Of all the so-called "star economists" in the world, by far the most undeserving of the title is Thomas Piketty. Bar none.
In fact, in Piketty's case, one would have to use a few more quotation marks to make clear just how unfitting the title of "star economist" is to him. It would be more like "star 'economist'." As in, not only is he not really a star, but he's not much of an economist.
Nor is he much of a historian.
As this is written, Greece's future is extremely uncertain. In a referendum the Greek people have voted "no" to adopting budget cutting measures in exchange for another bailout. Greece has already defaulted on its debt payments, and it's unclear if they intend -- or will be able -- to make future payments.
Enter Thomas Piketty. Unable to accept that Greece reveals the utter paucity of the school of economic thought that he not only prefers, but fudged the numbers in order to become a standard bearer for -- Piketty has decided to try to deflect.
His answer? Germany simply should not attempt to collect the debt Greece owes.
His reason? Because billions of gold marks in post-WWI debt was forgiven.
This is what people who are familiar with logical fallacy refer to as a "false equivalent." There is an obvious difference between a debt imposed on Germany when Germany was scapegoated for a war that those imposing the debt had every bit as much to do with starting, and a debt freely and openly sought by those who incurred it.
There are few ways Piketty could even possibly be more on the wrong side of history. The Treaty of Versailles did not produce a just peace, In fact, the Treaty of Versailles is a textbook case of an unjust peace, one not reached through agreeable negotiation, but rather imposed at the muzzles of thousands of guns.
It was literally a peace imposed by parties that were every bit the belligerent and opportunist as Germany or any other participant in the war.
In the end, as anyone whose study of history is even passing knows, the economic consequences of the Treaty of Versailles gave rise to a regime far more extreme, capable of horrors the Kaiser would have never imagined, let alone performed.
This is a very different relationship between debtor and creditor than the relationship between Greece and its creditors. Greece's debt was not imposed upon it, but rather openly sought. The Greek government borrowed billions to fund consumption, and now will find that prospective creditors will not lend them even a single euro.
Perhaps even more insipid than Piketty's historical argument is his generational argument, wherein he bizarrely suggests that because the German government of today is not held responsible for the actions of the German government of 1914 (101 years ago), that the Greek government of today cannot be held responsible for its actions in 2009. Six years ago.
Yes, Piketty is this ridiculous.
Those who, like Piketty, cannot accept that the Greek mess is their mess, are now clinging to his poor and nonsensical arguments for dear life.
It boggles the mind to try to imagine just how Piketty imagines an economy should function. Greece wanted to fund absurdly generous social benefits it. It did not have the money to pay for them. So they borrowed it.
How could Greece have funded these programs had they not borrowed?
If borrowers commonly refuse to repay, lenders will simply stop lending. For other countries that may want to borrow to fund similarly unsustainable
social benefits -- or perhaps simply want to borrow to fund
infrastructure -- how will they do this if lenders are no longer willing to lend?
The act of borrowing comes with the acceptance of an obligation to repay. How does Piketty imagine that borrowers can simply walk away from the obligation they've accepted?
An economy cannot function like this. It's madness to think otherwise.
Greece is hardly the first country to ever default on a debt. In fact, it's been shockingly common throughout history. Recovery from default is, under most conditions, a long and arduous process. But it is possible.
What Thomas Piketty has advocated for is the debtor's alternative to predatory lending: predatory borrowing. This is the idea that governments, because they are governments, can borrow irresponsibly and unsustainably for decades and then simply walk away from the debts they've incurred, demanding "forgiveness" as they do so.
No economist in their right mind could actually support this kind of practice.
One thing is crystal clear: whatever "star 'economist'" Thomas Piketty is actually practicing, it is not economics; perhaps the Paris School of Economics should see fit to have words.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Monday, July 6, 2015
Tuesday, March 17, 2015
How Does Canada's Budgeting Process Undermine Parliamentary Democracy?
If you weren't aware of it before, in reading Brent Rathgeber's Irresponsible Government you may be stunned to learn that what could quite accurately be described as Canada's "real" federal budget is essentially self-approving.
At first glance that doesn't sound correct. After all, the federal government presents a federal budget each year. In years past the late former Finance Minister Jim Flaherty would go out and buy a new pair of shoes. There would be a short debate, a few days of acrimony from opposition leaders, then the budget would be passed.
Then the media loses interest and goes home.
And why wouldn't they? What's left to see?
For the media, not much at all. For any elected MPs who sit on a parliamentary committee overseeing a specific department, there's lots left to see: the tabling of the estimates.
If you've never heard of this you're unfortunately not alone. That so many Canadians haven't heard of this is nothing less than a cataclysmic failure of the media and other educational institutions that we count on to keep us informed.
Most simply put, estimates are each department's spending plans for the next year, laid out on a line-by-line basis. MPs have a very brief time to examine them, then 21 supply days in the house to debate them and propose a maximum of 14 amendments to the estimates.
In order to be formally adopted, however, the estimates merely have to be voted upon by the committee in question, and the adoption of that estimate reported to Parliament. But here's where the entire process becomes largely irrelevant: if the committee doesn't report adoption of the estimate back to Parliament by the deadline, the committee is deemed to have reported and the estimate is adopted.
If it sounds like the budget presented in Parliament is largely for show, there's a reason for that.
If the media really thinks the federal budget is the most significant portion of the process they could be forgiven for being fooled. After all, there is no sequestration period prior to the tabling of the estimates during which the media may examine the estimates, then later report to the public on the plans detailed therein.
It's been this way largely since 1971: Canada, a Parliamentary democracy under the principle of responsible government, in which the executive is supposed to be accountable to the legislature, spends its taxpayer dollars in a manner not nearly as dissimilar from executive-centric France as we may have preferred to think.
Compounding the problem is that the vast majority of Parliamentarians lack the requisite skills to glean the necessary information out of these documents, and many of them lack even the motivation. So when it comes to how government spends taxpayer dollars, Parliament is effectively asleep at the switch.
So how is this problem, which Parliament doesn't even seem to recognize that it has, solved?
Well, perhaps the simplest way to solve it is not to table the estimates merely for members of each committee, but instead table them for the general public. Then, concerned citizens can contact their MP -- hoping that they've taken care to elect a good one -- to draw attention to their concerns.
If the public is engaged, Parliament will have no choice but to be similarly engaged. It may slow down the process of government spending taxpayer dollars, but do we really want a government that's in a hurry to spend our money?
Tuesday, January 6, 2015
The Economic Impact of Unethical Games Journalism
Regular Bad Company readers may recall my inaugural Gamergate-themed post, wherein I took one Henry Smith to the woodshed for his portrayal of gamers strictly as "rich white men with expensive toys."
More than simply false -- gamers come from all races, genders and walks of life -- it was incredibly shortsighted.
It was shortsighted for more than just the misapplication of what he claims as his own ideas. It's also oblivious to the people to whom the ethical issues associated with Gamergate matter most.
Simply put, the "rich white men with expensive toys" argument has virtually no understanding of to whom these issues are most important. Simply put, the less money a gamer has to spend on their hobby, the more important these issues are.
Upon its release a AAA video game can cost approximately $70. For gamers who partake in the hobby on a low-income basis this can present a serious quandary, particularly if they don't want to wait for a second-hand copy of the game at their local EB Games or on Kijiji. If they're going to spend $70 on a new video game, it's especially important for these gamers that they choose wisely in a field that, like all others, offers no guarantees.
