Making Canada Relevant Again- The Economic Super-Thread

[Brad Sallows]

As with nearly all commentators on the subject, Corcoran missed the real story.

1995 year-over-year spending growth: -1.93%.
1995 y-o-y revenue growth: 7.24%

1996 (the year of the big cut): -7.88% and 6.87%
1997: 3.11% and 7.32%

See what the revenue growth was doing?

Also, debt charges as % of debt were running at 8-9% vice the 10-14% of the 3 to 20 years prior.

The numbers bounce around from year-to-year, but the lesson is simple enough: with debt costs no longer through the roof, all that was necessary was to restrain spending growth to about 3% or less (in dollar terms) y-o-y.


The Yanks are screwed because they have no immediate likelihood of healthy revenue growth and no sign of basic restraint in spending growth.

 

[a_majoor]

The Ghost of F.A. Hayek rises again:

http://mises.org/daily/5567/Hayeks-Ghost-Haunts-the-World

Hayek's Ghost Haunts the World

Did you ever have the feeling that we've been through this before?

Think of it. Those in charge have only recently sworn — yet again! — that if we keep interest rates at zero, keep battling the symptoms of recession and unemployment with spending and jobs programs, clobber the speculators with regulations, and otherwise keep trying to revive moribund industries, all will be well. Just don't cut government spending or let interest rates rise!

So where have we heard it all before? It was the 1930s, when the battle between F.A. Hayek and J.M. Keynes raged in the English-speaking world, not only in the academic journals but in the newspapers in London and the United States.

Hayek gave a series of lectures based on his previous works in German that tried to explain that the ruling elite and their theoretical apparatus had it all wrong.

In a thousand different ways he said the same thing: "To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about."

Further, "because we are suffering from a misdirection of production, we want to create further misdirection — a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end."

The essays in which Hayek so prophetically explained the boom and bust are collected in the most convenient form possible: Prices and Production and Other Works. It is a 528-page book that explores every conceivable aspect of business cycles.

Because this book is in print, it is really inexcusable that the same errors should be revisited upon the world today, strangling growth and driving every major economy further into the depths.

Now, granted, many decades went by when these writings were hard to come by. Many people had only bound photocopies they would let others borrow. But since 2008, the Mises Institute has had them all gathered in a single book, with explanatory material and at the price of $25.

Wherever this book lands, and wherever it is read and studied, the answers to what to do and what not to do are clear as bottled water. Hayek could barely mask his frustration. This was hardly the first time that governments and central banks had tried to cure the bust with the very poison that had destabilized the economy in the first place.

He cites, for example, the expansionary policy of the Fed in 1927, which the Fed itself described as "the greatest and boldest operation ever undertaken by the Federal Reserve System." In Hayek's view, it was this very action that caused the explosion in stock prices that led to the bust that wouldn't seem to go away.

He concludes, already in 1932: "We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown."

Note the constant focus: the root of the problem is to be found in the boom, not the bust.

Hayek's frustration was not so intense as to prevent him from very patiently refuting every theory that imagined that the business cycle was caused by something other than monetary factors. He marched through the theories one by one until he concludes that only a distortion in monetary signaling can cause so many to be so wrong in their investment decisions.

Turning to positive theory, Hayek celebrates J.B. Say's view that, absent such interest rate and monetary manipulation, there can be no tendency for entrepreneurs to make such systematic errors that create economy-wide booms followed by busts.

And here we have the heart of the difference between Hayek and Keynes: one knew that markets work to give us the best of all possible worlds, while governments create and exacerbate malfunctions; the other imagined that governments were somehow capable of both perceiving and correcting malfunctions by means of the printing press, provided the right technocrats are in charge.

The fundamental differences are obvious in the 60-page critique that Hayek wrote of Keynes's own Treatise on Money (1930). The criticism came out in 1931, even as Keynes was working on his General Theory. Hayek — who, as Joseph Salerno points out in the introduction to the collection, was very young at the time but had the courage to correct the current giant of the English-speaking profession — corrects Keynes on point after point.

Hayek offers a polite but devastating demonstration that Keynes (a) was unfamiliar with any of the most sophisticated capital theory emerging from the Austrian tradition, (b) contradicted himself constantly, and (c) was so unclear in his writing and thought that he made serious correction almost impossible.

After this essay appeared, Keynes casually dismissed it with the comment that he no longer accepted the views put forward in that book. Keynes went one step further and wrote a petty attack on Hayek's own book! Hayek was so discouraged by this that he was loath to take up criticizing the General Theory with the same level of detail.

The experience of the 1930s and since underscores that Hayek's view, beautifully presented in this book, is the one that conforms to reality. Hayek is fastidious in crediting Ludwig von Mises for having been the first to link together all the theoretical parts that make up the Austrian business-cycle theory. Mises is "certainly to be regarded as the most respected and consistent exponent of the monetary theory of the trade cycle," he writes.

Hayek's argument is relentless but all the more praiseworthy given the times. Unlike today, where the dissent against the stimulus is intensifying, Hayek and Mises had very few colleagues whom they could count on to back up their arguments. For this reason, however, Hayek, writing in English, must have felt a special burden of proof. He wrote with vigor, scientific precision, and passionate intensity about the entire topic of boom and bust.

It's as if Hayek had an object in his hand, turning it slowly every which way and describing its shape, color, and size in every way he knew how.

It is also in these essays that Hayek first laid out the triangles that illustrate the relationship between time and the stages of production. This was a true innovation and one of his most lasting contributions to economics. The Hayekian triangle is brilliant in its simplicity, but it highlights a point that had been lost on economists at the time and has still not penetrated today: the capital structure is incredibly complex and embeds a vast range of time horizons within the plans of every actor.

Only a full comprehension of this point prepares a person to see how it is that the manipulation of interest rates by the central bank can cause such damage. But Hayek is also careful to note that reversing the course of monetary policy is probably not enough to end an economic bust.

