Thursday 30 May 2013

Why people vote for Rob Ford

It would take a heart of stone not to laugh at this one.  News is emerging today of a "project" at Toronto City Hall with an approved budget of $8 million, which is now expected to cost....$70 million!  That's a cost overrun of almost 800 percent!

And just what is this project?  It's called FPARS, or Financial Planning and Reporting System.  That's right -- the project that has its blown its budget to such a spectacular degree is a project to improve budgeting!

There's another downside to this, though, quite apart from the financial cost.  This sort of egregious micturition* of taxpayers' moolah is exactly the kind of thing that persuaded a lot of voters in Toronto to put Rob Ford in the mayor's seat in the first place.

* You'll have to look it up.  This is a family blog. 

Tuesday 28 May 2013

The Ford saga

In response to requests from absolutely nobody, here are a couple of thoughts on the drug scandal currently devouring Rob Ford, mayor of Toronto, the big bad city just across the lake.

I'm no street fighting man, but I do remember one piece of advice I heard a long time ago.  If you do find yourself in a brawl, throw your best punch as quickly as you can, because if the other guy's any good, you won't be getting a second chance.  In going after Mayor Ford over the last couple of years, the Toronto Star has ignored that rule.  It's thrown all kinds of mud -- drink driving allegations, boorish behaviour at a hockey game, skiving off from work in order to coach football, and just a few weeks ago, an accusation of groping a woman at a formal ball.

This has had two effects.  It's allowed Ford and his allies (mainly his younger brother Doug) to develop a carapace of scar tissue that's stood them in good stead in the face of these latest allegations.  And it's convinced a lot of Torontonians -- possibly as many as 40%, if you believe the opinion polls -- that the Star will stop at nothing in its campaign to get rid of Ford, a man whose opinions are about as far from the mushy leftism of the Star's editors and columnists as you could possibly get.  If the current allegations of crack cocaine use had been the first accusations made, Ford would have been out on his well-padded rear end long ago.  As things stand, unless the Star can actually produce the video that supposedly shows the Mayor inhaling from a glass pipe, Ford may yet be able to tough this out.

Ah yes, the famous video.  The folks who tried to sell it to the Star (and to Gawker) seem to have gone to ground, raising suspicions (not least at the Star) that maybe an associate of Ford's has bought the video and destroyed it.  That seems completely unrealistic.  These are not the tablets of the Decalogue we're talking about here.  It's 90 seconds of cellphone video footage. It seems inconceivable that the owners have not already backed it up, so if a Ford ally has in fact made an effort to buy it, I'd suggest he's wasting his time and money.

Then again.....these days people can't wait to post pictures of their most trivial actions on social media sites.  The fact that some kind of samizdat version of the video hasn't yet seen the light of day might just be evidence that it really doesn't exist, as Ford keeps claiming.  Unless, that is, crack cocaine dealers are a lot more disciplined than most of us would imagine.

It's a tawdry mess, and it's showing no signs of going away, although even the Toronto Star is starting to sound just a bit desperate about its inability to force the matter to a conclusion.  One amusing thought that occurred to me was that this whole thing might be an elaborate ruse cooked up by Ford to entrap the Star.  There's no way that's the case -- Ford is not that subtle -- but there are times when you almost think the paper would deserve it.  

Friday 24 May 2013

The era of victimhood

"Things are okay with me these days,
Got a good job, got a good office,
Got a new wife, got a new life
And the family's fine"

(Billy Joel, "Scenes from an Italian restaurant", from the album The Stranger, 1977)

Geez, Billy, do you have any idea how wrong that sounds today?  If you're really in such fine shape, just shut up about it, will ya?.  To get any attention today, you gotta be a victim.

And boy, are there a lot of victims about!  Here in Canada it seems like just about everyone is being oppressed by someone.  A little while back, the Toronto Star ran a piece about the need to do something about mental health problems among high school students.  If I recall correctly, the number of kids allegedly suffering from such problems was close to 50% of the teen population, a finding that may have had something to do with the breadth of the definition, everything from autism (serious) to anxiety over lining up a date for Saturday night (get serious!)

