said “Queensland is blessed with some of the last remaining freeflowing rivers left on the planet and they need to be treasured.”

Too bad Aboriginal people are amongst the poorest people on the planet; a people whose main assets are rights over land and sea. After years of dispossession and being forced off our land, we’re slowly getting some of those rights back – only to be told by Green groups that the music has stopped.

Aboriginal people are not museum pieces. It’s our land and we can deal with it as we see fit, subject to the same extensive environmental protections that apply to everybody else. Traditional owners in Cape York treasure their rivers more than anyone. They also treasure their culture and languages. Most want to remain on their country. But the greatest threat to their languages and culture, their way of life and their desire to live on country, is the inability to build a real economy.

The only way for Indigenous people to rise out of poverty is through commercial and economic development.

Globally about two-thirds of poverty reduction comes from economic growth. According to The Economist “the biggest poverty-reduction measure of all is liberalising markets to let poor people get richer. That means freeing trade between countries . . . and within them”.

WOODSIDE WITHDRAWAL A BLOW
But the Wilderness Society doesn’t want Aboriginal people who are living in poverty to get richer. This organisation was also instrumental in killing off the James Price Point gas hub.

That project became uneconomical, with protest and resistance at every stage of the pre-approval works. Woodside withdrew, to the great disappointment of the Aboriginal traditional owners who supported the project and were relying on it to spearhead economic development in their communities.

The Wilderness Society claimed a major industrial complex there would be environmentally destructive, compromise the sustainable economic future of the Kimberleys through things like eco-tourism and be the “thin edge of the wedge” triggering many other damaging developments.

These arguments are harmful and fanciful. I don’t think urban Green sympathisers actually comprehend the size of Australia’s remote regions. I spend a lot of time flying over these areas. They’re vast. The idea you can’t develop in these areas without destroying them is laughable. The Kimberleys is more than 421,000 square kilometres – about twice the size of Victoria and three times the size of England. The land area for the gas hub was 25 square kilometres. Suggesting a gas hub in James Price Point would ruin the Kimberleys is like suggesting a development in Ulladulla would ruin all of southern NSW and Victoria.

There are some great opportunities for remote communities to generate income through tourism, but tourism alone won’t deliver a sustainable economic future. And if the gas hub proceeded there would still be over 420,000 square kilometres in the Kimberleys for eco-tourism anyway.

Take for example Arnhem Land. Rio’s alumina refinery is located at picturesque Melville Bay next to crystal blue water. Drive a short distance and you’ll find some of the most pristine and beautiful wilderness in Australia.

GREENS RELY ON MINING INDUSTRY
The Yolngu nation is developing tourism initiatives and also has mining licences. Different industries can co-exist with each other and with the environment.

In April, I challenged the Greens to name one place in Australia where they’d support a new mine and one place in Australia where they’d support oil or gas exploration and processing. So far I’m yet to hear anything.

I’m not aware of a mining or energy project that’s ever been supported by Green groups. Yet they depend on those industries to get their message across – they operate websites, fly aeroplanes, use smartphones, all built from materials that come from mining and requiring massive amounts of energy to operate.

It’s easy to oppose. It’s a lot harder to build something that delivers jobs, creates economic prosperity and gives remote communities a sustainable future.

Cape York leader Noel Pearson said Queensland Labor should hang its head in shame for putting traditional owners through five years of struggle over Wild Rivers. Green groups should hang their heads in shame for wanting to keep indigenous Australians in poverty.

Nyunggai Warren Mundine is Managing Director of NyunggaBlack and Executive Chairman of the Australian Indigenous Chamber of Commerce.

 

[Edward Campbell]

CBC journalist Kathleen Petty takes a look at the politics of greed and envy that surround the energy sector in Canada in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from CBC News/Calgary:

http://www.cbc.ca/news/canada/calgary/the-fragile-power-of-alberta-s-golden-goose-economy-1.2694627?cmp=rss

ANALYSIS: The fragile power of Alberta's golden goose economy
The environmental debate would be easier if the national economy wasn't so lopsided

By Kathleen Petty, CBC News

Posted: Jul 03, 2014

Cast yourself back seven years to August 2007 when Canada's premiers gathered for their annual meeting in Moncton. Led by Ontario's Dalton McGuinty, the majority of premiers, representing 75 per cent of the Canadian population, were pushing for a cap and trade system to deal with the growing greenhouse gas emissions.

In the crosshairs, Alberta and its then-premier Ed Stelmach.

Stelmach left after one day, insisting Alberta needed more time to reduce emissions in any substantial way.

It was Newfoundland premier Danny Williams who stepped up to defend Alberta in his absence. "It's not easy being green," Williams said back then, adding "we don't want to slay the goose that lays the golden egg."

At the time, the Stephen Harper government had also pledged to regulate emissions in the oil and gas sector. The industry and the provincial government in Alberta are still waiting for those regulations, first promised in October 2006.

How many years need to go by, you might ask, before an unfulfilled promise is nothing more than misleading rhetoric?

Then again, perhaps the delay is prompted by a real fear. Regulations to curb oil sands emissions might curb their growth, but they could also curb the oversized contributions the oil sands are making to the entire Canadian economy.

Consider that seven years ago, one of the most passionate proponents of a Canadian cap and trade system at that Moncton meeting is now one of the chief salesmen for Alberta's oil sands, and the pipelines needed to transport its bitumen — none other than Canada's ambassador to the U.S., Gary Doer, the former premier of Manitoba.

Consider also that, as the Bank of Montreal pointed out in March, that nine in 10 net new jobs in the past year were created in Alberta. In other words, 90 per cent of the new jobs in Canada were created in a province with 11 per cent of the population.

Canada's lopsided economic engine

Guess what industry is fuelling that growth.

Federal Finance Minister Joe Oliver certainly knows, which explains his recent doom and gloom scenario about not getting Alberta's bitumen to market.

"The choice is stark," he says. "Head down the path of economic decline, higher unemployment, limited funds for social programs like health care."

Valid point, but what does it say about the federal government's job creation record and its stewardship of the national economy?