Monetary policy might have caused the boom, but monetary factors alone are not enough to explain the fullness of the bust. There are other factors: taxes, which discourage savings and production; regulations, which block discovery and entrepreneurship; government spending, which draws resources out of the private sector; debt, crowds out investment, and more.

Hayek concludes by calling not only for an end to discretionary policy but also "a radical revision of public policy" in all areas. The same is precisely true today, which is why rereading Hayek's work from the late 1920s and 1930s is at once eerie and enlightening.

Many decades went by before English-speaking readers were made aware of a parallel series of writings that were taking place in Austria at the time. Mises himself wrote during the same period from 1928 to 1936 and on the same issues. His essays are collected in a book that is a kind of companion volume: The Causes of the Economic Crisis.

However, here we find a much clearer presentation: a different personality, a different audience, a different mode of writing and thinking. If anyone is left with a lack of clarity after reading Hayek, Mises provides the essence of the issue at hand in 1931:

    Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

Those words could have been written this very day, describing our very predicament. So it is with Mises and all the Austrians. They wrote not just for their times but for all times.

Jeffrey Tucker is the editor of Mises.org and author of It's a Jetsons World: Private Miracles and Public Crimes and Bourbon for Breakfast: Living Outside the Statist Quo. Send him mail. See Jeffrey A. Tucker's article archives.

 

[a_majoor]

History bypasses me!

I predicted on one thread that Canada would evolve into a Limited Republic in the 2040's as more and more Americans came to the Great White North seeking the high paying jobs that would be open due to our demographic bust (coupled with the lower standard of living Americans would be facing cleaning up the collapse of Progressivism) starting in the 2020's. At some point enough Americans would be living and working in Canada that they would put considerable political, economic and cultural pressure on our institutions.

Well, the start date isn't the 2020's, it is now...

http://www.tucsonsentinel.com/nationworld/report/090811_canada_jobs/americans-flee-north-border-jobs/

Americans flee north of the border for jobs
For many, Canada is the land of opportunity
   
Posted Sep 8, 2011, 8:24 am

John Ferri GlobalPost

TORONTO, Canada — Usually, you hear stories of people fleeing to America, not the other way around.

But the jittery state of the U.S. economy is driving an increasing number of its citizens to seek better prospects north of the border.

Americans are the latest economic refugees, and they’re heading to Canada.

As he prepares to campaign for re-election, U.S. President Barack Obama is expected to make a speech Thursday night that calls for immediate stimulus spending to create jobs and improve infrastructure.

But those reforms will be difficult to make. Republicans, who control the House of Representatives, have resisted any efforts to boost the economy through additional spending. (Interpolation: These guys don't even know their own system of government. Which party controls the Executive Branch and the Senate?)

Immigration lawyers in Toronto and the border city of Windsor, right across from job-starved Detroit, say they’re seeing a dramatic growth in clients seeking to come to Canada to work, or even as permanent residents.

So, is this a reversal of fortunes on an historic scale? Has Canada become "el Norte"?

Well, not quite. The number of U.S. citizens working in Canada is, at least by global migration standards, relatively small with some 30,000 at the beginning of last year.

Still, Americans make up the second-largest group of temporary workers in Canada, only behind Filipinos, most of whom work as nannies.

Canada was one of the few to escape the 2008 financial meltdown relatively unscathed, a turn of events largely attributed to Ottawa’s long-standing refusal to deregulate the banking sector. (Interpolation: Among other things. Perhaps the real key is the more hands off approach to the financial crisis. Who remembers the depression of 1921? There was no intervention by the US Government or the Federal Reserve, and the problem cleared in time to kick off the Roaring 20's. OTOH FDR's "New Deal" made the Great Depression go on seven years longer than it "had" to)

“I’m looking for a quiet, calm, sane, civilized society to start the next phase of my life,” said Michael, an out-of-work, white-collar professional from Michigan who is seeking a temporary visa to come to Canada.

Like several others interviewed for this article, he did not want his full name used for fear of drawing unwanted scrutiny to his application.

Though he describes himself as both patriotic and a conservative, Michael says he’s lost faith in U.S. leadership — “on both sides of the aisle” — for failing to stem the excesses that led to the collapse of Wall Street, and for the current political brinkmanship over the debt ceiling.

“I’m looking for a country where the first role of the government is to protect its citizens,” he said. “It looks to me like all [of Canada’s] three major political parties seem to have proven that they are much more responsible than our leadership.”

Workers like Michael are drawn to Canada’s lower unemployment rate — 7 percent in July compared to 9.1 in the U.S. — and sustained economic strength in major centers such as Toronto, which alone attracts an estimated 100,000 new arrivals a year.

These include not only people with temporary work visas, or those seeking permanent residency, but also increasing numbers of university students, drawn by highly-ranked Canadian schools where tuition, even at 3 or 4 times the rates for Canadians, is still a fraction of what it costs to attend many colleges in the U.S. 

John Cameron’s mother lost her senior position at a bank branch in Maine in 2009 at the same time he was trying to finalize his choices for his freshman year in college.

He had his eye on American universities such as Loyola, University of Maryland, Columbia and Fordham.

His father, thinking about the finances, suggested the University of Toronto. Cameron was reluctant, but now he’s a Canadian convert.

”I really love it,” he said. “[It’s] hands-down one of the best schools in North America.”

Toronto has also become home to a couple in their mid-30s from New York City who both lost their full-time jobs in Manhattan in the wake of the 2008 crash. They now live in Canada on temporary visas.

“It’s important for us to live in a place with a lot of diversity and a good cultural sector,” said the woman, who asked that their names be withheld to avoid compromising their residency status in Canada. She says she was surprised at how quickly and efficiently they were able to qualify for Ontario health care.

Some Canadians who had considered America their adopted home are going back.

Al Brickman recently gave up on the United States after 30 years of running a Canadian-owned construction-supply business in Atlanta, Ga.

“I really did hold out for about two years,” he said, but business had bottomed-out in the economy. Brickman said that his billings, once around $100,000, had dropped on some months by as much as 95 percent.

