No politician in Canada, and few in the rest of the world, can get elected these days on a tax-and-spend platform. But that doesn't stop left-wing think tanks from trying to make a case for a return to the perceived halcyon days of yore, when happy citizens forked over a large chunk of their earnings to beaming politicians, who in turn provided efficient and effective public services. The op ed page of today's Toronto Star has a piece on these lines, by a father-and-son team named Himelfarb.
It's not clear to me that people are opposed to taxation per se; rather, they've lost faith that politicians will keep their side of the bargain by using public money wisely. A look back at the past several decades here in Canada provides ample grounds for this skepticism, and there are similar tales to be told in other rich countries.
Back in the 1950s and 1960s, Canadian taxation rates were relatively low, yet governments were able to construct a social safety net, establish medicare and create all kinds of infrastructure, especially highways, all without going into debt. By the 1970s and 1980s, however, it all started to go wrong. Taxes were on the rise and so was public borrowing, yet services began to erode and it proved harder and harder even to maintain the infrastructure, let alone add more.
The 1990s saw the worst of all possible world for most Canadians. Marginal income tax rates were well north of 50 percent even on relatively modest incomes, yet services were being slashed as governments at both the federal and provincial levels struggled to service the mountain of debt taken on in the preceding decades.
With that fiscal crisis out of the way (mainly thanks to strong growth and low interest rates in the United States), tax rates have generally fallen in the past decade. Yet evidence of the inability of governments to manage the public's money effectively, or even ethically, continues to abound. Here in Ontario we have seen $1 billion of taxpayers' money frittered away on the cancellation of two power station projects, solely to win political advantage for the ruling party. As much as $3 billion is being spent to host next year's Pan Am Games, a third-rate (I'm being kind) sporting event that is of virtually no interest to the public. A scheme to provide an "incubator" just across the street from the provincial legislative building to foster scientific research has been an abysmal failure and is being bailed out to the tune of hundreds of millions.....the list goes on.
At all levels of government there's venality. Expenses scandals have roiled the federal Senate for years, leading to calls for the chamber's abolition. Municipal politicians across the country have been caught in similar hand-in-the-till scandals, with the recently ousted Mayor of Brampton, Susan Fennell, the highest-profile example. Brampton is a satellite city of about half a million residents just northwest of Toronto, a nondescript place that justifies dusting off Dorothy Parker's old insult about Oakland: "there is no there, there". It's only about the fifth or sixth largest municipality in Ontario, yet Ms Fennell was by a wide margin the best-paid mayor in Canada for many years -- and a serial waster of public funds, particularly on first-class travel for herself and her bloated entourage.
Given this track record -- and this is a very partial list -- it's impossible to feel any sort of surprise that the public has adopted a "won't get fooled again" attitude to taxation. People like the Star's two columnists today may like to think otherwise, but it's hard to see where any kind of consensus will emerge for a higher taxes/better services approach to the economy.
Perhaps in a sign of despair that the message is not getting across, the Himelfarbs try to put a green spin on their case: pay more tax, save the planet. Well, good luck with that. There's rejoicing across the land that the price of gasoline has fallen below a dollar a litre for the first time in years. Woe betide the politician (or columnist) who sees this as a good moment to hike gas taxes.
Tuesday 30 December 2014
Sunday 28 December 2014
Trip and fall
There was an enjoyable little movie that came out in the UK a few years ago, called The Trip. It basically followed two comic actors (Steve Coogan and Rob Brydon), playing very slightly fictionalized versions of themselves, as they drove around the north of England, staying in fancy hotels and eating elaborate meals. The notion was that Coogan was to review the restaurants for The Observer newspaper. It was part travelogue and part food porn, but the real pleasure was its unscripted feel, as the two protagonists discussed all manner of topics while airing their favourite impersonations: Michael Caine, Al Pacino and many more.
So this year we have the inevitable sequel, now available on DVD: The Trip to Italy. And it's an epic fail.