Surely a national economy that is so reliant on one industry in one province isn't a healthy one. And it isn't just BMO pointing out the lopsided nature of Canada's growth.

As Craig Wright, the chief economist at the Royal Bank of Canada, observed earlier this month, "Alberta is head and shoulders above other provinces, having experienced an average growth rate of 4.3 per cent over the past four years."

That was more than double the average growth rate in the rest of the provinces over most of that period, and the economic dominance is expected to continue this year.

The delicate dance

If you go to the government of Alberta website, you'll find a report called Fiscal Spotlight.

The most recent numbers are from 2011, and what they show is that the federal government collects the most tax revenue on a per capita basis from Alberta and spends the least.

By the numbers, that works out to an average of $5,012 more per person paid to federal coffers than was paid back in transfers, for a net contribution of $18.9 billion to the national purse.

It seems obvious that money not only doesn't always buy happiness but it also doesn't buy harmony. The nature of today's debate about the oil sands and pipelines makes that very clear.

A recent online story about flooding concerns in southern Alberta attracted a disturbing number of people who suggested it was payback for being environmental laggards.

That's hardly fair. Albertans are as concerned about the environment as anyone else.

But environmental stewardship in lockstep with economic stewardship is a delicate dance.

If the Canadian economy was more balanced, if job creation was more widespread, if explosive growth wasn't concentrated in one sector and one province, the federal government could probably be less of an advocate for the oil industry and address the growing calls for a more substantive strategy to reduce GHGs.

As far back as 2007, about the same time as those cap and trade premiers were meeting in Moncton, the prime minister said climate change was "perhaps the biggest threat to confront the future of humanity today."

Yet in early June of this year, Harper insisted, "No country is going to undertake actions on climate change, no matter what they say ... that is going to deliberately destroy jobs and growth in their country."

How do we square that one?

Meanwhile, Alberta will continue to grow and make its substantial contributions to federal coffers. New numbers this week show the provincial population grew by three times the national average in 2013, a growth rate not seen since the 1980s.

Opponents of the oils sands and pipelines will continue to make their arguments for pulling back and putting the environment ahead of the economy — a position many Canadians hold.

When Pierre Trudeau's Liberals helped rescue the oil sands in the mid-1970s, along with the governments of Ontario and Alberta, the three thought there was great potential for the national economy. I doubt they imagined the animosity that would become part of the package.

When I watch the interprovincial rivalries, part of Ms Petty's "delicate dance" I am reminded of an old Russian story about a poor peasant who had only one cow but who, on his way to the fields, passed his neighbour's farm where there were two cows. Each day the peasant went to church, each day the envy grew and festered in his heart, and each day he fell to his knees and prayed, "Please, God, kill one of my neighbour's cows!" That's about the state of play amongst Canadians, isn't it?

 

[Kirkhill]

For 100 years or more Detroit has driven us in one direction (pun intended): the driver controlled, private automobile. Now Google wants an automatic public (it will, essentially, be public because it will require public infrastructure and regulation) custom transport system.

In some respects this is like the green tax discussion. It doesn't impact on some of us ... only on those (a majority, in fact) who live in urban/suburban cities and towns.

I can well imagine that there is a lot of heartburn in Mountain View, Detroit and, especially, in Wall Street, the City and HK where bankers will have to make some bold decisions ... something most bankers, in my (limited) experience are loath to do.

Someone, somewhere, is going to get very rich by backing the right horse ... I wonder if that someone is Canadian in somewhere like, say, Waterloo or Kanata or Richmond, BC.

Are we sure that the solution will be a public one?

Fire prevention - the ultimate public service - started off as a privately funded service offered to customers by insurance companies to protect their mutual stake in property.

Turnpikes and tollroads - the tradition continues unabated

Gated communities.

I think you could make a business case for a privately financed Google Transportation Network with gated communities being connected by purpose built toll routes (at, below or above grade) or possibly with intervening aerial and maritime ferries.

The Design Basis for a Google driven net may give you routes that look more like monorail and skytrain systems than conventional systems.  Toronto's Gardiner and Seattle's Over/Under expressway may end up taking up less space and carrying higher traffic flows.

 

[Edward Campbell]

Are we sure that the solution will be a public one?

Fire prevention - the ultimate public service - started off as a privately funded service offered to customers by insurance companies to protect their mutual stake in property.

Turnpikes and tollroads - the tradition continues unabated

Gated communities.

I think you could make a business case for a privately financed Google Transportation Network with gated communities being connected by purpose built toll routes (at, below or above grade) or possibly with intervening aerial and maritime ferries.

The Design Basis for a Google driven net may give you routes that look more like monorail and skytrain systems than conventional systems.  Toronto's Gardiner and Seattle's Over/Under expressway may end up taking up less space and carrying higher traffic flows.

I take your point, certainly, but I don't think public = government. I have argued, pretty steadily, for very, very small, limited government. I don't want public services to disappear; I just don't want governments to operate them. I think, today, about e.g. public transit in some (most?) Japanese cities which is privately operated as a public utility, and public hospitals in most countries which are privately operated. I can easily envisage a public transport system that operates on a privately owned (pay for use) network. It might start as something like existing pay for use car services using 'driverless cars' on 'dedicated' lanes on city streets (for which the private service provider pays the cash strapped city) ... we have dedicated bus lanes, dedicated 'high occupancy' lanes, dedicated bike lanes, why not dedicated automatic tranport lanes?

 

[Kirkhill]

I see you now.

My error on conflating Public with Government.  It is something I will have to fight against.

As I think about it I am struck by how much things have changed over the last 50 years.

When I left the worker's paradise in Britain tied to my mother's apron strings Britain was largely adhering to the plan developed by Labour and the Government was in control and NHS for everyone.

Yet the buses we rode on were not all "corporation" (meaning municipal) buses.  Not all dustmen worked for the corporation.  Doctors, nurses and hospitals were all independent agents that received payment from the Government acting as third party insurer.  My glasses were purchased at private opticians although "free NHS" glasses were also available from the same outlets.  My grandparents transferred hard coin that they received in a paper pay packet by hand from their employers to the insurance company's agent who weekly walked the route and picked up the little brown envelopes.