Brickman moved home to Toronto to work at his company there, where he has a steady job as a general manager. His American wife and their 11-week-old baby, are now trying to emigrate to join him.

Since he got back, Brickman said he’s been fielding calls from American friends hoping he can get them a job up north, too.

Shawn Shepard, a legal software supervisor who was among hundreds laid off by his Manhattan law firm in 2008, is hoping a Canadian employer will sponsor him.

Shepard, who lives in Jersey City, N.J., is a regular visitor to Canada, with friends in Montreal and Toronto. With 20 years of experience, and, he admitted, “the arrogance of being a U.S. citizen,” he figured it would be a snap.

But now, he’s found himself in the classic migrant dilemma: “In order to get a work visa, you need a job offer. In order to get a job offer, you need a work visa.” And even if he were to interest a prospective employer, a visa would only be issued if the employer can show that no Canadian was qualified for the job.

“The economy up there is doing very well, despite the global slump,” Shepard wistfully told this reporter, a gainfully employed Canadian. “Your politicians didn’t put you in the same mess that ours did.”

 

[a_majoor]

Niall Ferguson on why the West became prosperous and the rest of the world did not:

http://freedomnation.blogspot.com/2011/09/niall-ferguson-6-killer-apps-for.html

 

[Jed]

Niall Ferguson on why the West became prosperous and the rest of the world did not:

http://freedomnation.blogspot.com/2011/09/niall-ferguson-6-killer-apps-for.html

Excellent post! I especially appreciate the 6th app, work ethic or individual productivity. To me the power / inflence of our unions are so counter productive and they keep dragging down everyone to the lowest common denominator; much the same as the various communistic systems and leftist party attitudes seem to do around the world.

Sheesh I sound like a right wing Red Neck!  ;D

 

[Bruce Monkhouse]

Excellent post! I especially appreciate the 6th app, work ethic or individual productivity. To me the power / inflence of our unions are so counter productive and they keep dragging down everyone to the lowest common denominator

Well I happen to belong to OPSEU, one of the more influential of the unions, and I'm pretty sure I'm not the lowest common denominator........

 

[Jed]

I guess my personal experience has been with other Unions then. Obviously my viewpoint is pretty biased. I know many good productive and effective people within Unions. It seems to me that sooner or later the Union hierarchy seems to form an intermediate level of supervision/management that detracts from the organization's main objectives and decreases the individual output contribution to the team. Human nature is to individually conserve energy so most people want to do less and achieve more. Some people call that lazy and some call it being personally productive.  ;D

 

[mariomike]

To me the power / inflence of our unions are so counter productive and they keep dragging down everyone to the lowest common denominator;

I became a member of TCEU when I was 18. It was, and is, a closed shop. I appreciate what our elected reps negotiated for the profession. If we deserve it or not would depend on your point of view.

 

[a_majoor]

Work ethic is both individual (are you willing to put in the required effort) as well as collective. While some unions and union shops may discourage individual initiative and productivity (you hear the occasional horror stories from the UK where workers are censured by their union reps for working too hard and making everyone else look bad) this is hardly a universal thing.

 

[a_majoor]

While I hardly agree with the conclusions of the books authour, it is very refreshing to see that the economic histoy ofthe 20th century is being looked at, and the Austria School is finally getting some serious scholarly attention and a wider audience:

http://opinion.financialpost.com/2011/09/23/peter-foster-grand-pursuit-grand-delusion/

Peter Foster: Grand pursuit, grand delusion
   
Peter Foster  Sep 23, 2011 – 6:31 PM ET

A new book buys into the idea that economic policy manages growth

With global markets lurching, politicians at sea, and central bankers mouthing platitudes while pursuing increasingly desperate measures — most recently Fed chairman Ben Bernanke’s counterproductive “twist” of the yield curve — the quest to understand the apparent disarray of economics has never been greater. Thus Sylvia Nasar’s book, Grand Pursuit: The Story of Economic Genius, looks well timed.

However, while Ms. Nasar — whose previous book, A Beautiful Mind, was turned into an Oscar-winning movie — is a fine writer, she arguably draws precisely the wrong conclusions from her research. She has bought into the grand delusion that economic policy causes, or at least positively manages, economic growth. As James Grant put it succinctly in a review, “economists no more set the world to producing and consuming than baseball statisticians hit home runs.”

In promoting her book, Ms. Nasar is inevitably asked about the current situation. She rightly concludes that we will survive, but wrongly claims that this is because “We know what we need to do.” This is clearly not the case, as global policymakers fail in their attempts to finagle their way past the inevitable consequences of lousy economic policies: from promoting home ownership, through Keynesian stimulus, to creating a eurozone.

Ms. Nasar’s confusions were in fact apparent in her previous book. A Beautiful Mind told the story of how John Forbes Nash, Jr. sank into mental illness, but then not only recovered — helped by a long-suffering wife — but wound up with a Nobel in economics. Although that too was a gripping read, Ms. Nasar completely failed to establish that the “Nash Equilibrium” — for which Mr. Nash won his prize — had much real-world significance. Worse, she mangled the legacy of Adam Smith, whom she clearly had not read, or at least understood.

She still shows no evidence of having read or understood Smith, the fount of modern economics, and yet, paradoxically, she does a good job of laying out the historical circumstances under which economic theory evolved between the early 19th century and the post-Second World War period. She stresses that it was moulded not by abstract noodling but by the struggle to understand — and much more problematically “deal with” — the issues thrown up by the Industrial Revolution, economic cycles, the Great Depression and how to pay for the world wars.

Her narrative starts in Britain in the “Hungry” 1840s, when both Charles Dickens’ A Christmas Carol and Marx and Engels’ Communist Manifesto were reactions to economics as a “dismal science.” Dickens rebelled at the Malthusian notion that philanthropy was futile, and so invented Scrooge. Marx — whom Ms. Nasar portrays as a grubby egomaniac who never stepped inside a factory until late in his life — thundered that poverty was due to the depredations of the demonized rich.