Coogan and Brydon are both back, as is the conceit that The Observer has commissioned a series of restaurant reviews. This time the journey is to take the pair from Turin to Rome and ultimately to Sicily. Italian scenery, Italian food and wine, killer impersonations -- what could go wrong? The answer, alas, is just about everything.
The scenery is wonderful, of course, but the movie was clearly not made in the sun-baked summer months. The weather is frankly a bit grey throughout, which does nothing to enhance the dolce vita vibe that the producers were obviously hoping for. There's food, but it gets a lot less screen time than in the original movie. And there are duelling impersonations, but those fade into the background as the movie progresses, because a fatal mistake has been made: instead of relying mainly on the quickfire comedic talents of its stars, The Trip to Italy has a worked-out-in-advance plot. The loss of spontaneity makes the movie far less enjoyable than its predecessor, and even a bit mean-spirited.
Even worse, the movie unerringly aims for the cheapest gags. Brydon and Coogan make the drive in a Mini, mainly so that they can do the obligatory Michael Caine/Italian Job line, "you were only supposed to blow the bloody doors off" -- but this is pretty much thrown away right at the start of the film. Later, at Pompeii, Brydon hauls out one of his moldy-oldie party pieces, an odd little vocal thing called "small man in a box", to have a conversation with the calcified corpse of a victim of the Vesuvius eruption. Not, perhaps, in the best of taste, but worse than that, not funny.
A quick look at Rotten Tomatoes reveals that critics quite liked The Trip to Italy, but regular audiences were much less impressed. I'm with the paying customers on this one. My three word review: non mi piace.
So this year we have the inevitable sequel, now available on DVD: The Trip to Italy. And it's an epic fail.
Coogan and Brydon are both back, as is the conceit that The Observer has commissioned a series of restaurant reviews. This time the journey is to take the pair from Turin to Rome and ultimately to Sicily. Italian scenery, Italian food and wine, killer impersonations -- what could go wrong? The answer, alas, is just about everything.
The scenery is wonderful, of course, but the movie was clearly not made in the sun-baked summer months. The weather is frankly a bit grey throughout, which does nothing to enhance the dolce vita vibe that the producers were obviously hoping for. There's food, but it gets a lot less screen time than in the original movie. And there are duelling impersonations, but those fade into the background as the movie progresses, because a fatal mistake has been made: instead of relying mainly on the quickfire comedic talents of its stars, The Trip to Italy has a worked-out-in-advance plot. The loss of spontaneity makes the movie far less enjoyable than its predecessor, and even a bit mean-spirited.
Even worse, the movie unerringly aims for the cheapest gags. Brydon and Coogan make the drive in a Mini, mainly so that they can do the obligatory Michael Caine/Italian Job line, "you were only supposed to blow the bloody doors off" -- but this is pretty much thrown away right at the start of the film. Later, at Pompeii, Brydon hauls out one of his moldy-oldie party pieces, an odd little vocal thing called "small man in a box", to have a conversation with the calcified corpse of a victim of the Vesuvius eruption. Not, perhaps, in the best of taste, but worse than that, not funny.
A quick look at Rotten Tomatoes reveals that critics quite liked The Trip to Italy, but regular audiences were much less impressed. I'm with the paying customers on this one. My three word review: non mi piace.
Monday 22 December 2014
Merry Christmas!
Compliments of the season to all* readers of the blog, and best wishes for a healthy and happy 2015.
* Including the mystery reader from Italy who hits the same three posts several times each day. What's that all about??
* Including the mystery reader from Italy who hits the same three posts several times each day. What's that all about??
Friday 19 December 2014
Rule of Schlock
You may think that the most depressing news out of the entertainment world this week is Sony's capitulation over the release of The Interview, but trust me, this is worse!
With new ideas ever harder to find, I suppose it's no surprise that someone has hit on the notion of a Broadway production of School of Rock. The movie was an enjoyable though lightweight Hollywood feel-good fantasy, made watchable mainly by the reliably off-kilter presence of Jack Black in the leading role.