Perhaps more than anywhere else, low-income gamers rely on games journalism to give them an indication of which games they should spend their money on. So when games journalists give glowing reviews to AAA games that are simply not up to snuff on a technical basis -- Dragon Age Inquisiton being a prime example -- they have betrayed their audience to an unconscionable degree.
No one should expect perfect objectivity from video games reviewers. After all, many of the key elements of a game -- graphics, music, sound effects, play format -- are subjective measures. However, the mechanical aspects of a game: controls, artificial intelligence, processing coherence (whether or not the game is glitch-free or is glitchy as all hell) -- are not. If a game is lacking in these measures it is automatically a bad game, regardless of whether or not some games journalist prefers its subject matter or finds it sufficiently caters to their tastes or political opinions.
Economics teaches us about the concept of opportunity cost. Explained most simply, opportunity cost is the best option, in terms of marginal utility, foregone for the purpose of an option selected.
In the case of a video game purchase it's not unreasonable to suggest that the opportunity cost of a bad game purchased is a good game purchased in its stead.
For the individuals fomenting the cancer at the heart of games journalism -- journalistic standards sacrificed for the purpose of promoting the "social justice" agenda -- opportunity cost is also an applicable concept. For them, a game produced that does not serve their agenda represents a game not produced that does serve their agenda. This is obviously an issue with any game, but for AAA games, the production budgets for which can be in the hundreds of millions of dollars, this becomes far more acute.
Social justice warriors among the so-called "elite" of games journalism have unquestionably tilted their ratings in favour of some games, including AAA games, that didn't deserve the ratings. If the result is that gamers purchase games that aren't worth the money, that will give developers an incentive to produce games that successfully pander to the "social justice" agenda even at the expense of game mechanics. If this happens, these particular games journalists have just succeeded in doing something tremendously pervasive: they've shifted their opportunity cost from themselves to the gamers who also happen to be their customers.
You're welcome, I presume.
The lower the income of a particular gamer the more negatively impacted they are not only by any journalistic trend that may mislead them into a poor game selection, but also that any journalistic trend that encourages a decline in average game quality.
My observation is that the so-called "elite" whose activities have given rise to #Gamergate are too drunk on power they don't deserve and don't know what to do with to have even considered the consequences of their actions. In the famous words of Mal Reynolds: I don't credit them with an overabundance of brains. And so I cannot put this past them.
This is the kind of thing that facilitates the decision to make everything else secondary to a political agenda -- just don't bother to think about what the unintended consequences could be. This is rooted in the conviction that no price is too high to pay for "social justice" ...even if the "justice" being pursued is just one narrow, almost narcissistically narrow, view of it.
Some of them simply aren't predisposed to think of the consequences. Others, like Ben Kuchera, seem to literally be having too much fun abusing the power they've been given -- sneering at dissenting voices all the while -- to care.
One way or the other, regardless of Henry Smith's caricature of gamers as rich white males, it's the poorest gamers who actually have the biggest stake in #Gamergate. The economic impact will invariably fall hardest on them.
More than simply false -- gamers come from all races, genders and walks of life -- it was incredibly shortsighted.
It was shortsighted for more than just the misapplication of what he claims as his own ideas. It's also oblivious to the people to whom the ethical issues associated with Gamergate matter most.
Simply put, the "rich white men with expensive toys" argument has virtually no understanding of to whom these issues are most important. Simply put, the less money a gamer has to spend on their hobby, the more important these issues are.
Upon its release a AAA video game can cost approximately $70. For gamers who partake in the hobby on a low-income basis this can present a serious quandary, particularly if they don't want to wait for a second-hand copy of the game at their local EB Games or on Kijiji. If they're going to spend $70 on a new video game, it's especially important for these gamers that they choose wisely in a field that, like all others, offers no guarantees.
Perhaps more than anywhere else, low-income gamers rely on games journalism to give them an indication of which games they should spend their money on. So when games journalists give glowing reviews to AAA games that are simply not up to snuff on a technical basis -- Dragon Age Inquisiton being a prime example -- they have betrayed their audience to an unconscionable degree.
No one should expect perfect objectivity from video games reviewers. After all, many of the key elements of a game -- graphics, music, sound effects, play format -- are subjective measures. However, the mechanical aspects of a game: controls, artificial intelligence, processing coherence (whether or not the game is glitch-free or is glitchy as all hell) -- are not. If a game is lacking in these measures it is automatically a bad game, regardless of whether or not some games journalist prefers its subject matter or finds it sufficiently caters to their tastes or political opinions.
Economics teaches us about the concept of opportunity cost. Explained most simply, opportunity cost is the best option, in terms of marginal utility, foregone for the purpose of an option selected.
In the case of a video game purchase it's not unreasonable to suggest that the opportunity cost of a bad game purchased is a good game purchased in its stead.
For the individuals fomenting the cancer at the heart of games journalism -- journalistic standards sacrificed for the purpose of promoting the "social justice" agenda -- opportunity cost is also an applicable concept. For them, a game produced that does not serve their agenda represents a game not produced that does serve their agenda. This is obviously an issue with any game, but for AAA games, the production budgets for which can be in the hundreds of millions of dollars, this becomes far more acute.
Social justice warriors among the so-called "elite" of games journalism have unquestionably tilted their ratings in favour of some games, including AAA games, that didn't deserve the ratings. If the result is that gamers purchase games that aren't worth the money, that will give developers an incentive to produce games that successfully pander to the "social justice" agenda even at the expense of game mechanics. If this happens, these particular games journalists have just succeeded in doing something tremendously pervasive: they've shifted their opportunity cost from themselves to the gamers who also happen to be their customers.
You're welcome, I presume.
The lower the income of a particular gamer the more negatively impacted they are not only by any journalistic trend that may mislead them into a poor game selection, but also that any journalistic trend that encourages a decline in average game quality.
My observation is that the so-called "elite" whose activities have given rise to #Gamergate are too drunk on power they don't deserve and don't know what to do with to have even considered the consequences of their actions. In the famous words of Mal Reynolds: I don't credit them with an overabundance of brains. And so I cannot put this past them.
This is the kind of thing that facilitates the decision to make everything else secondary to a political agenda -- just don't bother to think about what the unintended consequences could be. This is rooted in the conviction that no price is too high to pay for "social justice" ...even if the "justice" being pursued is just one narrow, almost narcissistically narrow, view of it.
Some of them simply aren't predisposed to think of the consequences. Others, like Ben Kuchera, seem to literally be having too much fun abusing the power they've been given -- sneering at dissenting voices all the while -- to care.
One way or the other, regardless of Henry Smith's caricature of gamers as rich white males, it's the poorest gamers who actually have the biggest stake in #Gamergate. The economic impact will invariably fall hardest on them.
Saturday, September 20, 2014
The CCPA CRA Audit Explained, As it Were
So, the Canada Revenue Agency is auditing the Canadian Centre for Policy Alternatives for potential violations of the Income Tax Act related to charitable or non-profit organizations. The operating suspicion is that the CCPA has engaged primarily in political activities, as opposed to educational activities.
That's ridiculous, right?
Well... maybe not so much.
Writing in the Huffington Post, CCPA "economist" Toby Sanger sets out to challenge Prime Minister Stephen Harper's assertion that corporate tax cuts have not harmed Canada's overall corporate tax haul.