Ms. Nasar points out that it was Cambridge economist Alfred Marshall who suggested that poverty was the result neither of overbreeding nor exploitation; it was due to low productivity. The answer to economic betterment was education and the development of “mental and moral capital” (as Smith had suggested). Marshall also noted the critical function of the business organization in competitive innovation and improving peoples’ lives. But Marshall’s fundamental — and entirely valid — optimism was not enough for “social reformers,” particularly given the extension of the franchise and the demands of modern democracy.

Nasar produces wonderful portraits of British Fabian socialists Sidney and Beatrice Webb — founders of the London School of Economics — as the first “think-tank,” providing (left-wing) ideas for politicians who clamoured to be coached in “practicable proposals.” (Beatrice described Sidney in her diary as “an ugly little man with no social position and less means.” When he sent her a full-length photograph of himself, she replied that she was only interested in his head! She idolized Stalin.)

Economics inevitably developed an activist bias. Yale’s Arthur Hadley described American economists as “a large and influential body of men who are engaged in extending the function of government.” Admirably, Ms. Nasar gives ample space to those who saw the dangers in such trends, notably Ludwig von Mises, Friedrich Hayek and Joseph Schumpeter, all of whom had suffered through the policy disasters of post-First World War Vienna.

She looks at the 1920s — an “inventive, exciting and genuinely progressive era” — through the eyes of Schumpeter, Mises, Hayek, John Maynard Keynes and Keynes’ American counterpart, Irving Fisher, who, unfortunately for him, is most famous for positing that markets had reached a permanent “high plateau” just before the 1929 Wall Street Crash.

Fisher and Keynes believed that governments could tame economic cycles. The Austrians, by contrast, claimed that it was governments that tended to cause and exacerbate cycles. Ms. Nasar portrays Keynes, sympathetically, as an intellectual giant, “greedy for work, fame, influence, domination, admiration.” She does a serviceable job of explaining his theories and his belief that government had to become the “spender of last resort.” She notes that Keynesian economists — with their politically appealing message — came to dominate Washington. They saw the end of the Second World War, and with it the end of huge government spending, as likely to lead to recession. They were wrong, and certainly not for the last time.

The main contribution of Hayek and Schumpeter to the war effort — since the Allies wouldn’t employ such “aliens” — was to write great books. Schumpeter’s Capitalism, Socialism and Democracy was a eulogy for capitalism, yoked to the ironic projection that socialism would triumph, despite its manifest shortcomings. Hayek’s The Road to Serfdom was a dire warning that planning could lead toward a system that the Allies had just defeated.

Following the war, the main purpose of international “co-operation” was to prevent beggar-thy-neighbour economic policies, but that’s where, perhaps wisely, Ms. Nasar’s story essentially ends, although she does tack on an ill-fitting hagiographic portrait of Nobel economist Amartya Sen, who is behind such current irrelevancies as measuring “Gross National Happiness.”

Ms. Nasar writes in the book’s epilogue that after the recession of 2008-09: “The world financial system did not collapse. There was no second Great Depression.” Unfortunately, we cannot be so sure about the immediate or medium-term future. Still, Grand Pursuit, for all its flaws, is a rattling good read and brings to life a subject that desperately needs to be much better understood, even by its author.

 

[a_majoor]

How personal and capital mobility enhances freedom. Even seemingly marginal changes have huge impacts:

http://opinion.financialpost.com/2011/09/30/william-watson-u-s-created-trudeau/

William Watson: U.S. created Trudeau
   
William Watson  Sep 30, 2011 – 10:29 PM ET | Last Updated: Sep 30, 2011 10:41 PM ET

‘Closing 49th Parallel’ says U.S. law held Canadians captive

John Kenneth Galbraith once wrote that to “The Scotch” of southwestern Ontario, among whom he grew up in the 1920s, Canadian identity was worth $5 a week. When the wage difference between Detroit and home reached that level, he observed, people simply picked up and moved south. They preferred being Canadian, but they didn’t prefer it that much. Galbraith himself left for good in the 1930s.

He didn’t say, but it was probably also true, that the possibility of losing a significant fraction of their constituents concentrated the minds of Canadian governments and disciplined any desire they might have had to diverge substantially from American levels of taxation, for, as the saying might go, “Over-tax them and they will go.”

During the 1920s, more than a million Canadians did permanently move south — this at a time when the country’s population was just nine million. The equivalent exodus today would be almost four million people. Imagine Manitoba, Saskatchewan, Nova Scotia, New Brunswick, Newfoundland, Prince Edward Island and all three territories being completely depopulated and returned to nature. Greenpeace would love it. And it would certainly get governments‘ attention — though, this being Canada, even if their populations had fallen to zero, could we really depend on the relevant provincial governments actually shutting down? They’d argue somebody had to govern the rocks and trees.

Fortunately, or unfortunately, depending on how you look at it, the option of picking up and moving to the United States no longer really exists for most Canadians. The first legal limits on entry to the United States came in the mid-1920s, though we were essentially exempted from them. But in 1965, the United States changed its immigration laws and did make Canadians part of a small annual quota for migrants from the western hemisphere. Turnabout was fair play: we had increased our restrictions on American immigration in 1962.

In Closing the 49th Parallel, a fascinating new paper in the academic journal Canadian Public Policy, the Canadian economists Stanley Winer of Carleton University and James Davies of the University of Western Ontario argue that the Americans’ decision to foreclose the possibility of an easy escape to the United States created a captive tax base for the Canadian politicians of the 1960s and 1970s and lowered the political cost to them from raising taxes and building up the Canadian welfare state. As the chart shows, there does seem to be a widening of the gap between Canadian and American non-military spending that hinges around 1965. In effect, though the American government didn’t create Pierre Elliiott Trudeau and his Just Society, its closing of the immigration door substantially enabled him. Richard Nixon, whose secret tapes reveal utter contempt for our philosopher prime minister, would have been appalled. On the other hand, he might have found it richly ironic that the Canadian nationalism and fiscal distinctiveness that Trudeau stood for had been made possible by a change in U.S. policy.