The movie's soundtrack was mostly unoriginal, featuring killer tunes by the likes of The Doors and Led Zeppelin. So guess who the producers of the stage version have chosen to write new material for the stage version. Yes, it's a man whose very name is synonymous with rock'n'roll -- Andrew Lloyd Webber! Truth to tell, it's hard to think of any living composer with less rock sensibility than old Andrew, but his name in lights outside the theater will certainly pull in the punters, at least those who did not run screaming into the streets from Starlight Express or Cats.
And of course the story itself has to be adapted for the stage, and who better to do that than...Julian Fellowes! Yes, the plummy British toff whose tin-eared dialogue and preposterous plots have mysteriously attracted a global following for the execrable Downton Abbey. Who better than a man who can't write believable dialogue for people of his own race and class to put words into the mouths of a misfit American teacher and a group of feisty teens?
Two creaky members of the British House of Lords writing a rock musical for Broadway -- by all that's logical it should have about as much chance of success as Springtime for Hitler. It's scheduled to open next November at the vast Winter Garden, where it will replace the equally implausible stage version of Rocky.
I think I may start a rumour that their Lordships are inserting Kim Jong-Un into the storyline.
With new ideas ever harder to find, I suppose it's no surprise that someone has hit on the notion of a Broadway production of School of Rock. The movie was an enjoyable though lightweight Hollywood feel-good fantasy, made watchable mainly by the reliably off-kilter presence of Jack Black in the leading role.
The movie's soundtrack was mostly unoriginal, featuring killer tunes by the likes of The Doors and Led Zeppelin. So guess who the producers of the stage version have chosen to write new material for the stage version. Yes, it's a man whose very name is synonymous with rock'n'roll -- Andrew Lloyd Webber! Truth to tell, it's hard to think of any living composer with less rock sensibility than old Andrew, but his name in lights outside the theater will certainly pull in the punters, at least those who did not run screaming into the streets from Starlight Express or Cats.
And of course the story itself has to be adapted for the stage, and who better to do that than...Julian Fellowes! Yes, the plummy British toff whose tin-eared dialogue and preposterous plots have mysteriously attracted a global following for the execrable Downton Abbey. Who better than a man who can't write believable dialogue for people of his own race and class to put words into the mouths of a misfit American teacher and a group of feisty teens?
Two creaky members of the British House of Lords writing a rock musical for Broadway -- by all that's logical it should have about as much chance of success as Springtime for Hitler. It's scheduled to open next November at the vast Winter Garden, where it will replace the equally implausible stage version of Rocky.
I think I may start a rumour that their Lordships are inserting Kim Jong-Un into the storyline.
Thursday 18 December 2014
Cuba libre? Not if the GOP can help it
It's infuriating, but not in the least surprising, to find that large swathes of the Republican Party are pledging to do whatever it takes to derail President Obama's plans for a gradual rapprochement with Cuba. Infuriating, because the political and economic embargo that has been in place for five decades has been wholly ineffective in changing Cuban policies, while keeping the Cuban people mired in poverty. Unsurprising, because it's been clear for a long time that nothing Obama does, no matter how sensible or popular, will meet anything but shrieking opposition from the GOP.
The Castros were America's creation. Under the Fulgencio Batista regime in the 1950s, the island was a corrupt den of vice and depravity, effectively governed by American organized crime. Once Fidel Castro's revolutionaries ousted Batista at the start of 1959, the US spurned the opportunity to establish any relationship with the new regime, instead adopting a policy of unrelenting hostility that effectively drove Castro into the arms of the Soviet Union.
After the farce of the Bay of Pigs invasion and the terrifying brinkmanship of the missile crisis, relations settled into the stalemate that has largely persisted to this day. Deprived of the opportunity to trade with its giant neighbor, Cuba gradually regressed from one of the wealthiest countries in the hemisphere to one of the poorest. The slide into poverty accelerated after the demise of the Soviet Union, which led to a drastic reduction in the aid that Moscow had been providing to the island.