As it turns out, Sanger's argument hinges on the following graph:
Comically, the graph actually directly contradicts Sanger's claim. Pay close attention to how corporate income tax revenues interacted with CIT rate cuts between 2008 and 2014. Notice anything? Such as, say... modest yearly growth?
Certainly, Sanger can demonstrate an absolute decline in CIT haul between 2006 and 2014. Apparently the reader is supposed to simply presume that this is attributable to CIT rate cuts. Yet Sanger seems to have left out one crucial event that undoubtedly, undeniably affected Canada's CIT haul: the 2008 recession.
Go ahead: search Sanger's screed for the word "recession." You won't find it. It's not there.
How can an allegedly-seasoned economist like Sanger simply not mention the recession?
I think the answer is remarkably simple: mentioning the 2008 recession would remind readers that there is more to the absolute decline in CIT haul than simply CIT rates. Once the drastic drop between CIT hauls in 2006 and 2008 is revealed to be attributable to factors other than CIT rate cuts, the very premise of Sanger's article evaporates. And my bet is that Sanger knows this.
According to the Income Tax Act, charitable and non-profit organizations are tax-exempt if they engage in educational activities. But in deliberately excluding not only pertinent information -- but in fact the most pertinent information -- from his article, Sanger has crafted a piece that is not educational or even informational, but is in fact disinformational.
As such, it is inherently political.
And while neither Toby Sanger nor the Huffington Post saw fit to disclose his involvement with the CCPA, the question is still begged: does the nature of Sanger's work in the Huffington Post reflect the nature of his work for the CCPA?
If it does, the Canada Revenue Agency's audit of the Canadian Centre for Policy Alternatives is in fact well-justified... and it will likely not end well for the CCPA.
That's ridiculous, right?
Well... maybe not so much.
Writing in the Huffington Post, CCPA "economist" Toby Sanger sets out to challenge Prime Minister Stephen Harper's assertion that corporate tax cuts have not harmed Canada's overall corporate tax haul.
As it turns out, Sanger's argument hinges on the following graph:
Certainly, Sanger can demonstrate an absolute decline in CIT haul between 2006 and 2014. Apparently the reader is supposed to simply presume that this is attributable to CIT rate cuts. Yet Sanger seems to have left out one crucial event that undoubtedly, undeniably affected Canada's CIT haul: the 2008 recession.
Go ahead: search Sanger's screed for the word "recession." You won't find it. It's not there.
How can an allegedly-seasoned economist like Sanger simply not mention the recession?
I think the answer is remarkably simple: mentioning the 2008 recession would remind readers that there is more to the absolute decline in CIT haul than simply CIT rates. Once the drastic drop between CIT hauls in 2006 and 2008 is revealed to be attributable to factors other than CIT rate cuts, the very premise of Sanger's article evaporates. And my bet is that Sanger knows this.
According to the Income Tax Act, charitable and non-profit organizations are tax-exempt if they engage in educational activities. But in deliberately excluding not only pertinent information -- but in fact the most pertinent information -- from his article, Sanger has crafted a piece that is not educational or even informational, but is in fact disinformational.
As such, it is inherently political.
And while neither Toby Sanger nor the Huffington Post saw fit to disclose his involvement with the CCPA, the question is still begged: does the nature of Sanger's work in the Huffington Post reflect the nature of his work for the CCPA?
If it does, the Canada Revenue Agency's audit of the Canadian Centre for Policy Alternatives is in fact well-justified... and it will likely not end well for the CCPA.
Sunday, September 14, 2014
$15 Minimum Wage? Not as the NDP Would Have It
Well, it looks like Justin Trudeau can kiss the hard-core pothead vote goodbye. The NDP have just figured out a way to take it away from him.
At the cost of economic disaster, mind you. But all the same.
Recently, the NDP rolled out a proposal to increase Canada's federal minimum wage -- the minimum wage applicable to federally-regulated industries -- to $15 an hour. Sounds great, right? Well, not if you pay attention to history.
Here's what history tells us about raising the minimum wage, at least under certain circumstances: as of 2014, Canada's minimum wage, adjusted for inflation, was all of one cent more than in 1974. In 1974 the minimum wage in Ontario was just $2.74. Forty years later, it's $10.14. That might seem like a significant increase, until you consider that $2.74 adjusted for inflation is $10.13.
There's a reason for this: wage pressures are inflationary. And when a wage pressure is government-induced, that inflation is guaranteed. It's basic economics: if you increase the cost of an input, such as labour, entrepeneurs will increase the price they demand for their product. Suddenly everyone is paying more for everything so everyone's dollar is worth less.
So will a $15 minimum wage really improve things for minimum wage earners? As it turns out, no. Not only would it not really improve anything for minimum wage earners, it would result in catastrophic losses for the middle class, and more-bearable-losses for the wealthy. As the price of everything from housing to utilities to groceries to clothing to, well, everything will rise, swallowing up what might otherwise appear to be gains. No one gets further ahead, and everyone would fall further behind. (At least it would reduce income inequality!)
That's how the NDP would have it. But a $15 minimum wage could work without such a disaster... if accompanied by offsetting corporate and small business taxes. And we all know how much the NDP loves cutting corporate taxes.
But deep corporate and small business tax cuts -- perhaps as much as 50% of the current rate -- may be the only way to stave off the inflation that would otherwise accompany a $15 minimum wage. That puts the NDP at something of an impasse.
If they can't find it in themselves to navigate this impasse in the only workable way, the NDP's $15 minimum wage proposal would be nothing more than a blueprint for another Great Depression.
At the cost of economic disaster, mind you. But all the same.
Recently, the NDP rolled out a proposal to increase Canada's federal minimum wage -- the minimum wage applicable to federally-regulated industries -- to $15 an hour. Sounds great, right? Well, not if you pay attention to history.
Here's what history tells us about raising the minimum wage, at least under certain circumstances: as of 2014, Canada's minimum wage, adjusted for inflation, was all of one cent more than in 1974. In 1974 the minimum wage in Ontario was just $2.74. Forty years later, it's $10.14. That might seem like a significant increase, until you consider that $2.74 adjusted for inflation is $10.13.
There's a reason for this: wage pressures are inflationary. And when a wage pressure is government-induced, that inflation is guaranteed. It's basic economics: if you increase the cost of an input, such as labour, entrepeneurs will increase the price they demand for their product. Suddenly everyone is paying more for everything so everyone's dollar is worth less.
So will a $15 minimum wage really improve things for minimum wage earners? As it turns out, no. Not only would it not really improve anything for minimum wage earners, it would result in catastrophic losses for the middle class, and more-bearable-losses for the wealthy. As the price of everything from housing to utilities to groceries to clothing to, well, everything will rise, swallowing up what might otherwise appear to be gains. No one gets further ahead, and everyone would fall further behind. (At least it would reduce income inequality!)
That's how the NDP would have it. But a $15 minimum wage could work without such a disaster... if accompanied by offsetting corporate and small business taxes. And we all know how much the NDP loves cutting corporate taxes.
But deep corporate and small business tax cuts -- perhaps as much as 50% of the current rate -- may be the only way to stave off the inflation that would otherwise accompany a $15 minimum wage. That puts the NDP at something of an impasse.
If they can't find it in themselves to navigate this impasse in the only workable way, the NDP's $15 minimum wage proposal would be nothing more than a blueprint for another Great Depression.
Monday, December 23, 2013
It's Callted "Research," Michael...
Research! You would think, perhaps, that iPolitics' Michael Harris would have heard of it?