Much of the Davies-Winer paper is dedicated to trying to show that a statistically valid correlation does exist between the closing of the American immigration door and the subsequent rise of Canadian taxes and government spending. Because there are many, many influences on what determines a highly-aggregated statistic like “total government spending divided by GDP,” the effect’s influence isn’t always sharp and clear in the data. But they do demonstrate that after 1965 southward migration of Canadians fell noticeably while American and Canadian wage levels and rates of inequality began to seem less joined at the hip than before, which is exactly what you’d expect if the two labour markets had become less integrated than they had been in the days of easy mobility.

It’s strange in this age of supposedly overpowering and all-consuming globalization to think of a pair of markets of any kind — labour, capital, goods, whatever — becoming less integrated. But there you go: in 1965 it happened during peacetime between two highly developed economies with a long history of extensive integration. No matter how inevitable globalization might seem, we shouldn’t assume de-integration couldn’t happen again, especially under the provocation of a worldwide recession.

The spending and tax gap that did open up between Canada and the United States in the 1960s and 1970s closed somewhat during the 1990s. In part this may simply be a case of Canada having come to its senses: Government spending briefly hit 50% of GDP in the early 1990s and just about everybody but the far left of the NDP understood that unless tectonic change somehow floated us away from North America, that simply couldn’t last.

But Winer and Davis point to NAFTA’s re-liberalization of migration, at least for professionals, as having also contributed to the subsequent decline in the relative size of government here. The reopening of the safety valve to the United States, even on a partial and limited basis, contributed to the brain drain that became such a hot political issue here at the end of the 20th century and helped persuade the Chrétien government it needed to first do away with income surtaxes and then reduce the top marginal rate of income tax and raise the income at which it kicked in.

Being free to move where one wishes is a privilege to cherish in and of itself. Ask any of the tens of thousands of former Soviet citizens now living in Canada. But if it also disciplines your government, that’s just an added bonus. For all sorts of reasons, then, we should start talking with the Americans about moving our bilateral immigration policies back to where they once were.

 

[a_majoor]

A eulogy that could have come from Ayn Rand:

http://www.nationalreview.com/corner/279321/jobs-agenda-kevin-d-williamson

A Jobs Agenda
October 5, 2011 8:44 P.M.
By Kevin D. Williamson

I don’t know what Steve Jobs’s politics were, I don’t much care, and in any case they are beside the point. The late Mr. Jobs stood for something considerably better than politics. He stood for the model of the world that works.

That old Motorola cinderblock would cost about $10,000 in 2011 dollars, and you couldn’t play Angry Birds on it or watch Fox News or trade a stock. Once you figure out why your cell phone gets better and cheaper every year but your public schools get more expensive and less effective, you can apply that model to answer a great many questions about public policy. Not all of them, but a great many.

Jobs was sometimes criticized for not being a philanthropist along the lines of Bill Gates. Take this article, for example:

    Last year the founder of the Stanford Social Innovation Review called Apple one of “America’s Least Philanthropic Companies.” Jobs had terminated all of Apple’s long-standing corporate philanthropy programs within weeks after returning to Apple in 1997, citing the need to cut costs until profitability rebounded. But the programs have never been restored.

CNN, being CNN, misses the point. Mr. Jobs’s contribution to the world is Apple and its products, along with Pixar and his other enterprises, his 338 patented inventions — his work — not some Steve Jobs Memorial Foundation for Giving Stuff to Poor People in Exotic Lands and Making Me Feel Good About Myself. Because he already did that: He gave them better computers, better telephones, better music players, etc. In a lot of cases, he gave them better jobs, too. Did he do it because he was a nice guy, or because he was greedy, or because he was a maniacally single-minded competitor who got up every morning possessed by an unspeakable rage to strangle his rivals? The beauty of capitalism — the beauty of the iPhone world as opposed to the world of politics — is that that question does not matter one little bit. Whatever drove Jobs, it drove him to create superior products, better stuff at better prices. Profits are not deductions from the sum of the public good, but the real measure of the social value a firm creates. Those who talk about the horror of putting profits over people make no sense at all. The phrase is without intellectual content. Perhaps you do not think that Apple, or Goldman Sachs, or a professional sports enterprise, or an Internet pornographer actually creates much social value; but markets are very democratic — everybody gets to decide for himself what he values. That is not the final answer to every question, because economic answers can satisfy only economic questions. But the range of questions requiring economic answers is very broad.

I was down at the Occupy Wall Street protest today, and never has the divide between the iPhone world and the politics world been so clear: I saw a bunch of people very well-served by their computers and telephones (very often Apple products) but undeniably shortchanged by our government-run cartel education system. And the tragedy for them — and for us — is that they will spend their energy trying to expand the sphere of the ineffective, hidebound, rent-seeking, unproductive political world, giving the Barney Franks and Tom DeLays an even stronger whip hand over the Steve Jobses and Henry Fords. And they — and we — will be poorer for it.

And to the kids camped out down on Wall Street: Look at the phone in your hand. Look at the rat-infested subway. Visit the Apple Store on Fifth Avenue, then visit a housing project in the South Bronx. Which world do you want to live in?

Steve Jobs RIP

 

[a_majoor]

More rarefied proof that Keynesian economics does not work (if the "Stimulus" wasn't proof enough):

http://american.com/archive/2011/october/the-end-of-comfortable-keynesianism

The End of Comfortable Keynesianism
By Philip I. Levy
Tuesday, October 11, 2011

Filed under: Economic Policy

Nobel winners Sargent and Sims taught us to set aside our old, nice, simple economic models. We need to heed that lesson today.

I was delighted to learn yesterday that Tom Sargent and Chris Sims were awarded this year’s Nobel Prize in Economics. I had the good fortune to study macroeconomics briefly with Sargent and to be a faculty colleague of Sims’s for a number of years.