There's no denying that Fidel Castro made plenty of efforts to annoy his northern neighbor. Cuba undoubtedly attempted to undermine any number of governments around the region over the years. (It should also be acknowledged that Cuba put many wealthier countries to shame with its willingness to help out in international crises, the current ebola crisis in Africa being the latest). What's crystal clear, however, is that the US embargo has done absolutely nothing to change Havana's behavior. This article from Slate argues that it's one of the least effective foreign policy initiatives in US history. It's hard to disagree, which makes it hard to take seriously allegations from many Republicans (and one or two Democrats) that all Obama will achieve is to reduce US leverage over Cuba's future actions. There is no leverage to reduce.
All evidence is that the embargo is unpopular with US voters, even if politicians like Marco Rubio and Ted Cruz (who was, let's not forget, born in Calgary, Alberta) still hew to it. Congress may make things difficult for Obama, but he's used to that by now, and it seems likely that we are indeed witnessing a historic moment.
A final aside on the Canadian angle here. It looks as though the key catalyst for the rapprochement was the Pope, but the actual talks between the two countries were held in Canada. This inevitably led some elements of the Canadian media to claim a role for Canada in the deal, but to give credit to Stephen Harper -- something I only do with great reluctance -- he was quick to disavow any role as an intermediary in the talks. That aside, the main impact on Canadians that the press is now focusing on is that, once the existing travel embargo on US citizens is lifted, Cuba will quickly become a much more expensive winter sun vacation. And probably, as it starts to fill up with Starbucks and Mickey D's, a much less appealing one.
The Castros were America's creation. Under the Fulgencio Batista regime in the 1950s, the island was a corrupt den of vice and depravity, effectively governed by American organized crime. Once Fidel Castro's revolutionaries ousted Batista at the start of 1959, the US spurned the opportunity to establish any relationship with the new regime, instead adopting a policy of unrelenting hostility that effectively drove Castro into the arms of the Soviet Union.
After the farce of the Bay of Pigs invasion and the terrifying brinkmanship of the missile crisis, relations settled into the stalemate that has largely persisted to this day. Deprived of the opportunity to trade with its giant neighbor, Cuba gradually regressed from one of the wealthiest countries in the hemisphere to one of the poorest. The slide into poverty accelerated after the demise of the Soviet Union, which led to a drastic reduction in the aid that Moscow had been providing to the island.
There's no denying that Fidel Castro made plenty of efforts to annoy his northern neighbor. Cuba undoubtedly attempted to undermine any number of governments around the region over the years. (It should also be acknowledged that Cuba put many wealthier countries to shame with its willingness to help out in international crises, the current ebola crisis in Africa being the latest). What's crystal clear, however, is that the US embargo has done absolutely nothing to change Havana's behavior. This article from Slate argues that it's one of the least effective foreign policy initiatives in US history. It's hard to disagree, which makes it hard to take seriously allegations from many Republicans (and one or two Democrats) that all Obama will achieve is to reduce US leverage over Cuba's future actions. There is no leverage to reduce.
All evidence is that the embargo is unpopular with US voters, even if politicians like Marco Rubio and Ted Cruz (who was, let's not forget, born in Calgary, Alberta) still hew to it. Congress may make things difficult for Obama, but he's used to that by now, and it seems likely that we are indeed witnessing a historic moment.
A final aside on the Canadian angle here. It looks as though the key catalyst for the rapprochement was the Pope, but the actual talks between the two countries were held in Canada. This inevitably led some elements of the Canadian media to claim a role for Canada in the deal, but to give credit to Stephen Harper -- something I only do with great reluctance -- he was quick to disavow any role as an intermediary in the talks. That aside, the main impact on Canadians that the press is now focusing on is that, once the existing travel embargo on US citizens is lifted, Cuba will quickly become a much more expensive winter sun vacation. And probably, as it starts to fill up with Starbucks and Mickey D's, a much less appealing one.
Monday 15 December 2014
Canada's debt bomb -- still ticking
Statistics Canada reported today that Canadians' net worth and household debt both increased in the third quarter of the year. Good news/bad news story, then?
Not really. The rise in net worth is an all-boats-rise-with-the-tide kind of event. The main (if not only) contributors to the improvement in the asset side of household balance sheets are the continuing gains in home prices and the weakness in the exchange rate, which has the effect of boosting the C$ value of Canadians' foreign assets. Higher savings? Not so much.