Almost all the "government provided" services started out as private services that governments nationalized as they tried to buy the good life for everybody with other people's money.  But if everybody gets everything for free who pays?

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail is an excellent opinion piece by Gregory Thomas of the Canadian Taxpayer's Federation:

http://www.theglobeandmail.com/globe-debate/oliver-is-right-to-reject-calls-for-fiscal-irresponsibility/article19765771/#dashboard/follows/

Oliver is right to reject calls for fiscal irresponsibility[/url]

GREGORY THOMAS
Contributed to The Globe and Mail

Published Friday, Jul. 25 2014

[i]Gregory Thomas is federal director of the Canadian Taxpayer’s Federation[/i]

No sooner had the wizards in the federal finance department hinted that a balanced budget could actually be coming this year – 2014, a year ahead of schedule – than Bay Street recoiled in horror.

Chief economists of the big banks – who do a brisk business selling Canadian bonds at a profit – warned that balancing the books could be bad for the economy.

William Scarth, professor of economics at McMaster University and research fellow at the C.D Howe Institute even went so far this week to suggest that the Harper government could trim Canada’s unemployment rate by four tenths of a percentage point by running a modest $10-billion deficit over the next three years, creating 75,000 jobs.

To his credit, federal Finance Minister Joe Oliver has seen this movie before. He rejected the idea out-of-hand.

“Our government will not open the taps on reckless spending,” said Oliver. “We will not go down that well-trod and irresponsible path to economic decline.”

Mr. Oliver knows there’s a problem with the hoary old nostrum – running just a tiny, little deficit in order to ‘create’ thousands of short-term, government-funded jobs.

The best recent example involves his predecessor, Jim Flaherty, and the government’s 2009 stimulus package.

Mr. Flaherty projected a deficit of $34-billion for 2009 and $30-billion for 2010, tapering down to $7.3-billion in 2012, with total federal debt peaking at $542-billion.

In exchange for $84-billion in new debt, Mr. Flaherty’s 2009 budget forecast that 235,000 jobs would be created or maintained.

Mr. Flaherty’s actual deficits ended up being much larger than he expected: $55-billion in 2009, $33-billion in 2010, $26-billion in 2011, $19-billion in 2012, and $12-billion in 2013, adding almost $150-billion to the federal debt – nearly double what was promised.

To be sure, after shedding 417,000 jobs from pre-recession peak to trough, the economy recovered. 540,000 more Canadians were working at the end of 2013 than at the end of 2008.

If we give the federal government credit for every single job created since the worst day of the recession in 2009 (which is ridiculous, but nonetheless), that means we’re carrying about $160,000 in additional federal debt, per job created. And that doesn’t include the mountain of provincial debt borrowed in the past five years, billions paid out in EI or the reality that natural economic recovery/growth would account for the majority of those jobs.

So anybody – not just the C.D. Howe Institute or the bank economists – but anybody who says we can create thousands of jobs by going a few billion deeper in debt has a problem with history.

History teaches us that once the borrowing bandwagon begins to roll, deficits and debt always outrun their forecasts. And the jobs created by debt are created at astronomical costs.

History also teaches us that government fails to deliver on its promises, year in and year out.

Consider just one example of government promised jobs: the federal Skills and Employment program, delivered at a cost of $19-billion by 1,488 government employees. Despite its massive budget, fewer than 40 per cent of Canada’s unemployed are currently receiving EI benefits.

Fewer than half of apprentices graduate with trade’s certification. More than a quarter of unemployed Canadians exhaust their benefits before finding work. Nearly half of the unemployed fail to find a job or return to school after completing one of the lavishly-federally-funded training programs. More than a quarter of EI claimants have collected at least three times in the past five years.

This is only one of more than 700 federal spending programs. Who can seriously argue that we need more?

The C.D. Howe report suggests these 75,000 new jobs should be created through federally-funded infrastructure projects. If providing new infrastructure is a priority of the Harper government, it should be prioritized ahead of other spending in the next federal budget, and not tacked on to the debt as a “make-work” project.

Using low-priority infrastructure as an excuse for creating jobs is also a slippery slope. This was probably best illustrated by the great economist Dr. Milton Friedman. On a trip to India in the 1960s, Mr. Friedman witnessed thousands of workers constructing a canal by hand with shovels rather than modern equipment.

When he questioned the government bureaucrat in charge he was informed it was a “jobs program.” Dr. Friedman reportedly replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

Mr. Oliver is right to reject calls for further fiscal irresponsibility. Putting Canada back in the black and marching towards a budget that will put more money back into the economy through tax cuts is a much more prudent move.[/quote]


So why are very respectable economists like [url=https://www.economics.mcmaster.ca/faculty/scarth]Willim Scart[/url] thumping their tubs for more spending, even deficit spending? Put simply: it works, or, at least, it appears to work. There is no question  that properly focused public spending will create some jobs - but, generally, they will be public sector jobs and, with all the respect in the world for public sector workers, we cannot measure their [i]productivity[/i] in any sensible manner - not like we can measure the [i]productivity[/i] of, say, a bank teller or an auto assembly line worker.

The key point is this:

    "If we give the federal government credit for every single job created since the worst day of the recession in 2009 (which is ridiculous, but nonetheless), that means we’re carrying about $160,000 in additional federal debt, per job created.
    And that doesn’t include the mountain of provincial debt borrowed in the past five years, billions paid out in EI or [u][b]the reality that natural economic recovery/growth would account for the majority of those jobs[/b][/u]."

I'm happy to give stimulus spending [u]part[/u] of the credit for enabling that "natural economic recovery" to happen in  a timely manner, but it would have happened, eventually, anyway and there is an argument, cruel and heartless though it may sound, that "natural" recessions and recoveries, with all the pain they create for individuals, are 'good' for the economy and should be allowed to proceed at their own pace. (Of course allowing a recession to proceed at its own pace would be political suicide.)