Then again, the Star is a paper that still runs columns just about every day about how badly women are victimized in this country.  One of the newspaper's more crazed columnists, Heather Malick, recently used the news of Angelina Jolie's mastectomy as grounds for a rant that we lived in a world where women were seen as the "sum of their parts, like chickens"!  This worldview seems completely impervious to the fact that at the moment, the First Ministers of the country's four most populous Provinces are all female.  We live in a world where many millions of women really are oppressed.  For a columnist (or rather columnists -- the Star is full of them, all cut from the same cloth) to blither on about sexist oppression in a country where women regularly rise to positions of political power, are increasingly better educated than men and live longer than men do, shows an alarming loss of perspective and empathy.

It's not just Canada, of course.  The victim card is played everywhere and by all sorts of people -- even by whole nations.  Back when Yugoslavia was in its death throes, Serbia tried to present itself as a victim even as its actions in Bosnia clearly marked it out as an oppressor.  Most nations in the Middle East cast themselves as victims on a regular basis -- and yes, Mr Netanyahu, this includes you.  In fact, two of the three so-called Abrahamic religions see themselves almost perpetually as victims of some perceived offence or other -- and to be fair, the third religion isn't far behind on that score.

The thing is, these days victimhood works.  Here in Canada and in much of the developed world, shout and scream loud enough and some government or other will feel compelled to come to your aid, even if your problems are entirely your own fault.  The old adage that "victory is to the strong, and the race to the swift" no longer holds.  All must have prizes!  Heck, if you keep losing the race, or the game, just complain that it's making you depressed, and the rules will get changed for you.  That's why kids' soccer leagues in much of North America no longer keep score during games.  If that upsets the strong or the swift, well, too bad for them  Let them make their own complaint!

Likewise internationally.  Almost half a century after the colonists went home, much of Africa still sees fit to blame them for most of its problems.  The state of the Middle East is blamed on the Sykes-Picot agreement and the Balfour declaration, both of which took place more than nine decades ago.  If you feel you're a victim, you may feel entitled to wait for your oppressor to fix things up for you; but these days, chances are your oppressor is casting himself as someone else's victim, so that's probably not going to happen, is it?

I started off with a slightly mouldy musical reference, so let's end with another.  After adopting a new religion in mid life, the late Sammy Davis Jr wryly noted that he'd achieved a notable trifecta of disadvantage, being now "a one-eyed Negro Jew".  Sammy managed to overcome that and to make his own way in the world; these days he'd likely have a troupe of psychologists and public servants shadowing his every step.

Wednesday 22 May 2013

Frozen in the headlights

Today Fed Chairman Bernanke, testifying before the Joint Economic Committee of Congress, avowed that the Fed was not yet ready to start removing monetary stimulus from the US economy. According to Bernanke, the stimulus program is providing significant benefits to the US economy.  Without it, growth might slow or even stop, and inflation would fall further.

Well, maybe so, and the markets certainly seem to be applauding.  But you'd like to know (well, at least, I'd like to know) just how the Fed will manage the removal of stimulus when the time comes.  I just came across this highly worrisome quote from Richard Fisher, President of the Dallas Fed,  which confirms something I've suspected for some time.  (Hat tip to The EconoMissed blog for the reference). 


We are blessed at the Fed with sophisticated econometric models and superb analysts. We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody — in fact, no central bank anywhere on the planet — has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank — not, at least, the Federal Reserve — has ever been on this cruise before. – Richard W. Fisher, speech at Harvard Club, September 2012


Notice that Fisher said that more than half a year ago.   You'd hope that those "superb analysts" have been working away at those "sophisticated econometric models" in the interim, trying to figure out the best way to end the stimulus without tanking the economy.  However, there's nothing in Bernanke's latest testimony, or in anything else that's come out of the Fed lately, to suggest that they've got it figured out. 


UPDATE, May 23: After I posted this piece, markets promptly took a turn for the worse.  Reconsideration of Bernanke's comments?  Probably not.  I think this quote, from a story on the BBC website, gets it about right:

Neil MacKinnon, economist at VTB Capital, said that while the financial markets were focused on Mr Bernanke's comments, in his view "it says more about an equity market that is 'overheated' and due a correction rather than any suggestion from the Fed that monetary stimulus is about to be withdrawn".