Meanwhile, on the debt front, Canadians continue to prove that if you shovel cheap money at people, as the Bank of Canada has been doing for the last half-decade, they'll take it. The household debt/disposable income ratio is now just a touch shy of 163%, a number scarily close to what was observed in the US just before the financial crisis.
Just about everyone, from the Bank of Canada to the lowliest blogger, is hoping that the rise in interest rates, when it eventually comes, will be gradual enough to ensure that house prices have a "soft landing". Maybe they will, but consider the balance sheet impact of even that benign scenario.
The dollar figure for household wealth, at $232,000, may sound impressive, but consider that the average house price in Canada is about $414,000 -- and is much higher than that in cities like Vancouver and Toronto. Many households have virtually no assets other than the house itself, and they're carrying a good chunk of mortgage debt. That debt won't decline if higher rates cause house prices to slip -- it will just become harder to carry. But the fall in prices will tear a big hole in homeowners' equity, and hence in that oh-so-comforting net worth number.
Local TV advertising here can be a pretty distasteful mix, replete with ambulance-chasing lawyers and cheap appliance dealers. There are also lots of ads that speak to the desperate state of household finances: jewellers offering to buy your gold and silver, and people urging you to borrow against the equity in your home ("put your home to work", as one company puts it), or, if you're an indebted senior, extolling the virtues of a reverse mortgage. The Bank of Canada may be trying to get people to act more cautiously, but there are few signs that anybody's paying heed.
Not really. The rise in net worth is an all-boats-rise-with-the-tide kind of event. The main (if not only) contributors to the improvement in the asset side of household balance sheets are the continuing gains in home prices and the weakness in the exchange rate, which has the effect of boosting the C$ value of Canadians' foreign assets. Higher savings? Not so much.
Meanwhile, on the debt front, Canadians continue to prove that if you shovel cheap money at people, as the Bank of Canada has been doing for the last half-decade, they'll take it. The household debt/disposable income ratio is now just a touch shy of 163%, a number scarily close to what was observed in the US just before the financial crisis.
Just about everyone, from the Bank of Canada to the lowliest blogger, is hoping that the rise in interest rates, when it eventually comes, will be gradual enough to ensure that house prices have a "soft landing". Maybe they will, but consider the balance sheet impact of even that benign scenario.
The dollar figure for household wealth, at $232,000, may sound impressive, but consider that the average house price in Canada is about $414,000 -- and is much higher than that in cities like Vancouver and Toronto. Many households have virtually no assets other than the house itself, and they're carrying a good chunk of mortgage debt. That debt won't decline if higher rates cause house prices to slip -- it will just become harder to carry. But the fall in prices will tear a big hole in homeowners' equity, and hence in that oh-so-comforting net worth number.
Local TV advertising here can be a pretty distasteful mix, replete with ambulance-chasing lawyers and cheap appliance dealers. There are also lots of ads that speak to the desperate state of household finances: jewellers offering to buy your gold and silver, and people urging you to borrow against the equity in your home ("put your home to work", as one company puts it), or, if you're an indebted senior, extolling the virtues of a reverse mortgage. The Bank of Canada may be trying to get people to act more cautiously, but there are few signs that anybody's paying heed.
Wednesday 10 December 2014
Bank of Canada hopes for the best
The Bank of Canada today released its semi-annual Financial System Report. To the surprise of precisely no-one, the Bank identifies the overvalued housing market and sky-high personal indebtedness as key risks for the financial system, and by extension for the entire Canadian economy, going forward. Nevertheless, it continues to forecast a soft landing for the housing market.
Releasing the Report, Bank Governor Stephen Poloz was much more explicit than he has been in the past about the duration and extent of the overvaluation. He indicated that the Bank's models suggest that the market has been overvalued since 2007, by an average of about 10 percent. The models show that the current level of overvaluation may be as high as 30 percent. This is a rather more sobering conclusion than the one reached less than a month ago by the Government's own housing agency, CMHC -- see this earlier blog post.