Tom Sargent’s graduate macro course was hard. I don’t mean hard in the “I hate equations and graphs make me break out in hives” kind of hard. I mean hard in the “I’m normally really good at this stuff and it all used to make sense, but what’s going on?” kind of hard. In the world of undergraduate economics, from whence my classmates and I had all emerged, there were Keynesian truisms that one could master. The state of the economy was set by the intersection of aggregate demand and aggregate supply curves. An adept policy maker could, by pulling the right levers and twisting the right knobs, shift these curves and thereby set the economy on the proper course. Implicitly, to such a policy mastermind, the economy was populated with individuals who acted in reliable, predictable ways.

This assumption that people behaved in reliable, predictable ways was often equivalent to assuming that people in the economy were stupid and could be repeatedly fooled.That behavioral assumption was the point of attack for Sargent and other proponents of the “rational expectations” school. This assumption that people behaved in reliable, predictable ways was often equivalent to assuming that people in the economy were stupid and could be repeatedly fooled. If you wanted to spur the economy, just apply a burst of stimulus spending or pump up the money supply. When the economic agents in the economy—say, gullible store owner's customers coming through the door, flush with the new cash, they would conclude that happy days were here again and ask their suppliers to ramp up production; the economy would then spring to life. Those store owners wouldn't stop to ask whether the stimulus would be paid for by higher future taxes, or whether the newly printed money would cause inflation, thereby undercutting its value. They would just suffer the rude surprises later on.

In rational expectations models, the people are smarter; they know what's going on. If you offer them goodies today, paid for by taxes tomorrow, they look at both sides of the ledger, not just one. To the dismay of graduate students, this makes the math much harder. It also undercuts some of the old verities. At a dinner with Sims, when I was just coming out of graduate school, I made some mention of aggregate demand. He asserted that there was no such thing. This was deeply unsettling, even after my exposure to teachers like Sargent and John Taylor. More importantly, the rational expectations approach implies that the challenges are much greater for the economic policy maker, who now needs to worry about savvy economic counterparties who understand the game.

Why should we set aside our old, nice, simple economic models in favor of ornate new ones? Only because the old ones were not working very well. It was no coincidence that the rational expectations approach to macroeconomics emerged amid the stagflation of the 1970s. Under the old, comfortable Keynesian reasoning, there was not supposed to be stagflation; the policy maker was supposed to be able to choose between high inflation and low unemployment, or low inflation and high unemployment. The unpalatable combination of high inflation and high unemployment wasn't supposed to be on the menu.

Why should we set aside our old, nice, simple economic models in favor of ornate new ones?In the wake of the global financial crisis, these Keynesian qualms were forgotten or set aside. Policy makers feverishly yanked levers and spun knobs. Financial journalists weighed in on the proper calibration of stimulus to adjust aggregate demand. And the only plausible explanation for why Keynesian stimulus did not revive the economy was that we did not do enough of it. [See John Cogan and John Taylor for an alternative view].

In a snarky column this week, the Financial Times applauds Sargent and Sims for ultimately seeing the error of their earlier ways:

Prof Sargent now recognizes that people get confused from time to time, while Prof Sims models the fact that we all can only take in so much information while thinking about the future.

Just because economists get it wrong doesn't mean they should stop trying.

This presumes that the most striking hubris of recent years lay with those who credited the public's intelligence, not with those who presumed the public would react like sheep. I never interpreted the teachings of Sargent or Sims to say that economic actors were impervious to error. Rather, the lesson I took was that counting on those actors to err systematically and repeatedly could lead us seriously astray in our policies.

Philip I. Levy is a resident scholar at the American Enterprise Institute.

 

[foresterab]

http://gold.globeinvestor.com/servlet/ArticleNews/story/GI/20111025/escenic_2212436/stocks/news/&back_url=yes

Canadian salaries seen rising, despite global economic woes
TAVIA GRANT
05:30 EST Tuesday, Oct 25, 2011
 
--------------------------------------------------------------------------------

Most Canadian workers will still see higher salaries next year, despite a rocky global economy – but pay hikes won’t return to the pre-recession heyday.

Employees will get average salary increases of 3.1 per cent in 2012, the Conference Board of Canada said in its compensation outlook to be released Tuesday.

The projected average non-unionized base pay increase is slightly higher than the gains in 2010 and 2011, at 2.7 per cent and 3 per cent, respectively. But it’s well short of 2008 levels, when increases averaged 4.2 per cent.

An “uncertain economic climate” is making employers cautious about hefty raises, the report said.

“Canadian organizations remain optimistic, but guarded, in the midst of a turbulent global outlook and higher-than-normal economic risk,” said Karla Thorpe, director of leadership and human resources research.

Saskatchewan is expected to lead the pack. Employers in the province see increases of 3.9 per cent, while Alberta is next at 3.6 per cent. Ontario and Atlantic Canada are expected to have the lowest base pay increases, at 2.7 per cent next year.

Among sectors, the oil and gas industry has the highest projected increases, at 4.3 per cent, followed by natural resources. The lowest increases are expected in retail trade, at 2.4 per cent.

Increases in the private sector will likely outstrip public-sector pay hikes. The average projected increase in the private sector is 3.2 per cent compared with 2.6 per cent for public sector workers.

Unionized staff will see lower increases. Anticipated wage increases for unionized employees are projected to be 2 per cent next year – 1.5 per cent in the public sector and 2.3 per cent in the private sector.

The results are based on responses of 381 organizations to a survey conducted this summer.

Almost a quarter, or 23 per cent of compensation planners, expect their work force will expand next year, while just 6 per cent see reductions.


I found this an interesting take given the union talk in here.  It's something that we struggle with alot here in Alberta where public service members take a pay cut, in some cases very significant, to work instead of going to private oil patch work.  The other issue is that inflation numbers used in negotiations are usually matched to provincial averages inflation instead of local inflation so purchasing power varies.  You don't need many years of 1-2% pay raise differences to really feel the accumulated impact.

All that being said I've worked in both union and non-union shops and prefer non-union.  You are held more accountable to your obligations and I've found people seem to be more responsive to change.