 

[Edward Campbell]

A look at some of the drags on the system which limit Canadian productivity. This is something the government could start highlighting as a means of preparing the battlespace for 2015 and beyond:

http://opinion.financialpost.com/2012/06/04/the-euro-loonie/

The Globe and Mail reports that "Germany is to reject a multi-billion free trade deal between the European Union and Canada", the report say that "Berlin objects to clauses outlining the legal protection offered to firms investing in the 28-member bloc. Critics say they could allow investors to stop or reverse laws." This is very similar to the provisions of Chapter 11 of the North American Free Trade Agreement which allows companies in one NAFTA country to sue the government of another NAFTA country for “regulatory expropriation.” That can be interpreted to mean a loss of value to the company — such as lower profits — due to actions taken by the government." It was an American demand and it is part of the US proposal in the EU/US free trade negotiations.

My expectation is that the Germans will propose a solution to the CETA that will be acceptable to Canada and will form the base for the EU/US talks.


Edit to add:

There is a further report in the Glob and Mail suggesting that some renegotiation of details will be necessary (the Good Grey Globe's reporter is a bit hysterical  anic:  ) the key is, in the words of trade consultant Peter Clark, at the very end of the article:

          ‎      "The message is that Germany ... is not going to submit itself to NAFTA Type Chapter 11 investor state arbitration ... in their view there is nothing wrong with German courts and foreigners
                  should not have different rights than Germans."

The real message is being sent to the USA, not Canada. My assessment (worth what you'r paying for it) is that Germany wants a (slightly modified) deal with Canada to use as a template in the EU/USA negotiations.

 

[Edward Campbell]

More on the CETA, including its potential impact on Prime Minister Harper's political future and on the global economy, in this opinion piece which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/globe-debate/why-a-canada-europe-deal-is-crucial-to-global-trade/article19819650/#dashboard/follows/

Why a Canada-Europe deal is crucial to global trade

JOHN IBBITSON
The Globe and Mail

Published Tuesday, Jul. 29 2014

John Ibbitson is a CIGI senior fellow, an award-winning writer and leading political journalist in Canada. Currently on a one-year leave from The Globe and Mail, John is researching, writing and speaking on Canadian foreign policy at CIGI while he works on a new book.

Forget the Senate scandal: the Conservatives are on the brink of an even greater fiasco, one that could tarnish Stephen Harper’s legacy and brand this Conservative majority government a failure. Worse, far worse, it puts APTA at risk.

Forgive me: in a world filled with acronyms, I’ve just invented another, and it’s for something that doesn’t even exist yet. But APTA represents the world’s best possible future, and it hinges on Canada and Germany coming to terms.

Last year, this country and the European Union signed the Comprehensive Economic and Trade Agreement, or CETA. The deal is vitally important to both sides. The Harper government is determined to make Canada’s vertical (Canada-U.S.) trading economy more horizontal (Canada-Europe and Canada-Pacific). CETA is the first step in that transformation.

For its part, the European Union desperately needs a win after almost a decade of economic crises and other reverses.

But the text of the agreement still hasn’t been released, and reports on both sides of the Atlantic say ISDS is the reason. ISDS stands for “investor-state dispute settlement.” It provides a means whereby corporations can sue governments that violate the terms of an agreement, such as CETA.

Germany is being sued by a Swedish company for deciding to phase out its nuclear power plants. If the German press is to be believed, this has made German Chancellor Angela Merkel gun-shy over ISDS. Germany wants the provision taken out of CETA. Canada won’t sign without it.

A representative for International Trade Minister Ed Fast says reports of CETA’s demise are exaggerated. But almost a year after the agreement was initialed, the text still hasn’t been released, so something is clearly wrong.

The Americans are watching the Canada-EU negotiations closely. They are in trade talks of their own with Europe, known as TTIP (Transatlantic Trade and Investment Partnership). If CETA fails, then TTIP is doomed. That would be a global tragedy.

Why? Think of what happens if CETA and TTIP get signed. It would then only be a matter of ironing out details to merge the two agreements to create NATA, the North Atlantic Trade Area. Europe and the two most advanced economies in North America would exist inside a free-trade zone, one that not only eliminates tariffs, but also establishes rules for intellectual property and government procurement, and even reduces (in a preliminary way) agriculture subsidies.

And even that would be mere overture. The United States and Canada are deeply immersed in TPP, the Trans Pacific Partnership, a potential trade agreement that would involve 10 other developed (Japan, Australia, New Zealand and Singapore) and emerging (Malaysia, Vietnam, Mexico, Chile, Peru and Brunei) Pacific economies.

If Canada, Europe and the United States can nail down their trade agreements, then this would offer a huge incentive to finally conclude the TPP. And suddenly we would live in a world in which Europe, most of North and South America and much of the Pacific are operating under near-identical economic rules.

If all sides could be convinced to, once and for all, abandon the foolish crutch of agriculture subsidies, then there would be nothing to prevent the harmonization of the European and Pacific trade agreements. We would have APTA: the Atlantic-Pacific Trade Area.

That would leave the world effectively divided into three economic blocs: APTA, representing the developed and much of the developing world; the emerging powerhouses known as the BRICS (Brazil, Russia, India, China and South Africa); and Everybody Else (E2). The real questions would then be: Will India, China and Brazil join APTA or remain outside?

Over time, they would almost certainly join. Brazil would want the same trading advantage that Chile and Peru would enjoy under APTA; India is already showing interest in joining the global trading economy; China would be better off inside (and trying to dominate) APTA than outside. Once China, India and Brazil are inside APTA, any government on the planet that wants to export would have to join. The globalization of trade would be complete.

The stakes are even higher than they seem. Dark forces are trying to drag the world back into its violent, protectionist past: Russia is putting 70 years of peace in Europe at risk; Islamic fundamentalists would plunge the Middle East and northern Africa into a new dark age. War and famine still stalk too many lands.

Against this shadow stands globalization, a universal movement to bring the world closer together by promoting the free flow of goods, people and ideas. Globalization encourages creativity, innovation, productivity and peace. It accelerates the future.

Without CETA, everything is put at risk – and, as a minor side-effect, Stephen Harper suffers a potentially career-ending defeat. With CETA, everything becomes possible. It’s as simple as that.