Tuesday 21 May 2013

Not so hot air

There's an interesting story on the BBC website about a new climate study, one which investigates the fact that there hasn't been any actual global warming in almost two decades, and revises down estimates for how much temperatures are forecast to rise in the coming decades.  I haven't seen this story anywhere else.  There's a surprise.

If there's been no global warming since 1996, as this study (and others) suggest, then you have to think that scientists will need to find alternative explanations for all of the natural disasters, from melting icecaps to Superstorm Sandy, that have been attributed to man's depredations.  I wouldn't advise you to hold your breath waiting for that to happen.

You might also think that the fact that they have been so spectacularly wrong about the short term would make scientists a little more uncertain about the reliability of their long term forecasts.  And in a sense, they are: the forecast range for temperature change is now wider than before.  However, despite the fact that things are not panning out as predicted, nobody seems willing to contemplate that maybe, just maybe, the whole model may be wrong.  Far from it -- the tone is downright defiant, as this quote from the BBC piece suggests:


"We would expect a single decade to jump around a bit but the overall trend is independent of it, and people should be exactly as concerned as before about what climate change is doing," said Dr Otto.
Is there any succour in these findings for climate sceptics who say the slowdown over the past 14 years means the global warming is not real?
"None. No comfort whatsoever," he said.

I'm willing to be convinced about anthropogenic climate change, I really am.  But these smug climate change scientists make it damnably difficult for me.

Friday 17 May 2013

No way, Sherlock!

I've mused here once or twice before about the inability of TV producers to come up with a realistic depiction of the world of business.  We had another example of this last evening, in a somewhat unexpected locale: the season finale of the Sherlock Holmes update, "Elementary", this year's most successful new network series.

Holmes finally gets to meet his nemesis, Moriarty, whose identity is a big surprise (and undoubtedly not one that Conan Doyle would have contemplated).  Moriarty is in New York for nefarious purposes and naturally Holmes, using his normal technique of sticking bits of paper onto the wall, figures out the plan.  Remarkably, it's sort of based in reality.  The Republic of Macedonia has come up with an agreement with Greece that will  allow it to join the Euro, but Moriarty has a scheme to make large sums of money by derailing the deal at the last minute.

What Holmes supposedly figures out is that if Macedonia joins the Euro, the Macedonian dinar will become worthless, whereas if its admission to the single currency is vetoed by Greece, the dinar will soar.  Moriarty, of course, has figured out the same thing, and has strapped on a big dinar position that will increase massively in value if the nefarious plan succeeds.

Evidently neither Holmes, nor Moriarty, nor the producers and writers of Elementary, has any grounding in economics. When a country enters the Euro, its currency doesn't become worthless: it just gets converted, at a rate that's set well in advance.  And if any country were to get derailed just at the point of Euro entry, there's no doubt that its domestic currency would collapse in value, not soar, so anyone with a big speculative long position, like Moriarty, would get hosed.

In other words, on this occasion Holmes's formidable brain and inexorable logic have led him to a conclusion that is in fact entirely implausible and illogical, even if it does serve the purposes of the plot.  That never happened when Conan Doyle was at the helm!

And just who does Moriarty turn out to be?  Well, as you may not have seen the show, I won't spoil it for you.  Let's just say I've had to be a little bit careful how I've written this piece so as not to give it away.

Monday 13 May 2013

The REIT idea, but not for everybody

Some iconic names in the Canadian retail sector are looking at taking on additional debt.  The chosen vehicle is that time-honoured problem-maker from the 1980s. the real estate investment trust or REIT.  Companies use REITs to "unlock" the value in their real estate holdings, thereby boosting profits and, potentially, dividends.  Loblaw Companies has already gone this route, and Canadian Tire is planning to be the next in line.  The announcement alone gave CT's shares a big boost, as this story relates.