Well, if you read his most recent column with a careful eye, you may be forced to conclude that, no. He hasn't heard of it.
In something of a desperate bid to confuse the Harper governments Economic Action Plan ads for the Liberal Party's own Adscam, Harris winds up making some rather scurrilous comments about the ads:
"No one is better at giving himself straight As than this PM. The new explanation went something like this: The ads were worth it because after seeing their key message — that Canada was doing better than any other developed country in tough economic times — Canadians would burst with pride at what a good government they had.
Setting aside the neck-snapping shift in the justification, there was another problem with the ads. They weren’t true either. Canada does not have the highest growth rate in the G7 — the United States does. Outside the G7, the economies of Australia and some Scandinavian countries also grew faster than Canada’s did."
Looking back on 2012, we can quickly see that Harris' claims here are tacitly false. The United States GDP outgrew Canada's... in the third quarter. Through the entirety of 2012, the GDP of Canada and the United States each grew at 2.1%. It took an unexpected third quarter for the US to pull even with Canada in 2012, but the shine wore off through the final quarter.
It's especially worth noting that Canada out-performed the United States in per-capita GDP growth, widely considered to be a better predictor of overall economic growth.
So in other words, Harris would have to make a single quarter a microcosm for the entirety of 2012's comparative growth, ignoring all other quarters, for Harris' claims to even seem true.
It certainly also helps that Harris is using current economic numbers -- the US has once again had a strong third quarter -- when the numbers used in the ads, aired during the 2013 NHL playoffs, were most likely from the first quarter of 2013. Canada's GDP numbers blew the US away in quarter number one. Talk about shifting the goalposts in truly epic fashion.
It's enough to make you wonder about the editing that takes place in the iPolitics offices. This is far from the first time Michael Harris has thrown caution to the wind and committed a savage burn on his oblivious readership. It's actually become quite routine.
Well, if you read his most recent column with a careful eye, you may be forced to conclude that, no. He hasn't heard of it.
In something of a desperate bid to confuse the Harper governments Economic Action Plan ads for the Liberal Party's own Adscam, Harris winds up making some rather scurrilous comments about the ads:
"No one is better at giving himself straight As than this PM. The new explanation went something like this: The ads were worth it because after seeing their key message — that Canada was doing better than any other developed country in tough economic times — Canadians would burst with pride at what a good government they had.
Setting aside the neck-snapping shift in the justification, there was another problem with the ads. They weren’t true either. Canada does not have the highest growth rate in the G7 — the United States does. Outside the G7, the economies of Australia and some Scandinavian countries also grew faster than Canada’s did."
Looking back on 2012, we can quickly see that Harris' claims here are tacitly false. The United States GDP outgrew Canada's... in the third quarter. Through the entirety of 2012, the GDP of Canada and the United States each grew at 2.1%. It took an unexpected third quarter for the US to pull even with Canada in 2012, but the shine wore off through the final quarter.
It's especially worth noting that Canada out-performed the United States in per-capita GDP growth, widely considered to be a better predictor of overall economic growth.
So in other words, Harris would have to make a single quarter a microcosm for the entirety of 2012's comparative growth, ignoring all other quarters, for Harris' claims to even seem true.
It certainly also helps that Harris is using current economic numbers -- the US has once again had a strong third quarter -- when the numbers used in the ads, aired during the 2013 NHL playoffs, were most likely from the first quarter of 2013. Canada's GDP numbers blew the US away in quarter number one. Talk about shifting the goalposts in truly epic fashion.
It's enough to make you wonder about the editing that takes place in the iPolitics offices. This is far from the first time Michael Harris has thrown caution to the wind and committed a savage burn on his oblivious readership. It's actually become quite routine.
Thursday, October 3, 2013
Michael Bolen Lowers the Bar on Raising the Debt Ceiling
Apparently, Huffington Post Canada news editor Michael Bolen wants a piece of Anthony Furey. And he got it.
But in Bolen's appearance on Byline, Furey really was far too gentle with Bolen than his drivel warrants.
Essentially, Bolen's column shakes out as such: Canada should not have a debt ceiling because it would prevent Canada from taking on more debt. Government debt, Bolen maintains, is a good thing, and because governments can print and issue their own money, as well as inflate and deflate currency at will -- which is actually untrue -- it's OK.
Bolen writes:
"Governments are not like families or businesses. Families and businesses can't print currency and are not tasked with managing the money supply for the purpose of encouraging economic growth and curbing inflation. Deficit spending is an essential tool used by every reasonable government on Earth and growth is the best way to reduce debt. Not cuts."
This paragraph couldn't possibly be any more fiscally- or economically-illiterate.
First off, in Canada and the United States, governments do not print money or manage the money supply. Central banks do that, and they are arms-length institutions. Central banks print currency, set the interest rate, and while their governors may be appointed by the government, they operate as separate institutions.
Secondly, Bolen draws a link between economic growth and deficit spending that is spurious at best. It's true that properly-managed stimulus spending can help a government mitigate the effects of an economic downturn. The extent to which it can do that, and the extent to which it has, are very much subject to debate. But even upon accepting this to be true, in the case of the United States we aren't talking about periodic deficit spending during a recession; we're talking about continuous and uninterrupted deficit spending over the span of decades.
Unlike Prime Minister Stephen Harper, American Presidents -- Democrat and Republican alike -- have failed to balance their deficits against economic growth and shrink them as a percentage of GDP. When it comes to these failures, Obama has led the pack on a previously-unthinkable scale. Which is basically what this entire issue is about.
And perhaps Europe has been experiencing a rough ride under austerity. This is to be expected. But it wasn't austerity that was a disaster in places like Greece: it was unrestrained socialism.
Bolen is certainly right about one thing: the debt ceiling hasn't worked in the United States, for two reasons:
First, the American congress made a grievous error by setting the debt ceiling as a dollar figure, as opposed to a percentage of GDP. Should they have had the wisdom to set a limit on that -- say, limiting debt to 50% of GDP -- congress would have had to handle the deficit long before the debt reached 100% of GDP, as it did this past year.
Second, the current US congress has found itself working under the administration of a President who seems to have very little interest in governing and a great deal of interest in casting blame. It doesn't help that the Republican establishment seems very terrified of taking the blame for anything, even forcing the President to finally negotiate with his congress and actually passing a budget.
Other than that, Michael Bolen's column never manages to raise above the level of empty, economically-illiterate demagoguery.
But in Bolen's appearance on Byline, Furey really was far too gentle with Bolen than his drivel warrants.
Essentially, Bolen's column shakes out as such: Canada should not have a debt ceiling because it would prevent Canada from taking on more debt. Government debt, Bolen maintains, is a good thing, and because governments can print and issue their own money, as well as inflate and deflate currency at will -- which is actually untrue -- it's OK.
Bolen writes:
"Governments are not like families or businesses. Families and businesses can't print currency and are not tasked with managing the money supply for the purpose of encouraging economic growth and curbing inflation. Deficit spending is an essential tool used by every reasonable government on Earth and growth is the best way to reduce debt. Not cuts."
This paragraph couldn't possibly be any more fiscally- or economically-illiterate.
First off, in Canada and the United States, governments do not print money or manage the money supply. Central banks do that, and they are arms-length institutions. Central banks print currency, set the interest rate, and while their governors may be appointed by the government, they operate as separate institutions.