If the market really is overvalued by as much as 30 percent, how realistic is it for the Bank to continue to predict a soft landing? As the Report notes, the number of Canadian households classified as "extremely indebted" (defined as debt equal to 250% or more of annual income -- wow!) has doubled since the turn of the century, and now accounts for 12 percent of all households. It also notes that young people are carrying much larger debts than previous generations did.
Given these factors, the Bank's cautious optimism is based on two factors: the limited likelihood of any rapid increase in borrowing costs, and the expectation that global economic recovery will spur growth in the Canadian economy, and thereby in household incomes. The precipitous decline in oil prices should help on both counts. The Bank is set to lower its inflation outlook to reflect the sharp fall in retail fuel prices, which will allow it to delay any move toward restoring interest rates to more historically normal levels. As for the growth outlook, the fall in the exchange rate for the Canadian dollar will help boost export growth, while lower fuel bills will put money into the hands of consumers, potentially supporting higher growth in retail spending.
One caveat here, though. Lower oil prices will be beneficial for the Canadian economy overall, but threaten to have a negative impact in the oil producing provinces, notably Alberta. (Today's price for Alberta crude of around $50/bbl* is reportedly right at breakeven level for many producers). Most of the analysis of housing market overvaluation has tended to focus on Toronto and Vancouver, but the Calgary market is in a similar position, and may become the most vulnerable if low oil prices persist.
Maybe it will all work out fine in the end, as the Bank hopes. However, it's hard to avoid the sense that the Bank is at the mercy of events, rather than in control of the situation. As Gov. Poloz admitted today, the Bank has known for more than half a decade that the housing market is overvalued, and he and his predecessor Mark Carney have been warning for almost as long that household debt is too high. And yet there's no evidence that the Bank has any strategy to remedy the situation, short of hoping for the deus ex machina of low oil prices to skate the economy onside. Still less does it have any room for maneuver in the not inconceivable event that things fail to pan out in the benign way that it's counting on. Fingers crossed, Gov. Poloz!
* Yes, this is well below the WTI benchmark, which is around $61/bbl at the time of writing. Alberta crude has been trading far below WTI for a long time, reflecting the lack of pipeline capacity to get the product to refineries or shipping terminals.
Releasing the Report, Bank Governor Stephen Poloz was much more explicit than he has been in the past about the duration and extent of the overvaluation. He indicated that the Bank's models suggest that the market has been overvalued since 2007, by an average of about 10 percent. The models show that the current level of overvaluation may be as high as 30 percent. This is a rather more sobering conclusion than the one reached less than a month ago by the Government's own housing agency, CMHC -- see this earlier blog post.
If the market really is overvalued by as much as 30 percent, how realistic is it for the Bank to continue to predict a soft landing? As the Report notes, the number of Canadian households classified as "extremely indebted" (defined as debt equal to 250% or more of annual income -- wow!) has doubled since the turn of the century, and now accounts for 12 percent of all households. It also notes that young people are carrying much larger debts than previous generations did.
Given these factors, the Bank's cautious optimism is based on two factors: the limited likelihood of any rapid increase in borrowing costs, and the expectation that global economic recovery will spur growth in the Canadian economy, and thereby in household incomes. The precipitous decline in oil prices should help on both counts. The Bank is set to lower its inflation outlook to reflect the sharp fall in retail fuel prices, which will allow it to delay any move toward restoring interest rates to more historically normal levels. As for the growth outlook, the fall in the exchange rate for the Canadian dollar will help boost export growth, while lower fuel bills will put money into the hands of consumers, potentially supporting higher growth in retail spending.
One caveat here, though. Lower oil prices will be beneficial for the Canadian economy overall, but threaten to have a negative impact in the oil producing provinces, notably Alberta. (Today's price for Alberta crude of around $50/bbl* is reportedly right at breakeven level for many producers). Most of the analysis of housing market overvaluation has tended to focus on Toronto and Vancouver, but the Calgary market is in a similar position, and may become the most vulnerable if low oil prices persist.