Another company under pressure to fold its real estate into a REIT is the ubiquitous weak-coffee-and-bland- food purveyor, Tim Hortons.  Tim's has fallen prey to a so-called "actvist investor", a hedge fund that has built up a stake in the company apparently with no other goal in mind than to compel it to go the REIT route and pay out a big dividend.  If you've ever wondered how smart those hedgies are that command such fat fees from their victims investors, you might want to take notice of this story.  Tim's CFO has gently pointed out that the company does not own most of the properties from which it peddles its java, so a REIT is a complete non-starter.  I'd have thought that might have become apparent when the hedge fund did its due diligence, but what do I know?

The downside of spinning out a REIT is, of course, that the properties disposed of in this way can no longer be used by the parent company to support its own debt.  This could become an issue in a future downturn.  Companies such as Loblaw, Can Tire and Tim Hortons are relatively non-cyclical in nature and can therefore probably afford to take that risk.  However, it's an iron law in financial markets that a good idea will eventually mutate into a thoroughly bad one, as lenders try to apply it to less and less appropriate borrowers.  REITs went spectacularly wrong three decades ago; don't rule out the possibility that history will repeat itself.

It seems odd to be watching companies strapping on new forms of debt while soon-to-be-leaving-us Bank of Canada Governor Mark Carney continues to fret about all the "dead money" on corporate balance sheets.  Sooner or later, some of those companies will start to buckle under pressure from "activist investors" to bring that money back to life, by paying it out in special dividends.  Gov. Carney, of course, wants to see the cash deployed into productive investments, but there's not much evidence that anyone has the stomach for that.

UPDATE, 14 May: Federal Finance Minister Jim Flaherty says the Government is unconcerned about the revival of REITs, even though it has a negative impact on Ottawa's tax take. He seems to believe that REITs are a positive for commercial real estate development, rather than just a tax-efficient borrowing vehicle for corporations and a higher yielding asset for investors.  There may be some REITs that contribute to new development activity, but it would be a stretch to think that's what Loblaw or Canadian Tire are using them for.  

Friday 10 May 2013

So diverse, it's almost monochromatic

When I first arrived in Toronto in 1975, the city was still widely known (and derided) as Toronto the Good.  The Lord's Day was strictly observed, bars and restaurants closed early, and ethnic food was still a novelty -- the city's first pizzeria opened as recently as 1957.  The city was dominated by its Anglo-Saxon establishment, and those immigrants that had turned up in numbers -- Italians, Ukrainians and a few others -- fitted in quietly.

Waves of immigration in the succeeding decades have changed all that.  The city is now fantastically diverse -- it even has a small Maltese district, surely the only one outside the Maltese islands -- and is very much the better for it.  The city has loosened its stays, not least to make room for all the wonderful food that these newcomers have brought with them.  Culturally, economically and in just about every other way, the city and its surrounding communities ("The GTA", or Greater Toronto Area, in the local argot) have benefited hugely from all these arrivals.

Still, a report in the Toronto Star this week, citing data from the most recent national census, makes me wonder just what the term "diversity" means any more. Supposedly the City of Markham, just north and east of Toronto proper, now rates as Canada's most diverse municipality.  Oh, really?  It seems that 72% of Markham residents are of Asian origin, and more than 50% are Chinese.  That certainly makes it non-Anglo Saxon, but is it really diverse?  If it gets to a point where every last inhabitant is Asian, will that really mean it's achieved maximum diversity?

I can understand why immigrants, especially those coming from very different cultures, might want to live near others from the same part of the world.  However, it would be a shame if the GTA evolves into a group of ethnic enclaves,  which seems to be what's happening,  rather than a truly multiracial and multicultural city where everyone gets to enjoy everything that their neighbours have brought to the party.

Not to worry, though.  A follow-up story in the Toronto Star just today informs us that Markham's Asians are becoming big hockey fans, even to the point of planning a new arena in hopes of landing a big league team*.  I'm not sure if there are any Chinese Canadians playing the sport professionally yet, but the NHL has certainly become a lot more diverse.  There are growing numbers of black players,  and the names on the backs of the shirts suggest that kids of Middle Eastern origin are also getting involved.  That's good.  It sometimes seems that there's not a lot that Canadians have in common, but hockey is the great national unifier.  