Secondly, Bolen draws a link between economic growth and deficit spending that is spurious at best. It's true that properly-managed stimulus spending can help a government mitigate the effects of an economic downturn. The extent to which it can do that, and the extent to which it has, are very much subject to debate. But even upon accepting this to be true, in the case of the United States we aren't talking about periodic deficit spending during a recession; we're talking about continuous and uninterrupted deficit spending over the span of decades.
Unlike Prime Minister Stephen Harper, American Presidents -- Democrat and Republican alike -- have failed to balance their deficits against economic growth and shrink them as a percentage of GDP. When it comes to these failures, Obama has led the pack on a previously-unthinkable scale. Which is basically what this entire issue is about.
And perhaps Europe has been experiencing a rough ride under austerity. This is to be expected. But it wasn't austerity that was a disaster in places like Greece: it was unrestrained socialism.
Bolen is certainly right about one thing: the debt ceiling hasn't worked in the United States, for two reasons:
First, the American congress made a grievous error by setting the debt ceiling as a dollar figure, as opposed to a percentage of GDP. Should they have had the wisdom to set a limit on that -- say, limiting debt to 50% of GDP -- congress would have had to handle the deficit long before the debt reached 100% of GDP, as it did this past year.
Second, the current US congress has found itself working under the administration of a President who seems to have very little interest in governing and a great deal of interest in casting blame. It doesn't help that the Republican establishment seems very terrified of taking the blame for anything, even forcing the President to finally negotiate with his congress and actually passing a budget.
Other than that, Michael Bolen's column never manages to raise above the level of empty, economically-illiterate demagoguery.
Tuesday, September 24, 2013
Linda McQuaig Must Be Defeated
Apparently, the by-election in Toronto Centre is effectively set. Liberal candidate Chrystia Freeland will contest the riding against NDP nominee Linda McQuaig.
The two-horse-race is apparently so much so that whoever the Conservative nominee in the riding might end up being, they haven't warranted so much as a mention in coverage so far.
Freeland is far from a perfect candidate. But as seldom as I endorse a Liberal candidate, I can certainly say that she's the far better of the two candidates: the "lesser of two evils," as it were.
The reason for this actually boils entirely down to McQuaig. She is what NDP leader Thomas Mulcair has insisted that his party doesn't represent: she's very much a "class war" candidate, bent on winning support from the poor by not only demonizing the wealthy, but promising re-distribution of wealth on a stunning scale. And while this may play well to voters in Regent Park, it's actually the reason why, for the good of the country, Linda McQuaig absolutely must be defeated.
It all comes down to her economic theories:
1. They're vindictive - McQuaig doesn't like millionaires. She really doesn't like billionaires. And so she has consistently advocated for policies that would wipe out every fortune in Canada. This is, of course, the dark side of McQuaig's equality crusade: her quest to force equality of result -- as opposed to equality of opportunity -- on Canadian society requires that she take the things people have earned for them, mostly just for the sake of taking it.
That's not the kind of attitude that ends itself to strong government.
2. They're tyrannical -There's something about a person who thinks that she should be able to decide what you should be able to earn, and what you should be able to leave to your children. Think about that: not only does she want to confiscate any excess if she thinks you've managed to earn too much, but if even if someone were to find their way around that and earn a fortune, she wants to confiscate it upon your passing.
She apparently thinks herself fit to decide what your children can have when you're gone. That's a staggering amount of power she thinks herself fit to wield.
3. They're reckless - McQuaig eyes up the wealthy as a source of revenue from which the government can fund the laundry list of social programs she envisions -- and those that she hasn't even thought up yet.
So imagine that McQuaig gets what she wants. Presumably everything's fine so long as their are fortunes to snatch.
What happens when there aren't?
McQuaig's policies would saddle Canada with extravagant social programming under on the basis that pilfered fortunes could be used to pay for them. And then her policies actively and deliberately set out to destroy the source of that revenue. It would be enough to transform Canada into Greece within a single generation. A competent economist would know better.
4. They're irrational - A competent economist would know better. Yet somehow Linda McQuaig doesn't.
How could this be? She may not necessarily be an economist, but she considers herself well-versed in economics. Yet her theories reject not only any remote semblance of economic orthodoxy -- in itself not necessarily a bad thing -- but also reject decades worth of economic history. She's the kind of theorist who not only clings to her model for years after the observed results contradicts them, but actually doubles down.
It doesn't seem unfair to suggest that running to be an MP is McQuaig's way of doubling down on her own disproven economic fantasies. McQuaig's theories wouldn't bring an embrace of evidence-based governance to Parliament, but rather a rejection of it.
Farbeit to say that electing McQuaig is guaranteed to bring economic ruin to Canada. After all, she would be but one MP, and her party has absolutely no chance of ever governing the country. But should McQuaig be elected, it would show that Canadians very much could be wooed by petty divisiveness and pure ideological fervour.
That should never be allowed to happen. Linda McQuaig must be defeated in Toronto-Centre.
The two-horse-race is apparently so much so that whoever the Conservative nominee in the riding might end up being, they haven't warranted so much as a mention in coverage so far.
Freeland is far from a perfect candidate. But as seldom as I endorse a Liberal candidate, I can certainly say that she's the far better of the two candidates: the "lesser of two evils," as it were.
The reason for this actually boils entirely down to McQuaig. She is what NDP leader Thomas Mulcair has insisted that his party doesn't represent: she's very much a "class war" candidate, bent on winning support from the poor by not only demonizing the wealthy, but promising re-distribution of wealth on a stunning scale. And while this may play well to voters in Regent Park, it's actually the reason why, for the good of the country, Linda McQuaig absolutely must be defeated.
It all comes down to her economic theories:
1. They're vindictive - McQuaig doesn't like millionaires. She really doesn't like billionaires. And so she has consistently advocated for policies that would wipe out every fortune in Canada. This is, of course, the dark side of McQuaig's equality crusade: her quest to force equality of result -- as opposed to equality of opportunity -- on Canadian society requires that she take the things people have earned for them, mostly just for the sake of taking it.
That's not the kind of attitude that ends itself to strong government.
2. They're tyrannical -There's something about a person who thinks that she should be able to decide what you should be able to earn, and what you should be able to leave to your children. Think about that: not only does she want to confiscate any excess if she thinks you've managed to earn too much, but if even if someone were to find their way around that and earn a fortune, she wants to confiscate it upon your passing.
She apparently thinks herself fit to decide what your children can have when you're gone. That's a staggering amount of power she thinks herself fit to wield.
3. They're reckless - McQuaig eyes up the wealthy as a source of revenue from which the government can fund the laundry list of social programs she envisions -- and those that she hasn't even thought up yet.
So imagine that McQuaig gets what she wants. Presumably everything's fine so long as their are fortunes to snatch.
What happens when there aren't?
McQuaig's policies would saddle Canada with extravagant social programming under on the basis that pilfered fortunes could be used to pay for them. And then her policies actively and deliberately set out to destroy the source of that revenue. It would be enough to transform Canada into Greece within a single generation. A competent economist would know better.
4. They're irrational - A competent economist would know better. Yet somehow Linda McQuaig doesn't.
How could this be? She may not necessarily be an economist, but she considers herself well-versed in economics. Yet her theories reject not only any remote semblance of economic orthodoxy -- in itself not necessarily a bad thing -- but also reject decades worth of economic history. She's the kind of theorist who not only clings to her model for years after the observed results contradicts them, but actually doubles down.