Maybe it will all work out fine in the end, as the Bank hopes. However, it's hard to avoid the sense that the Bank is at the mercy of events, rather than in control of the situation. As Gov. Poloz admitted today, the Bank has known for more than half a decade that the housing market is overvalued, and he and his predecessor Mark Carney have been warning for almost as long that household debt is too high. And yet there's no evidence that the Bank has any strategy to remedy the situation, short of hoping for the deus ex machina of low oil prices to skate the economy onside. Still less does it have any room for maneuver in the not inconceivable event that things fail to pan out in the benign way that it's counting on. Fingers crossed, Gov. Poloz!
* Yes, this is well below the WTI benchmark, which is around $61/bbl at the time of writing. Alberta crude has been trading far below WTI for a long time, reflecting the lack of pipeline capacity to get the product to refineries or shipping terminals.
Sunday 7 December 2014
Turning your back
Many years ago, when my son was young, I bought a video camera. It was a heavy thing, using shrunken VHS tapes, but I toted it around on family outings to record our exploits for posterity.
One day, when my son was in his teens, we went to some sort of military display where people were offered a chance to try a simulated parachute jump -- basically what we'd now call a zipline ride from a moderately high tower. My son stepped up for the thrill and I stood back and aimed the camera. It was only once he was back on the ground that I realized that I hadn't actually seen him do the jump. I'd just seen a tiny image of it through the viewfinder. If memory serves, I never used that camera again.
What brings this to mind is the selfie craze, which is now starting to attract caustic comment from people like Timothy Egan at the New York Times. The latest aid to digital narcissism is the so-called "selfie stick", a gizmo that allows you to avoid the fisheye look that you get if you can only hold the camera at arm's length. I understand these are particularly popular with Koreans, so given the number of buses that bring tourists from that country to visit the Falls and the wineries, I'm sure it won't be long before I'm poked in the eye with one of these devices.
Selfies, particularly when taken in front of attractions like Niagara Falls (or St Peter's or Tower Bridge or whatever) actually strike me as being even more ridiculous than my long-ago video camera. At least, when I shot that film of my son, I was actually facing the parachute wire, and could have watched if I'd just had the brains to lift my head from the camera. But when you're taking a selfie, you literally have your back to whatever it is you supposedly came to see. The camera sees it: you can't.
Your friends know what you like, so when you post your selfie on Facebook or Instagram, they don't learn anything new about how you look. And they probably don't learn anything about the Falls or the Grand Canyon or wherever you happen to be, because you're standing in front of it and blocking out the view.
It's pathetic. Or at least, that's what grumpy old coots like Timothy Egan and I think.
One day, when my son was in his teens, we went to some sort of military display where people were offered a chance to try a simulated parachute jump -- basically what we'd now call a zipline ride from a moderately high tower. My son stepped up for the thrill and I stood back and aimed the camera. It was only once he was back on the ground that I realized that I hadn't actually seen him do the jump. I'd just seen a tiny image of it through the viewfinder. If memory serves, I never used that camera again.
What brings this to mind is the selfie craze, which is now starting to attract caustic comment from people like Timothy Egan at the New York Times. The latest aid to digital narcissism is the so-called "selfie stick", a gizmo that allows you to avoid the fisheye look that you get if you can only hold the camera at arm's length. I understand these are particularly popular with Koreans, so given the number of buses that bring tourists from that country to visit the Falls and the wineries, I'm sure it won't be long before I'm poked in the eye with one of these devices.
Selfies, particularly when taken in front of attractions like Niagara Falls (or St Peter's or Tower Bridge or whatever) actually strike me as being even more ridiculous than my long-ago video camera. At least, when I shot that film of my son, I was actually facing the parachute wire, and could have watched if I'd just had the brains to lift my head from the camera. But when you're taking a selfie, you literally have your back to whatever it is you supposedly came to see. The camera sees it: you can't.
Your friends know what you like, so when you post your selfie on Facebook or Instagram, they don't learn anything new about how you look. And they probably don't learn anything about the Falls or the Grand Canyon or wherever you happen to be, because you're standing in front of it and blocking out the view.