I agree, broadly, with Mr Ibbitson and I agree, equally broadly, with Chancellor's Merkel's position re: ISDS (investor-state dispute settlement, AKA NAFTA Chapter 11). Canada agreed to Chapter 11 because, with very good reason, we don't trust the US Congress to obey its own laws or to honour treaties ... and the Americans don't trust any foreigners. Chancellor Merkel will not, in my opinion, cede any German political sovereignty to any court, not even a German one, so, given that she wants (needs) a EU-USA free trade deal, she will be keen to negotiate a deal with Canada that will satisfy her minimum demands and serve as a template for the Americans. "This is what we gave Canada," she wants to say, "we will give you Americans no more."

 

[GAP]

That's all well and good, but with some of the governments out there we intend to trade with, there has to be something to protect/dispute issues for our businesses.

opening ourselves to other government whims/wishes is likely to be a real pratfall....

 

[Edward Campbell]

That's all well and good, but with some of the governments out there we intend to trade with, there has to be something to protect/dispute issues for our businesses.

opening ourselves to other government whims/wishes is likely to be a real pratfall....

Quite right. There has to be something, but ISDS/Chapter 11 is too rich for Germany's blood and I suspect it will be the same for other major economic powers. The trick is to find the compromise that satisfies Canada, can be swallowed by the USA and meets Germany's minimum demands.

 

[a_majoor]

More on US interests trying to cripple Canada:

http://business.financialpost.com/2014/08/08/peter-foster-green-billionaires-undermining-canada/

Peter Foster: Green billionaires undermining Canada

Peter Foster | August 8, 2014 9:49 AM ET
More from Peter Foster

Canada has been targeted by Big Money-backed campaigns as a ‘climate villain’

In his 2010 State of the Union address, U.S. President Barack Obama chided the members of the Supreme Court, who sat before him, for removing restrictions on political funding. This, he claimed “reversed a century of law to open the floodgates for special interests – including foreign corporations – to spend without limit in our elections.” Elsewhere he has castigated “millionaires and billionaires” for bankrolling politicians and thus shutting “ordinary Americans” out of the process.

Last week, a minority report from the U.S. Senate Committee on Environment and Public Works pointed to the President’s “blatant hypocrisy and obfuscation,” since his own cadre of millionaires and billionaires uses devious tactics in controlling the massive far-left environmental movement to which the President is in thrall.

What the report doesn’t emphasize (although it cites the Big Money behind opposition to TransCanada’s Keystone XL pipeline) is how Big U.S. Money has a disproportionate impact on Canada, particularly when it comes to energy development.

While the left bleats incessantly about the Koch brothers, who dare to support such nefarious principles as free enterprise, their own side is top heavy with salvationist billionaires who want more government to promote the nebulous concept of sustainability. Perhaps the most egregious recent example is the Risky Business Project – on the alleged existential threat of faith-based climate change — co-chaired by billionaires Michael Bloomberg and Tom Steyer, and by former U.S. Treasury Secretary Hank Paulson, who seems to want to atone for bailing out Wall Street by undermining the whole capitalist system.

Related
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Canada’s problem is that it has been targeted by Big Money-backed campaigns as a “climate villain,” primarily because of the oil sands.

The Senate report deals primarily with how what it calls a “Billionaires Club” is promoting climate hysteria with bogus science, seeding fake grassroots opposition to fracking, and has helped craft the administration’s draconian policies in areas such as phasing out coal.

This last thrust – based on the revelation that the Environmental Protection Agency’s policy had been heavily influenced by the Natural Resources Defense Council (one of the most rabid distributors of false information about the oil sands) – points to another of the report’s key conclusions: that the EPA has essentially been captured by the environmental left and its Big Money sponsors.

The report traces the convoluted links by which vast amounts are laundered from private foundations through opaque intermediate groups to radical activist organizations. These arrangements appear partly designed to maximize foundations’ bang for their buck in terms of political influence, partly to cloak their involvement. The problem is that they seek to evade tax laws designed to restrict taxpayer funding of political activity, which has recently become a major issue in Canada too.

The reports seeks to highlight “foreign influence” within this process, but comes up with slim pickings, noting only that an entity called Sea Change – funded by California hedge fund billionaire James Simons and run by his son, Nat — “relies on funding from a foreign company with undisclosed donors.”

The reason that foreign funding of radical environmentalism isn’t a big deal in U.S. is because all the big radical funders are U.S. based. Insofar as the incestuous groups the report highlights are influential abroad, the country in which they are most influential is Canada.

Nobody has done more valuable work on this issue than Vancouver-based independent researcher Vivian Krause. Recently Ms. Krause wrote a trenchant expose – Following the (primarily U.S.) money funding Canada’s anti-oil movement — in Alberta Oil magazine. For anybody who wants to understand the pernicious influence of Big U.S. Foundation money in trying to choke the oil sands by holding up pipeline infrastructure, it is required reading. So is the Senate report.

The report traces myriad interconnected groups and individuals who drive the larger agenda: secretive “facilitators” such as the Environmental Grantmakers Association; conduits such as the Energy Foundation, which serve to provide distance between donors and activists; individuals such as Drummond Pike, the man who crafted the Tides organization (highly influential in secretly funneling cash to Canadian activists to sanitize large areas of Canada from development); and the activist groups themselves, such as the NRDC, Sierra Club, World Wildlife Fund etc. etc. Behind them are all those multi-billion dollar foundations associated with the names of great capitalists such as Rockefeller, Pew, Hewlett, and Packard.

Those running the agenda are resolutely opposed to fossil fuels. As such they make convenient bedfellows for those who seek government subsidies for the supposedly inevitable transition to a “green economy.”

One cannot doubt that much of the Big Money is “well-motivated,” but it is also based on a demonic view of industrial society. The report cites a poem by Adelaide Park Gomer, who runs the Park Foundation, which has been prominent in funding and promoting anti-fracking propaganda. Here’s a sample:

“Business reigns supreme today.

Morality and ethics held at bay.