*You gotta love the picture atop the story -- a Chinese-Canadian barman, wearing a Maple Leafs jersey, waving a pint of Guinness.  Now that's Canadian! 

Saturday 4 May 2013

"A good economist"

The name of the next Governor of the Bank of Canada was announced this week.  He's Stephen Poloz, currently head of Canada's Export Development Corporation (EDC).  It's a bit of a surprise choice: the job was expected to go to Tiff Macklem, the current senior Deputy Governor, but for the third time in a row, the government of the day has opted for an "outsider" to lead the Bank.  Not that Poloz is any such thing, having spent more than a decade of his career working there.

Once the commentariat had gotten over their initial shock, they were quick to lavish praise on the new man.  The most common encomium: Poloz is "a good economist".  This prompted a question from my wife: "What is a good economist, anyway?"

After reeling momentarily from this low blow -- she's been married to me for all these years and she still has to ask this?? -- I decided to give the matter a bit of thought. A good academic/technical grounding in the subject is obviously essential, but beyond that, what makes an economist "good" depends very much on where he or she is plying the trade.

For example, when I worked in a dealing room,  one of the most important tasks was interpretation of economic data releases, in order to help traders and salespeople to know how the market would react to them.  This required preparation, quick thinking, an understanding of how markets behave, and a loud voice.  The hows and whys of your advice were of little relevance in the heat of battle.

In an earlier incarnation, I was in a bank economics department.  The time pressures here were a great deal less intense.  There was time to carry out in-depth research and to write up lengthy reports. Presentation skills, both written and oral, were the keys to success.  Understanding of financial markets was not essential -- in fact, a good number of the bank economists I have met over the years have been openly contemptuous of markets, seeing them as nothing more than a crapshoot.

In an even earlier life, I briefly worked in a government department in London.  This had some things in common with both of the jobs I've just described.  Most of the time, you had plenty of opportunities for in-depth research, but once in a while, you had to provide snap judgments on economic events for the benefit of people who had more important things to think about.

And then there are the academic economists, who seem to be judged, at least among their peers, mainly by how many academic papers they contrive to get into print.  Most economists in dealing rooms or banks or government departments have been trained by academics at some point, but very few of them spend much time interacting with academe, or even keeping up with the latest research, once they get into their careers.

So when people say Stephen Poloz is "a good economist", what do they mean?  He's certainly well-trained, with a PhD to his credit.  And he's done some important things in his time at EDC, playing a key role in Canada's bailout of the Big Three automakers a few years back.  Mostly, though, what people seem to mean is that he's likely to be a steady hand on the tiller.  He won't take any chances by raising interest rates before the economy is on much firmer ground, and he won't worry unduly about inflationary risks in the near term.  Another Mark Carney, in other words, but maybe with a bit less ego.

Is this what Canada needs right now?  The great global money printing experiment is wearing out its welcome.  It hasn't yet triggered a surge in inflation, as naysayers feared, but it hasn't really got the global economy back on track either.  We're in what Keynes famously called a liquidity trap, a situation in which no amount of monetary stimulus is effective, because of slack aggregate demand and low confidence.  Mark Carney, Ben Bernanke, Mario Draghi, Mervyn King and the rest of them have basically kept the money spigot open and hoped for something to show up to get growth moving again.  So far, no luck.

The failure of monetary policy to gain traction in so many countries is commonly blamed on fiscal austerity.  This can be overstated.  There are a few countries that really have tried to slash spending -- Ireland, Greece and a few more -- but in most others, including the US and the UK, the rhetoric about austerity has far outpaced any actual policy measures.  In Canada, the Federal Government is on a moderate austerity track, despite a relatively favourable debt/GDP ratio.  It would be good to think that Stephen Poloz would quietly suggest to Finance Minister Jim Flaherty that a less restrictive stance might help to gee up growth, but as Flaherty (and PM Stephen Harper) don't take well to criticism, it's unlikely they would have given him the job if they thought he was going to do that.  For sure, though, if Poloz can find a way out of the current policy impasse, there would be very few who would deny that he is indeed a "good economist".