It doesn't seem unfair to suggest that running to be an MP is McQuaig's way of doubling down on her own disproven economic fantasies. McQuaig's theories wouldn't bring an embrace of evidence-based governance to Parliament, but rather a rejection of it.
Farbeit to say that electing McQuaig is guaranteed to bring economic ruin to Canada. After all, she would be but one MP, and her party has absolutely no chance of ever governing the country. But should McQuaig be elected, it would show that Canadians very much could be wooed by petty divisiveness and pure ideological fervour.
That should never be allowed to happen. Linda McQuaig must be defeated in Toronto-Centre.
Sunday, June 24, 2012
Thomas Mulcair vs Evidence -- a Very One-sided & Nasty Fight
Mulcair decries the damaged Canadian reputation that wasn't
Thomas Mulcair wants you to think Canada has a bad reputation. And he wants you to think Prime Minister Stephen Harper is to blame.
This is actually nothing new. It's a familiar tactic adopted by the opposition throughout the entirety of the Harper government era. And never once have any of its proponents been able to produce even a shred of evidence to support the claim. Not one.
"The Canada that [the Conservatives] are projecting onto the world stage is no longer recognizable to our many partners around the world who have always admired and worked with Canada, and it’s no longer recognizable to us," Mulcair declared. He attributes these comments to a European Union diplomat whom he recently met with.
This, of course, is a conversation that took place in private. No European Union diplomat has come out and gone on the record saying that Prime Minister Harper has hurt Canada's reputation. And apparently we're supposed to take Mulcair at his word. Because he's a politician, and no politician would ever lie or embellish anything.
Right? Right.
But, just as with Mulcair's "Dutch Disease" thesis, Mulcair is sorely at odds with the evidence on this one. Just what should Canadians believe? Mulcair's claims that Canada's reputation is suffering? Or scientific polling that demonstrates Canada's reputation is quite strong, and getting stronger?
The last time that such a poll was conducted, 57% of respondents around the world gave Canada a favourable rating. Even more tellingly for Mulcair's claims about Canada's reputation, only 12% gave Canada an unfavourable rating.
Once again, the evidence is stacking up against Mulcair. Which is far from shocking. But even if a few disgruntled EU diplomats were griping to Mulcair in private, it likely had far more to do with getting him on-side with the sovereign debt bailouts that the EU wants copious amounts of Canadian dollars for. Which is a colossally bad idea, as the risk attached to European sovereign debt skyrockets.
"We had these weird statements from Conservatives saying that [the crisis] was because of the sumptuous lifestyle in Europe. They turned it into a local, parochial, partisan, political fight, whereas this is literally something where we're all attached," Mulcair complained.
First off, there's nothing "weird" about those comments. Many of the European countries that are on the verge of collapse accumulated that debt somehow. And whether Mulcair wants to admit to it or not, everyone already knows how.
But it's true that Canada is attached. But some of us are more attached than others. Mulcair, for example, has to be keenly aware that the collapse of Europe is a stinging historical rebuke for his party's ideology. Europe has long been the NDP's model for Canada, and as goes that model, so will go the NDP. They aren't very good at going back to the drawing board when their ideas fail -- ergo the need to obfuscate the failures of their ideas.
Bailouts are something that every government should avoid. But sovereign debt bailouts are the absolute worst bailouts, and have always brought nothing but economic disaster. It happened in the 1930s with Germany, happened in the 1980s with various Latin American countries, and it's happening again now. There have been more than 250 defaults on sovereign debt since 1800. Many of them -- in particular Germany's -- were made far, far worse by the bailouts they had received in order to avoid such a default.
So certainly, yes. Canada is attached to the European economic crisis. Due to the nature of the global economy, pretty much everyone is. But Mulcair needs to ask himself a very serious question: if Europe is sucked down a whirlpool of debt, should Canada follow just to spare the NDP a little wounded pride?
Unfortunately, it's easy to forecast Mulcair's answer. He's proven exceedingly poor at coping with the bruises to his pride since he became Leader of the Opposition. Whether it was dealing with all the informed observers who demonstrated that his "Dutch Disease" theories were complete and utter bunkum, whether it's his claims about Canada's international reputation -- again, flying in the face of the available evidence -- or whether its the future of his party's model for Canada, he's shown he's just not very good at dealing with these things.
Thomas Mulcair and evidence don't get along very well. It's been a nasty and one-sided fight, with the evidence doing all the hitting. It's enough to make the prospect of Prime Minister Thomas Mulcair a deeply disturbing one.
Thomas Mulcair wants you to think Canada has a bad reputation. And he wants you to think Prime Minister Stephen Harper is to blame.
This is actually nothing new. It's a familiar tactic adopted by the opposition throughout the entirety of the Harper government era. And never once have any of its proponents been able to produce even a shred of evidence to support the claim. Not one.
"The Canada that [the Conservatives] are projecting onto the world stage is no longer recognizable to our many partners around the world who have always admired and worked with Canada, and it’s no longer recognizable to us," Mulcair declared. He attributes these comments to a European Union diplomat whom he recently met with.
This, of course, is a conversation that took place in private. No European Union diplomat has come out and gone on the record saying that Prime Minister Harper has hurt Canada's reputation. And apparently we're supposed to take Mulcair at his word. Because he's a politician, and no politician would ever lie or embellish anything.
Right? Right.
But, just as with Mulcair's "Dutch Disease" thesis, Mulcair is sorely at odds with the evidence on this one. Just what should Canadians believe? Mulcair's claims that Canada's reputation is suffering? Or scientific polling that demonstrates Canada's reputation is quite strong, and getting stronger?
The last time that such a poll was conducted, 57% of respondents around the world gave Canada a favourable rating. Even more tellingly for Mulcair's claims about Canada's reputation, only 12% gave Canada an unfavourable rating.
Once again, the evidence is stacking up against Mulcair. Which is far from shocking. But even if a few disgruntled EU diplomats were griping to Mulcair in private, it likely had far more to do with getting him on-side with the sovereign debt bailouts that the EU wants copious amounts of Canadian dollars for. Which is a colossally bad idea, as the risk attached to European sovereign debt skyrockets.
"We had these weird statements from Conservatives saying that [the crisis] was because of the sumptuous lifestyle in Europe. They turned it into a local, parochial, partisan, political fight, whereas this is literally something where we're all attached," Mulcair complained.
First off, there's nothing "weird" about those comments. Many of the European countries that are on the verge of collapse accumulated that debt somehow. And whether Mulcair wants to admit to it or not, everyone already knows how.
But it's true that Canada is attached. But some of us are more attached than others. Mulcair, for example, has to be keenly aware that the collapse of Europe is a stinging historical rebuke for his party's ideology. Europe has long been the NDP's model for Canada, and as goes that model, so will go the NDP. They aren't very good at going back to the drawing board when their ideas fail -- ergo the need to obfuscate the failures of their ideas.
Bailouts are something that every government should avoid. But sovereign debt bailouts are the absolute worst bailouts, and have always brought nothing but economic disaster. It happened in the 1930s with Germany, happened in the 1980s with various Latin American countries, and it's happening again now. There have been more than 250 defaults on sovereign debt since 1800. Many of them -- in particular Germany's -- were made far, far worse by the bailouts they had received in order to avoid such a default.
So certainly, yes. Canada is attached to the European economic crisis. Due to the nature of the global economy, pretty much everyone is. But Mulcair needs to ask himself a very serious question: if Europe is sucked down a whirlpool of debt, should Canada follow just to spare the NDP a little wounded pride?