Motivated by greed and power…

No accountability, no remorse,

Bleeding the planet is our course.

We’ll rape and pillage and take what we want,

Blatantly detached and nonchalant.”

This hysterical doggerel would be less worrying if it weren’t attached to multi-million dollar grants, and hadn’t been published in the journal of the Environmental Grantmakers Association, the very epicentre of distributing Big Green money.

The report concludes that the “far-left environmental machine… undermines American free enterprise and resource security.” It cites the damage that over-the-top environmental policies does to average Americans. But the threat is at least as great — if not greater — for average Canadians.

 

[Edward Campbell]

The CMA is, according to an article in the Globe and Mail, "calling out the government of Stephen Harper for its inaction on health care, saying the medicare system is floundering and Canadians are “tired of excuses as to why the federal government can’t take action [and]  Canada’s health system ranks next to last (after the United States) on virtually every measure of quality and access."

Dr. Chris Simpson, the new leader of the Canadian Medical Association, asks: “What do these successful countries have that we don’t?”

He gives a three part answer:

    1. They have a clear commitment to quality improvement, with goals and targets;

    2. They have buy-in and leadership from doctors; and

    3. They have strong leadership from a committed federal or national government.

I agree with all three, to some degree, but they also have one other HUGE advantage that Canada lacks: mixed public and private funding.

In my opinion Prime Minister Harper is providing the only sort of leadership that will, eventually, work for Canada: he is setting the system up for failure. And the Canadian health care system will fail, it must fail because it is totally unaffordable as currently structured. ALL, 100% of the successful system have some levels of both private money and fees for users. The best systems charge ALL users, even the poorest of the poor, for medical services - now, in the end the state pays for the poorest of the poor because they, simply, cannot or will not, but it bills them and eveyone knows that every person, rich or poor, citizen or visitor gets a bill. We all understand that there are dead beats and that we all end up paying for them but as long as we know that the system tries to collect from everyone we are willing to pay our share.

The CMA is wrong. The Prime Minister is leading - not in the direction Canadians want to go, but in the right, the only sane direction.

 

[McG]

Here is an interesting assessment of where the nation is today.  I am not sure that I buy the thesis that Canadian economic growth can be achieved through defence growth, and I have left out the specifics of where that defence growth might be because I do not see those paragraphs adding to this thread.

The path to a richer Canada goes through our Armed Forces
By Conrad Black, National Post
20 Sep 2014

Following on a column I wrote for this space two weeks ago, in which I enunciated a number of criticisms of the federal government’s current performance, many readers have asked me to provide some suggestions of how the business of government might be conducted more effectively. Trying never to repeat the same column, I have avoided recycling past suggestions, but hope to be pardoned if a little of what follows seems to some to be similar to comments I have made before.

It is very late to introduce any new fiscal initiatives in this parliament, scheduled to be dissolved in time for an election in October, 2015. Neither the late Jim Flaherty nor the present Finance Minister, Joe Oliver, have lacked the imagination desirable in that position, but they have been hemmed in by the prime minister’s election glide-path, and possibly by an ideologically rigid approach to the HST. It is not hard to demonstrate that the best method for stimulating an economy is reduction of personal and corporate income tax rates, and that the best way of reducing deficits is to increase some taxes on elective sales and transactions, though not on the necessities of life such as groceries and sub-luxury residential rental payments.

The government entered office committed to reduction of what was then the GST and did so, though it was this tax, as well as the shuffling of spending responsibilities off on the provinces without corresponding revenue-raising sources, that led to 14 consecutive federal budget surpluses under governments of both traditional parties. This policy has had the additional benefit, and Stephen Harper and Jim Flaherty deserve great credit for it, of reducing the share of GDP represented by federal government spending to the lowest point in decades, while ending the former (Liberal) federal penchant to use the treasury and its capacity to borrow to enter provincial fields of responsibility, effect policy changes in them, and generally to incite what was often inflationary economic growth by reckless public sector spending of borrowed money. A return to that system would be retrograde, but an exoneration from income tax of the 10% of current taxpayers with the most modest incomes, and a reduction in rate for the lowest 75% of those who remain, offset in revenue terms by 2% higher taxes on most financial transactions, luxury goods sales, and purchases of goods and services not vitally connected to basic needs of health, food, shelter, education and employment, would increase economic growth while preserving the bi-partisan attachment to deficit-avoidance.

The last train leaving this parliament for anything innovative was in Jim Flaherty’s last budget, where he was constrained from acknowledging that we were practically back in surplus and required to withhold anything interesting for a pre-election budget, and forced to offer what amounted to an unfitting valedictory for such a successful and long-serving Finance minister: the statement that “boring is good,” which is generally inaccurate as well as pedestrian.

The regrettable fact is that Canada’s economic performance is quite inadequate. In the last full year (2013), according to the CIA Factbook, which is generally more reliable than the United Nations, and at least as dependable as the IMF, Canada’s economic growth was in a five-way tie for 152nd position in the world, at 1.6%, in a dead heat with, among others, riot-tossed, quasi-communist Venezuela.

In fairness, the rate is increasing slowly, and most of the European countries are behind Canada, because of the deflationary pressures that have been applied to deal with the debt crises in parts of the Eurozone. And it is an unambiguously good thing that all of the 90 fastest-growing economies would qualify as under-developed countries, except China, Chile, the United States, Singapore and Latvia. The presence of the United States at about 4.3% in 2013 is not anything that should elicit the habitual Canadian unease vis-à-vis that country, as this is the least one would expect from the current administration’s vertiginous 80% increase on the $10-trillion of debt accumulated in the previous 233 years of American independence. Less explicable is that Australia’s per capita income has been about 15% greater than Canada’s for some years.

In cumulative economic real growth (eliminating inflation), over any recent period, Canada has trailed Australia, New Zealand, Israel, Mexico and Turkey. Despite European austerity and the fact that the United Kingdom is neither naturally rich nor an especially strong manufacturer any more, Britain has an advantage of at least one full point in both economic growth and unemployment compared to Canada.