Anyways, another take on the ongonig discussion,
foresterab

 

[Brad Sallows]

Egad.  Where can I get a piece of that action?

 

[a_majoor]

I want everyone to note the numbers for Mike Harris very carefully, so the next time some dumb**s claims the "Common Sense Revolution", tax cuts or Supply Side Economics didn't work I can cheerfully rub their face in it:

http://thetrustytory2.wordpress.com/2011/10/30/same-old-washed-up-liberal-lies/

Same old washed up Liberal lies.
 
I love when Liberal blowhards come out of the woodwork and thank the Liberal Party of Canada for Canada’s “economic” position on the world stage.

It’s such an utter load of nonsense and propaganda, and they hope there aren’t people out there who remember, or care to research, the truth.

The first beauty is this nonsense.

    “…In 2006-08, Prime Minister Stephen Harper and Finance Minister Jim Flaherty turned a structural surplus into a structural deficit…”

Remember when Jean Chretien and Paul Martin stashed billions into “slush funds” and couldn’t give accurate accounts of how much money exactly was stashed away, all the while slashing transfer payments to the provinces, over $50 billion cut to Ontario alone?

When Prime Minister Stephen Harper was elected, he believed, as I do, that the government shouldn’t be in the business of turning a profit at the expense of the tax payer.  So the GST was slashed to 5%.  Taxes were lowered.  A childcare subsidy was implemented (instead of the Liberals long-promised-since-1993 national daycare program) and money was returned to the people to decide what to do with it.

Remember how the opposition Liberals, when the recession hit, demanded that the Conservatives spend billions and billions, even threatening to topple the government over it? And then threatening to form a coalition when Harper said the subsidy to political parties would be banned?  Yeah.  Those pesky facts again.

    “…But, credit where credit’s due: Their multi-billion-dollar stimulus program did what it needed to do — and Harper and Flaherty managed the crisis well. With the support of provincial premiers, they bailed out the auto sector, and they invested heavily in infrastructure — which is why they, and all the premiers in question, have all been re-elected this year. Voters liked the job they did…”

That’s right.  And that’s what caused the deficit.  Not in 2006. Not in 2007.  But at the end of 2008, when the recession hit – and the Prime Minister along with Finance Minister Jim Flaherty weathered the storm.

But the meat and potatoes of this post? This little ditty, which is hilariously the furthest from the truth.

    “…In a little-noticed speech before the U.S. Chamber of Commerce, Clement lauded the government of Liberal prime minister Jean Chretien for “rather remarkable” fiscal reforms in the ’90s which have protected our economy ever since.

    Said Clement: “Successive Canadian governments, across political lines, faced the challenge square on, delivering fiscal reforms that started us on a path to balanced budgets.

    “As a result, from 1997 to 2007, our country enjoyed a decade of strong economic performance, with Canada leading the G7 in economic growth.”

    For all but one year of the decade Clement referred to, Canada was governed by Liberals, not Conservatives. Clement went on to credit Chretien’s “program review” exercise — which cut waste in every government department — as one of the reasons Canada got back on track economically…”

I don’t really care what Clement gave credit to. Let’s call a spade a spade. These “reviews” were largely put in place by the Progressive Conservative government of Brian Mulroney.  The hated GST, which Jean Chretien promised to scrap, caused government revenues to skyrocket.  The Canada/U.S. Free Trade Agreement, later morphing into NAFTA, which again, Jean Chretien promised to scrap, caused major investment into Canada’s economy.  Below is an excerpt from a McGill University study from 2001.

    “…Mr. Chretien is still in office. His term is incomplete. But his objective record does not fare well in our statistical comparison, where a PM earns points not for basking in good times but for improving his inherited situation; for doing a better job than his parallel number and competitor in the Oval Office; for showing an upward trend in desirable numbers during his term; and for making a difference in the later development of Canada. Canada’s current Prime Minister is regarded as having a good economic record. After all, Canada is now running a surplus, it boasts low inflation, and unemployment is down significantly since 1993. We are not saying Canada is in terrible shape: it isn’t. But if “did you make substantial improvements to the numbers you inherited?” is the test, Mr. Chretien’s accomplishments aren’t enough. Mr. Mulroney remains the man to beat…”

Here is some further reading.  Liberal accomplishments my ass.

As Brian Mulroney said, and I paraphrase, “Michael Wilson planted the seeds, Paul Martin got to pick the flowers.”

Furthermore, Ontario, Canada’s most populated province and the economic engine of Canada, elected Progressive Conservative Premier Mike Harris. Harris faced over $50 billion in federal Liberal cuts in transfer payments.  While he faced that problem, he cut taxes, he reduced welfare recipients by 500,000, he increased revenues from  $48 billion in 1995 to $68 billion by 2001 and balanced the budget.  Investment in Ontario was robust – all without the help of the federal Liberals.

Therefore, when your most populated province is kicking economic ass – who benefits?  That’s right. The feds.

So I know the author of the article I linked to falls all over himself to reuse the old Liberal “we inherited a $42 billion dollar deficit” and that it was Jean Chretien who was responsible for Canada’s robust economy – but the truth speaks for itself.

It was Tory policy that created a strong Canada.

Conservative parties, federally, and provincially, saved Canada from the Trudeau-era utopian spend-0urselves-stupid approach.

History speaks for itself.

Just as a note. Mike Harris raised revenues by $20 billion by cutting taxes and getting the economy revved up, but he made rthe same error that Thatcher, Reagan and so many others did; they did not reduce spending and plow the extra revenues into debt reduction and eventual permanent tax reduction, but rather spent the bonanza in an attempt to continue to buy votes (or had it spent for them as in the case of the United States, where a Democrat Congress used the massive increase in wealth from Reaganomics as a personal piggy bank for new pet projects. In a similar fasion, JFK ignited the Go Go 60's with his tax cuts; LBJ squandered all the new wealth (and more) with the "Great Society" and Viet Nam war).