Unfortunately, it's easy to forecast Mulcair's answer. He's proven exceedingly poor at coping with the bruises to his pride since he became Leader of the Opposition. Whether it was dealing with all the informed observers who demonstrated that his "Dutch Disease" theories were complete and utter bunkum, whether it's his claims about Canada's international reputation -- again, flying in the face of the available evidence -- or whether its the future of his party's model for Canada, he's shown he's just not very good at dealing with these things.
Thomas Mulcair and evidence don't get along very well. It's been a nasty and one-sided fight, with the evidence doing all the hitting. It's enough to make the prospect of Prime Minister Thomas Mulcair a deeply disturbing one.
Sunday, June 17, 2012
The Phantom Menace: The OECD "Dutch Disease" Report That Never Actually Was
If you were to believe Canada's left, there's a malaise ravaging Canada's economy. And conveniently for them, they can blame it all on Alberta, where practically no one votes for them.
They call it Dutch Disease. And they're grasping at any straw they can find in order to make Canadians think that Canada has it. Including a report by the Organization for Economic Cooperation and Development which, they say, identifies symptoms of Dutch Disease in Canada.
But the report isn't the blanket confirmation of NDP leader Thomas Mulcair's wacky economic thesis that they think it is. In fact, there's far more in the report that disputes Mulcair, and reveals his economic ideas to be shortsighted and dangerous than there is anything that actually backs him up.
Mulcair claimed that Canada suffers from so-called Dutch Disease on account of what he considered an over-valued Canadian dollar, which he attributed to resource revenues, singling out the oilsands in particular. The Dutch Disease argument holds that resource exports, which help drive up the value of the dollar, "hollow out" a country's manufacturing sector. A country's exports become more expensive by comparison to their international competitors, driving down sales, and labour demand from the booming resource industries leave the manufacturing sector unable to compete for labour.
And so the symptoms of the so-called "Dutch Disease" are pretty clear: struggling manufacturing, suffering sales, and lost jobs.
But to identify the symptom is hardly to diagnose the disease. And as a diagnostic tool, the OECD report actually tells a very different story. The report actually found what the IIRP did -- that the problem with manufacturing in Canada is below-nominal innovation. "While Canada has made great strides in macroeconomic and structural policy settings, and its academic research is world class, the pay-off in terms of business innovation and productivity growth has not been large. Business R&D is particularly low, despite significant policy support, suggesting substantial scope for improvement."
So the government of Canada has been doing its part. Particular sectors of the economy -- particularly the high-labour, low-wage subsectors of Canadian manufacturing that have been struggling -- have not been doing their part. Which, you may recall, was precisely what the IIRP concluded.
The report also found that opening sheltered sectors of the economy -- such as network communications -- up to greater competition would be beneficial. (Prime Minister Stephen Harper's government has been doing just this, and it's been driving the opposition batty.)
On the whole, the OECD report concluded that the problem with the Canadian economy is not the competitive pressures imposed by a higher exchange rate, but rather failures by specific sectors of the Canadian economy to respond to them. Which confronts Thomas Mulcair, the NDP, and his standard bearers with some very stark realities, and some equally stark challenges.
For example, Mulcair cites Canada's strong dollar as a problem, implying that something needs to be done about it. Yet the OECD gave Canada a sold thumbs-up on its monetary policy, although noting that the Bank of Canada should stand prepared to respond to inflationary pressures. So policy measures to erode the Canadian dollar don't seem to be in order.
So even if the OECD agreed with Mulcair that some symptoms of Dutch Disease are present, that's just one thing. And the presence of symptoms alone are not enough to diagnose the Dutch Disease. They also need to be able to identify the cause.
This is where some control comparisons come in handy. If the oilsands, and the energy industry in general, were really spurring Dutch Disease in Canada, then the struggles of Canada's manufacturing sector should be unique. But unfortunately for Mulcair and his fans, those struggles are not unique. Not even within OECD countries.
In fact, comparing declines across OECD countries is rather telling. While Statistics Canada identified a general downturn in Canadian manufacturing since 2004 -- something that Mulcair's followers point to as symptoms of Dutch Disease -- that downturn wasn't limited to Canada. The downturn in Canada's manufacturing industry was approximately 14%. But during the same period of time, Great Britain experienced a manufacturing downturn of 29%. Japan experienced a downturn of 24%. It was 20% in Belgium and Sweden. And an identical 14% in France.
This is all particularly telling, because it begs an important question: can the UK, Japan, Belgium, Sweden and France -- or most of the OECD. for that matter -- blame the decline of their manufacturing sectors on the oilsands? Do they even have an oilsands resource export equivalent that they can blame the decline on? Or is that general decline symptomatic of something else?
This is almost certainly why the OECD declined to cite Dutch Disease in their economic survey of Canada, and why a reporter for the Canadian Press had to do it for them: because the malaise of manufacturing is not uniquely Canadian, not attributable to Dutch Disease, and instead attributable to standard global economic forces.
Simply put, Canadian firms that placed their bet on high-labour, low-wage manufacturing in Canada made a poor bet. They're losing their sales to firms located in companies that have a competitive advantage in unskilled labour. In essence, they're paying the price for their own bad business decisions.
Thomas Mulcair and his followers point to this as evidence that Canada's economy is becoming "unbalanced," and that something needs to be done about it -- even though they're all lacking in ideas as to what exactly they want to do about it. They all seem to lack ideas about just what an "unbalanced economy" even means, and how to achieve a "balanced economy," and for good reason:
That isn't even remotely what the problem is. The OECD knows that, even if Mulcair and his followers so desperately want to pretend otherwise.
They call it Dutch Disease. And they're grasping at any straw they can find in order to make Canadians think that Canada has it. Including a report by the Organization for Economic Cooperation and Development which, they say, identifies symptoms of Dutch Disease in Canada.
But the report isn't the blanket confirmation of NDP leader Thomas Mulcair's wacky economic thesis that they think it is. In fact, there's far more in the report that disputes Mulcair, and reveals his economic ideas to be shortsighted and dangerous than there is anything that actually backs him up.
Mulcair claimed that Canada suffers from so-called Dutch Disease on account of what he considered an over-valued Canadian dollar, which he attributed to resource revenues, singling out the oilsands in particular. The Dutch Disease argument holds that resource exports, which help drive up the value of the dollar, "hollow out" a country's manufacturing sector. A country's exports become more expensive by comparison to their international competitors, driving down sales, and labour demand from the booming resource industries leave the manufacturing sector unable to compete for labour.
And so the symptoms of the so-called "Dutch Disease" are pretty clear: struggling manufacturing, suffering sales, and lost jobs.
But to identify the symptom is hardly to diagnose the disease. And as a diagnostic tool, the OECD report actually tells a very different story. The report actually found what the IIRP did -- that the problem with manufacturing in Canada is below-nominal innovation. "While Canada has made great strides in macroeconomic and structural policy settings, and its academic research is world class, the pay-off in terms of business innovation and productivity growth has not been large. Business R&D is particularly low, despite significant policy support, suggesting substantial scope for improvement."
So the government of Canada has been doing its part. Particular sectors of the economy -- particularly the high-labour, low-wage subsectors of Canadian manufacturing that have been struggling -- have not been doing their part. Which, you may recall, was precisely what the IIRP concluded.