This country should do better. Combining economic facts with the case I tried to make two weeks ago about the desirability of Canada being a more plausible source of firm leadership in the Western Alliance, which has been reduced virtually to cobwebs by the irresolution of most of its traditional members, particularly the United States, the economy could be stimulated, unemployment reduced, and credibility conferred upon the purposeful foreign policy remarks of the prime minister and foreign minister, if we expanded our defence capability. ...

...

The Canadian electorate is not a vast kindergarten that can be propelled into transports of gratitude by pre-electoral distributions of its own money. It may be too late to do much that is original in this parliament, but a believable disposition to pursue economic growth responsibly and to match military capabilities to bold words in sensible strategic spending over time would be welcome in itself, and would be popular. But no one should imagine that another empty promise of imminent rearmament will be seen as anything but the production of a still-born rabbit from a tattered hat.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail is report on a pessimistic look at the near term from the Geneva Report on the World Economy:

http://www.theglobeandmail.com/report-on-business/are-we-on-the-verge-of-another-financial-crisis/article20850810/#dashboard/alerts

Are we on the verge of another financial crisis?

DAVID PARKINSON
ECONOMICS REPORTER — The Globe and Mail

Last updated Tuesday, Sep. 30 2014

Nagging debt risks, heated currency wars and renewed market turmoil are making the global economy a precarious place, six years after the financial crisis.

On the sixth anniversary of the S&P 500’s biggest one-day drop in history – a 106-point plunge on Sept. 29, 2008, that marked the beginning of one of the worst market collapses of all time – the respected annual Geneva Report on the World Economy is raising concerns about a “poisonous combination” of record and still-rising global debts and chronically slow growth. It warned that this leaves the world exposed to a heightened risk of further economic stagnation and even another potential financial crisis.

The report comes in the midst of a disquieting September funk in global financial markets, as the sharp divergence between the accelerating U.S. economy and stagnation in much of the rest of the world has fuelled growing nervousness and rising volatility. Deepening concerns about slowdowns in China and Europe have sent some commodity prices to eight-month lows, and a flight to the U.S. dollar has roiled currency and bond markets.

The straw stirring the entire murky mix is the likelihood that the U.S. Federal Reserve Board will start raising interest rates next year even as other central banks are leaning the other way – raising considerable uncertainty about how well the global economy and financial markets can weather such a pivotal policy change.

The report, by the Centre for Economic Policy Research, a leading European economic think tank, warned that raising interest rates too quickly while the world is still so heavily in debt “would risk killing the recovery. Beyond pushing the economy into a prolonged period of stagnation, this would also put at risk the deleveraging process which is already very challenging.”

The report said that “contrary to widely held beliefs, the world has not yet begun to de-lever.”

It estimated total debt of all kinds (government, corporate and consumer) at a record 212 per cent of annual global gross domestic product, up from about 185 per cent in 2008.

While the world’s advanced economies have curbed the pace of debt accumulation since the crisis, emerging markets have accelerated debt growth amid historically low global interest rates – with China leading the way.

“This group of countries are a main source of concern in terms of future debt trajectories, especially China and the so-called ‘fragile eight’ [Argentina, Brazil, Chile, India, Indonesia, Russia, South Africa and Turkey], which could host the next leg of the global leverage crisis,” the authors said.

Meanwhile, many advanced economies are caught in a “vicious loop” of high debt and slow growth.

Debt reduction through austerity reduces spending and thus slows growth; slower growth reduces incoming revenues and thus limits the ability to reduce debt.

This is a factor in the stubborn lack of global capital investment that has been limiting economic expansion – and Canada is no exception.

Standard & Poor’s on Monday pointed a finger at consumer debt as it lowered its 2014 growth forecast for the Canadian economy to 2.3 per cent from 2.5 per cent.

“Consumers might still be postponing purchases, worried about the heavy debt burdens they built up in the past decade, and this could be short-circuiting the growth we normally see in recoveries,” said S&P global fixed income analyst Robert Palombi. Without that consumer pick-up, he said, businesses lack a key catalyst to invest in expansion, which in turn has stifled employment growth.

The Fed’s looming rate increases come as many other central banks are taking policy paths that will weaken their currencies, in what some observers see as a currency war – in which countries compete for lower exchange rates to entice trade demand.

The European Central Bank is edging toward full-fledged quantitative easing, the Bank of Canada has recently been lowering expectations on the pace of Canada’s rate cycle and the Reserve Bank of New Zealand even recently intervened in the foreign exchange market to dampen its dollar.

The result has been a rapid rise in the U.S. currency that is sending ripples through financial markets – raising questions about whether the stronger greenback will weigh on the U.S. recovery.

“For the first time since 1994, the Fed could embark on a tightening phase while the U.S. dollar is appreciating,” said National Bank Financial economists Stéfane Marion and Matthieu Arseneau in a research report.

“For some investors, a stronger greenback combined with Fed rate hikes is synonymous with a double whammy for the U.S. economy and global growth.”

I remain intrigued with the notion that the Great Recession didn't, quite, do it's job: it didn't wring out the economy, leaving it ready to grow again. One can argue, and some economists do, that the same from applied to the Great Depression of the 1930s. The problem, then, they say, was that Roosevelt's reforms prevented the market from  correcting itself, fully, and only a bloody and destructive war 'saved' us from ourselves, or from well intentioned political meddling, take your pick.

 

[Edward Campbell]

More pessimism, this time in an article which reproduced under the Fair Dealing provisions of the Fair Dealing provisions of the Copyright Act from the Financial Times, about IMF managing director Christine Lagarde's  comments about the weakening global economy:

http://www.ft.com/intl/cms/s/0/2bfa11d6-4a44-11e4-8de3-00144feab7de.html?siteedition=intl#axzz3F0TzSdOT

Lagarde warns of ‘new mediocre’ era

By Robin Harding in Washington

October 2, 2014

The world economy is threatened by a mediocre era of low growth for a long time, warned Christine Lagarde as she signalled cuts to the global outlook for 2015.

Ms Lagarde, managing director of the International Monetary Fund, said in a speech on Thursday that the global economic recovery is “brittle, uneven and beset by risks”.