Note 2: If Iron Mike were to become Premier right now, it would take a decade of $20 billion revenue increases and 0% spending growth to pay down the debt today. If Prime Minister Harper was to increase government revenues by $20 billion/year, it would take him 55+ years with 0% spending increase to take down the Federal Debt. That is the scale and scope of the problem today, so it should be crystal clear why deep spending cuts are needed in addition to tax reduction to deleverage Canada and protect us from the Global economic meltdown (AKA Greater Depression) that awaits.

 

[Kirkhill]

About reading history and doom.....

My take on it is that it is obvious with a generational memory of 25 years we can't remember a ruddy thing. Consequently we keep doing the same things over and over again.

Funnily enough we are still here to keep doing it over and over again....I reckon it can't be fatal.

 

[Edward Campbell]

Somewhere else, someone else cited George Santayana: "Those who cannot remember the past are condemned to repeat it."

 

[Brad Sallows]

Who cares about the past?  It is the future we are taxing when we borrow.

 

[a_majoor]

Canada is on the verge of being blindsided again. Our oii sands are being locked out of the US and European markets, and if we become the captive suppliers of the Chinese, the "Oil Superpower" chant will ring hollow. Expanding our potential lists of customers (Korea, Tiawan, Japan come to mind) is a short term step, but going after the Indian market gives us a potential major customer to offset our dependency on only China as a major market. Other possibilities (mentioned in companion pieces in the FP) include building refineries and utilizing this oil for our own domestic consumption:

http://opinion.financialpost.com/2011/11/04/terence-corcoran-the-energy-superpower-that-isn’t/

Terence Corcoran: The energy superpower that isn’t
 
Terence Corcoran  Nov 4, 2011 – 8:36 PM ET

Canada hardly rates a mention in Daniel Yergin’s new book

When a “global energy superpower” starts delivering tough talk to its potential customers, that superpower had better be sure that people will listen. It has also better be sure it is in fact a superpower; otherwise, it may find itself talking tough to the wind.

In recent weeks, Canada — a self-proclaimed global energy superpower — has been trying to throw its weight around over the Keystone XL pipeline, TransCanada Corp.’s $7-billion project to ship oil sands production from Alberta to Texas. In Houston on Tuesday, Natural Resources Minister Joe Oliver let the Americans know that Canada had other options. “What will happen if there wasn’t approval [of Keystone] — and we think there will be — is that we’ll simply have to intensify our efforts to sell the oil elsewhere.”

Canadian oil executives, who have a lot invested in the superpower notion, are also issuing aggressive-sounding statements aimed at the United States. A headline in The Globe and Mail Friday sounded like a threat: “Oil patch to U.S.: OK pipe or lose our oil.” The story didn’t quite back up the headline, but the sense was that Canada was developing alternatives and that China is the big alternative.

If this was intended to spook the United States into approving Keystone XL, it may not be the best strategy. Mr. Oliver said Canada would “simply” have to intensify sales efforts elsewhere. There will be nothing simple about getting oil to China. Pipelines to the West Coast will have to be built over First Nations territory and through wilderness controlled by foreign-funded environmental groups. Opposition to tankers is strong.

China isn’t at Canada’s doorstep. And the Communist regime in China knows that if the U.S. doesn’t want Canadian oil sands production, then Canada has no option but to sell to China. Becoming a global energy superpower will require better negotiating positions than are shaping up around the oil sands.

Another factor playing against Canada’s claims to global prominence is the rapidly changing world energy order. Most expert assessments foresee dramatic changes in supply, technology and prices, with very little favouring Canada. Shale gas and shale oil developments in other parts of the world, from the U.S. to China and Europe, suggest the world will have plenty of supply and low prices (see Lawrence Solomon in an accompanying commentary). Where does that leave Canada’s relatively expensive oil sands?

While Canadian government and industry officials have a lot invested in the idea of energy superpowerdom, few outside observers share the vision. Canada barely rates a mention in The Quest: Energy, Security and the Remaking of the Modern World, Daniel Yergin’s new book on the world energy market. A few pages are devoted to the oil sands, mostly to review the high costs and technical difficulties. “As the industry grows in scale, it will require wider collaboration on the R&D challenges, not only among oil companies and the province of Alberta, but also with Canada’s federal government.”

Far more impressive for the world’s energy future will be the impact of shale gas and shale oil. The “shale gale,” as Mr. Yergin calls it, has already transformed the U.S. gas market and shale oil could be next. Since Mr. Yergin’s book was written, the shale revolution has swept Europe and is about to transform China’s energy market.

A new study from Douglas Westwood, Unconventional Gas World Production and Drilling Forecast, says shale gas and other unconventional sources could make up one-third of growth in gas production by 2020, reports the Petroleum Economist. The United Kingdom, meanwhile, is sitting on what is widely viewed as a massive shale gas reserve.

How do Canada’s oil sands stack up against the shale revolution? Energy Business Reports, in a study titled Oil Sands, Gas and Oil Shales Market, sees shale gas as an energy-market “game changer.” As for Canada’s oil sands, it concludes that: “Oil sands producers are operating in a narrow financial window that may be shrinking over time. They want to avoid reaching an oil price ceiling, like the one at US$147/barrel in July 2008 that contributed to the oil price collapse below US$40/barrel.… But they also want to be confident of an oil price floor — now estimated at US$65-US$95 per barrel — to justify such long-term, capital-intensive investments. Oil markets have rarely maintained such stability … ”

Gas, of course, is not interchangeable with oil as a commodity, at least not in the short term. Oil is still and is likely to remain the dominant fuel for transportation. But low gas prices generated by the shale revolution, and lower costs to produce shale oil, could keep oil prices below levels needed for profitable oil sands production.

Canada’s claims to global energy superpower status may be hard to maintain in the years to come. Even the United States, which Canadian officials once viewed as dependent on Canadian energy supplies, may soon be in a strong position to secure more of its energy needs at home and elsewhere at cheaper prices.

None of this is a sure thing. But it already seems clear that Canada’s political and corporate energy leaders do not have the upper hand in the new world energy order.