One last thought.  This week, Fed Chairman Bernanke declared that thanks to the sequester, US fiscal policy was now acting as a drag on growth.  Two days later it was announced that the US economy added an unexpectedly large number of jobs in April, which pushed stocks to record highs.  Maybe the key to being a "good economist" has a lot to do with luck.  Bernanke doesn't often seem to have it; Stephen Poloz is surely going to need it.

Wednesday 1 May 2013

On yer bike!

There can't be a major city anywhere in the world that has made as many bad decisions about transportation and transit as Toronto has.  The city's lovable* Mayor, Rob Ford, was elected in large measure on a pledge to "end the war on the automobile".  As anyone who's attempted to drive in the city in recent years can attest, if there ever was such a war, the automobile was the clear winner.  In the meantime, plans to enlarge the city's inadequate subway system move ahead at a snail's pace, to the point that the local media regularly compare Toronto's transit plans unfavourably with those of.....Los Angeles!

Many cities around the world have turned to the bicycle as a possible solution to traffic congestion.  Toronto has joined the trend, but this week we learn that its two major initiatives in this regard -- a rental bike scheme, and a huge bike parking station at City Hall -- are both foundering.  Can we get these guys some training wheels?

The bike rental scheme, known as "Bixi", is similar to the "Boris bikes" in London and other such enterprises in cities such as Paris, Sydney and Montreal.  It involves a series of bike racks around the downtown area, from which members of the public can rent bikes for short jaunts around the city.  Toronto is not an ideal cycling city: the weather is hostile for three or four months a year, there are streetcar tracks all over the place, and driving standards are abysmal.  However, Montreal, which has many of the same disadvantages as Toronto, and in addition is quite a bit hillier, has had a Bixi scheme running reasonably successfully for some time, so naturally Toronto, which can never stand to miss out on anything other Canadian cities have, had to try it out as well.

The private operators who have been running the scheme on behalf of the city indicated months ago that they were not prepared to throw good money after bad just to keep the initiative alive.  So the city, which guaranteed Bixi's loans in order to kickstart the scheme, has had to reconsider its options.  A report presented to city council  suggests there are three choices, all of them unpalatable (and costly for taxpayers, of course.  Well, after all, this is a public-private "joint venture", so what else can you expect?)

Two of the options involve the city taking over ownership of the program and trying to make a go of it, while the third would see the city throw in the towel and sell off the bikes and racks for whatever it can get.  That final option is the most cost-effective, and to judge from the comments from readers of the linked article, would have a lot of popular support.  But it would involve a serious loss of face, and in a city as insecure and needy as Toronto is, that may make it a non-starter.

Then there's the Giant City Hall Bike Rack, which was going to come complete with showers so that sweaty velocipedists could freshen up after their terrifying ride through downtown traffic.  (It was designed to have 350 bike parking spaces and only four showers -- how was that supposed to work?)

Mayor Ford is opposed to the whole scheme on the grounds that it would replace 24 revenue-producing parking spaces under City Hall, but that seems like the least of the possible objections.  Check out this piece from today's Toronto Star.  It turns out that the scheme was in fact quietly dropped in 2011,  after $650,000 had been spent on preliminary work, but nobody actually saw fit to tell the city's taxpayers. You've got to love this quote from one of the designers of the ill-fated scheme:

“The Ford brothers should actually look at the drawings,” says Andrew Frontini, a member of the architectural team who won a design competition for the square. 

The showers are made of concrete blocks and finished inside with the “most economical porcelain tile you can get but that you can still clean,” said Frontini. As well, the storage area for the bikes is basically a metal cage. 

“We had more expensive versions,” he says, but the final design was “certainly not a cathedral to cycling. It’s basic infrastructure.”


In which case, Andrew, how in the name of Sir Bradley Wiggins was it going to cost a total of $1.2 million to actually get the thing in place?

Mayor Ford is constantly banging on about the need to cut wasteful spending at City Hall.  He hasn't made much progress so far, but these two madcap bicycling boondoggles look like a good place to start.  Certainly a lot better than shutting down libraries, one of the soft targets Ford has tried to pick on in the past.   But the downtown bien pensants are unlikely to give up their bikes (or rather, the taxpayers' bikes) without a fight.


* Not.