The report also found that opening sheltered sectors of the economy -- such as network communications -- up to greater competition would be beneficial. (Prime Minister Stephen Harper's government has been doing just this, and it's been driving the opposition batty.)
On the whole, the OECD report concluded that the problem with the Canadian economy is not the competitive pressures imposed by a higher exchange rate, but rather failures by specific sectors of the Canadian economy to respond to them. Which confronts Thomas Mulcair, the NDP, and his standard bearers with some very stark realities, and some equally stark challenges.
For example, Mulcair cites Canada's strong dollar as a problem, implying that something needs to be done about it. Yet the OECD gave Canada a sold thumbs-up on its monetary policy, although noting that the Bank of Canada should stand prepared to respond to inflationary pressures. So policy measures to erode the Canadian dollar don't seem to be in order.
So even if the OECD agreed with Mulcair that some symptoms of Dutch Disease are present, that's just one thing. And the presence of symptoms alone are not enough to diagnose the Dutch Disease. They also need to be able to identify the cause.
This is where some control comparisons come in handy. If the oilsands, and the energy industry in general, were really spurring Dutch Disease in Canada, then the struggles of Canada's manufacturing sector should be unique. But unfortunately for Mulcair and his fans, those struggles are not unique. Not even within OECD countries.
In fact, comparing declines across OECD countries is rather telling. While Statistics Canada identified a general downturn in Canadian manufacturing since 2004 -- something that Mulcair's followers point to as symptoms of Dutch Disease -- that downturn wasn't limited to Canada. The downturn in Canada's manufacturing industry was approximately 14%. But during the same period of time, Great Britain experienced a manufacturing downturn of 29%. Japan experienced a downturn of 24%. It was 20% in Belgium and Sweden. And an identical 14% in France.
This is all particularly telling, because it begs an important question: can the UK, Japan, Belgium, Sweden and France -- or most of the OECD. for that matter -- blame the decline of their manufacturing sectors on the oilsands? Do they even have an oilsands resource export equivalent that they can blame the decline on? Or is that general decline symptomatic of something else?
This is almost certainly why the OECD declined to cite Dutch Disease in their economic survey of Canada, and why a reporter for the Canadian Press had to do it for them: because the malaise of manufacturing is not uniquely Canadian, not attributable to Dutch Disease, and instead attributable to standard global economic forces.
Simply put, Canadian firms that placed their bet on high-labour, low-wage manufacturing in Canada made a poor bet. They're losing their sales to firms located in companies that have a competitive advantage in unskilled labour. In essence, they're paying the price for their own bad business decisions.
Thomas Mulcair and his followers point to this as evidence that Canada's economy is becoming "unbalanced," and that something needs to be done about it -- even though they're all lacking in ideas as to what exactly they want to do about it. They all seem to lack ideas about just what an "unbalanced economy" even means, and how to achieve a "balanced economy," and for good reason:
That isn't even remotely what the problem is. The OECD knows that, even if Mulcair and his followers so desperately want to pretend otherwise.
Saturday, June 2, 2012
The Junk Economics Behind the "Dutch Disease" Theory
Far-left response to Dutch Disease theorem short on facts, long on... pretty much nothing
With the far-left doubling down on NDP leader Thomas Mulcair's "Dutch Disease" thesis -- arguing that an artificially high Canadian dollar, allegedly inflated by Canadian energy exports, has hollowed out the manufacturing sector -- it should be far from surprising that the so-called "Progressive Economics Forum" is following the same lead.
Responding to a Glibe and Mail editorial which agrees with Mulcair that the oilsands industry should do more to protect the environment -- they should always be striving to do better -- which attributes their struggle to competition from Chinese manufacturers as much as to a comparatively high Canadian dollar,.Andrew Jackson overlooks a very basic detail.
The PEF's response, written by Jackson, is only four paragraphs long, so it can't help but be short on the facts. While it does offer one fact for consideration, that the Chinese Yuan, like the Canadian dollar, is managed against the US dollar, he actually declines to mention just what the Chinese Yuan-to-US dollar exchange rate actually is.
In fact, as of the time of this writing it happens to be approximately 6.4 Chinese Yuan to one Canadian dollar. This means that it takes approximately 6.4 Chinese Yuan to purchase one American dollar, making US manufactured products very unattractive to Chinese buyers.
Economic analysts cited by the Pembina Institute claim that the "natural value" of the Canadian dollar ranges from 80 cents to 90 cents. If the Canadian and US dollars are at parity, this would put the Chinese Yuan-to-Canadian dollar exchange rate ranging from 5.12 Canadian dollars-to-Chinese Yuan to 5.76. This means that it would take anywhere from 5.12 to 5.76 Chinese Yuan to purchase a single Canadian dollar on the international currency market.
As of May 12, the exchange rate was 6.1 Chinese Yuan to Canadian dollars.
This confronts people like Andrew Jackson with a very stark question: just how far should Canada's dollar be de-valued, and by what means, in order to allow Canadian manufactured goods to gain a competitive foothold against Chinese products, let alone in Asian markets? And what kind of other economic disaster would befall Canada if the dollar were artificially devalued to that extent?
Imagine what would happen to the royalties collected from resource exports, among other things. One thing becomes perfectly clear: whatever the future of Canada's economy, it had best noted by planned by the braintrusts of the Progressive Economic Forum. They're pretty clueless.
With the far-left doubling down on NDP leader Thomas Mulcair's "Dutch Disease" thesis -- arguing that an artificially high Canadian dollar, allegedly inflated by Canadian energy exports, has hollowed out the manufacturing sector -- it should be far from surprising that the so-called "Progressive Economics Forum" is following the same lead.
Responding to a Glibe and Mail editorial which agrees with Mulcair that the oilsands industry should do more to protect the environment -- they should always be striving to do better -- which attributes their struggle to competition from Chinese manufacturers as much as to a comparatively high Canadian dollar,.Andrew Jackson overlooks a very basic detail.
The PEF's response, written by Jackson, is only four paragraphs long, so it can't help but be short on the facts. While it does offer one fact for consideration, that the Chinese Yuan, like the Canadian dollar, is managed against the US dollar, he actually declines to mention just what the Chinese Yuan-to-US dollar exchange rate actually is.
In fact, as of the time of this writing it happens to be approximately 6.4 Chinese Yuan to one Canadian dollar. This means that it takes approximately 6.4 Chinese Yuan to purchase one American dollar, making US manufactured products very unattractive to Chinese buyers.
Economic analysts cited by the Pembina Institute claim that the "natural value" of the Canadian dollar ranges from 80 cents to 90 cents. If the Canadian and US dollars are at parity, this would put the Chinese Yuan-to-Canadian dollar exchange rate ranging from 5.12 Canadian dollars-to-Chinese Yuan to 5.76. This means that it would take anywhere from 5.12 to 5.76 Chinese Yuan to purchase a single Canadian dollar on the international currency market.
As of May 12, the exchange rate was 6.1 Chinese Yuan to Canadian dollars.
This confronts people like Andrew Jackson with a very stark question: just how far should Canada's dollar be de-valued, and by what means, in order to allow Canadian manufactured goods to gain a competitive foothold against Chinese products, let alone in Asian markets? And what kind of other economic disaster would befall Canada if the dollar were artificially devalued to that extent?
Imagine what would happen to the royalties collected from resource exports, among other things. One thing becomes perfectly clear: whatever the future of Canada's economy, it had best noted by planned by the braintrusts of the Progressive Economic Forum. They're pretty clueless.
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