Her remarks highlight a steady weakening of the global outlook in recent months as emerging economies, in particular, suffer a slowdown that threatens to damp already sluggish growth in advanced countries as well.

“Overall, the global economy is weaker than we had envisaged even six months ago,” Ms Lagarde told an audience at Georgetown University. “Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down.”

The IMF’s most recent forecasts in July called for global growth of 3.4 per cent this year and 4 per cent in 2015, but those numbers are likely to be slashed when the Fund releases its new estimates next week.

Among advanced economies, Ms Lagarde said she expected the strongest growth in the US and the UK, and the weakest expansion in the eurozone. She said that emerging economies would remain the main source of global growth but at a slower pace than before.

“Six years after the financial crisis began, we see continued weakness in the global economy,” she said. “Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment.”

In contrast to some of her past remarks, however, Ms Lagarde did not single out particular actors such as the European Central Bank.

She said one of the biggest threats to the global economy is a sustained period of slow growth that feeds on itself as weak output becomes a self-fulfilling prophecy. “If people expect growth potential to be lower tomorrow, they will cut back on investment and consumption today,” she said.

The IMF has recently published research noting an unprecedented and synchronised slowdown in growth for emerging economies.

She called for countries to move slowly when cutting their budget deficits, take steps to help women into the workforce, open professions such as law to greater competition and cut energy subsidies.

She urged countries to invest more in infrastructure, saying that investment is 20 per cent below its pre-crisis trend, with transport and energy bottlenecks holding back growth.

“The global economy is at an inflection point: it can muddle along with subpar growth – a ‘new mediocre’ – or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a ‘new momentum’,” said Ms Lagarde.

There is a HUGE ongoing debate, especially in Europe, about deficits and how and how fast to cut them.

Canada, of course, will have a balanced budget this year. The government will, likely, use the surplus to provide tax cuts. That is, generally, good, but it is not what John Maynard Keynes suggested. Everyone understands that Keynes said "stimulate (spend) during a recession or depression" and we know that works, to some degree. But: Keynes prescribed spending that can be switched on and off - not, in other words, most social spending or transfers to people. Keynes also said that spending should be cut when the economy is expanding; what he meant was that stimulus spending must be switched off. Of course one cannot switch social spending off, especially not in good times

Defence spending, on the other hand, can be cut any time.  :'(  There is argument (favoured by a few, but not many economists) which says that in a time of stagnation or weakness, as Mme Lagarde suggests were are in right now, it is good to spend on the military: especially on new equipment and facilities because producing new ships and planes or building new barracks creates (temporary) jobs ~ the kind of jobs that can be "switched off" again when times are good better.

 

[Brad Sallows]

Lagarde's "mediocrity" is just Heinlein's "bad luck".  We inhabit one of those intervals during which the innovators simply aren't able to keep pace with the consumers.

 

[Edward Campbell]

Lagarde's "mediocrity" is just Heinlein's "bad luck".  We inhabit one of those intervals during which the innovators simply aren't able to keep pace with the consumers.

Could well be, Brad, but deficits are real and, for many, frightening. The US, for example, wants to inflate its debt into oblivion (by debasing its currency), but the market isn't cooperating. The Greeks and Spanish and Italians and French, and, and, and, want to spend their way into recovery, but the market isn't cooperating. The Finns and Germans want to save their way into prosperity, but the market isn't cooperating with them, either.  :dunno:

 

[a_majoor]

So long as the central banks refuse to see the economic crisis is a crisis of deleveraging and attempt to stop it, we will continue in a zombie like economy which lurches around and tries to consume whatever is handy.

The "Great Depression" was essentially a result of the vast debt overhangs of the Great Powers due to the prosecution of the Great War, and it continued for a long, miserable decade because the "New Dealers" would not let the markets clear. The great stagnation that Japan has been going through is a similar exercise; when the vast real estate bubble popped, the Japanese government stepped in and sheltered the banking sector, which had fortunes in loans and obligations backed by now worthless property. And of course financial tricks like QE today are simply attempts to paper over the debts that modern "welfare states" have managed to accumulate since the 1960's.

Clearing the debt overhang(s) won't be pretty. Most states have debts in the hundreds of billions of dollars, unfunded pension and benefit liabilities that are at least as large, and have created a huge consumer debt bubble by depressing interest rates (and people follow incentives). Each one of these could cause a crisis on their own, and all possible solutions are going to hurt a lot (government bond "haircuts" of 40-60%, dramatic reductions in state pensions and benefits, especially to government workers, and ever escalating interest rates for consumers).

 

[Brad Sallows]

It isn't a failure of markets to co-operate.  What I mean by "consumers" are "tax-eaters".  I believe it is possible for regulations and taxation to strangle productivity growth (to add burdens of compliance and reduce incentives of gain).  Then the regulators complain that the market isn't "working".

"Bind not the mouths of the kine that tread the grain."

"Don't kill the goose that lays the golden eggs".

How smart are the people running the show, really, when they ignore the wisdom of generations past distilled into straightforward recommendations?  This is what passes for my version of anti-elitism: I deplore people who went to impressive schools and have impressive credentials but fail to recognize their own limitations and act accordingly, and I deplore people who defer to "experts".

The debt overhang is another example of either collective stupidity or collective denial.  Nations derive most of their revenues from taxation.  Nations levy most of their taxes on economic activities: sales and income.  Taxes on today's deficit-fueled sales and income are tomorrow's revenues realized in the present.  Private persons and corporations can not deficit spend indefinitely.  Tomorrow's tax revenues must fall if today's reflect above-average levels of non-public deficit spending.  What do high-achieving impressive intellectuals in politics or administration of a government which calibrated its outflows to supercharged levels of revenue do when the average or - inevitably - sub-par (because taxes are not customarily levied on amounts paid to resolve debts) future arrives?  They panic and try to hold public spending at some level above 100% of true capacity, forever.  People can not simultaneously pay their debts, pay higher taxes, and continue new spending at the highest watermark.

If "mediocre" simply happens to be "average", then it is the benchmark.  Adjust accordingly.