It's pathetic. Or at least, that's what grumpy old coots like Timothy Egan and I think.
Thursday 4 December 2014
Forecasting is difficult, especially about the future
What would you say is the big wild card in the global economic outlook for 2015? I'd say it's almost certainly the price of oil, which has declined precipitously in recent weeks and may still have further to go. Given the importance of oil to both businesses and consumers, the net impact on the global economy must surely be positive, but there will be some big winners and losers, and prospects for a wide range of companies and industries look very different from what seemed likely just a few months ago.
Have pity, then, on The Economist, which just published its glossy "The World in 2015" forecast issue. An undertaking of this size inevitably involves long lead times, and unfortunately for The Economist, everything changed while the magazine was at the printers'. There are throwaway references to oil scattered throughout, but the only article specifically on the industry consists of a few short paragraphs....at the bottom of page 144! They'd surely do things quite differently if they had it to do all over again.
One country where the rapidly-changing oil price outlook poses a particular challenge for policymakers is Canada. On Wednesday, Bank of Canada Governor Stephen Poloz announced that the Bank would keep its benchmark rate at 1% for the time being, even as he acknowledged signs that the recovery in the economy is "broadening". He identified the uncertainty over oil prices, together with (no surprise here) high household debt levels as key risk factors in the outlook.
The problem, from Poloz's point of view, is that the impact of falling energy prices differs widely in different parts of the country. It's obviously negative for the oil-producing provinces, notably Alberta, Saskatchewan and Newfoundland/Labrador. As relatively high-cost producers (from tar sands in Alberta: from the seabed in Newfoundland), Canada's oil producers will become vulnerable sooner than most. But it's obviously very positive for energy-consuming provinces, which include the three most populous, Ontario, Quebec and BC. Consumers in those provinces will feel more prosperous; energy input costs for what remains of the manufacturing sector are set to fall sharply; and the fall in the exchange rate of the Canadian dollar is already making non-oil exports more competitive in the US market.
For Canada as a whole, as for the world economy, the net impact of lower oil prices, if they persist, will be positive, but that won't make the Bank of Canada's job any easier in 2015. Whenever economic prospects for the various regions of the country start to diverge sharply, as they seem set to do, there are anguished calls for the Bank to adopt some kind of "regional monetary policy". Nobody is ever able to define quite what that might entail, but those cries will surely be heard ever more loudly in the months ahead. Gov Poloz is a lot less chippy in dealing with critics than his predecessor, Mark Carney, ever was, but his equanimity may soon be sorely tested.
Have pity, then, on The Economist, which just published its glossy "The World in 2015" forecast issue. An undertaking of this size inevitably involves long lead times, and unfortunately for The Economist, everything changed while the magazine was at the printers'. There are throwaway references to oil scattered throughout, but the only article specifically on the industry consists of a few short paragraphs....at the bottom of page 144! They'd surely do things quite differently if they had it to do all over again.
One country where the rapidly-changing oil price outlook poses a particular challenge for policymakers is Canada. On Wednesday, Bank of Canada Governor Stephen Poloz announced that the Bank would keep its benchmark rate at 1% for the time being, even as he acknowledged signs that the recovery in the economy is "broadening". He identified the uncertainty over oil prices, together with (no surprise here) high household debt levels as key risk factors in the outlook.
The problem, from Poloz's point of view, is that the impact of falling energy prices differs widely in different parts of the country. It's obviously negative for the oil-producing provinces, notably Alberta, Saskatchewan and Newfoundland/Labrador. As relatively high-cost producers (from tar sands in Alberta: from the seabed in Newfoundland), Canada's oil producers will become vulnerable sooner than most. But it's obviously very positive for energy-consuming provinces, which include the three most populous, Ontario, Quebec and BC. Consumers in those provinces will feel more prosperous; energy input costs for what remains of the manufacturing sector are set to fall sharply; and the fall in the exchange rate of the Canadian dollar is already making non-oil exports more competitive in the US market.
For Canada as a whole, as for the world economy, the net impact of lower oil prices, if they persist, will be positive, but that won't make the Bank of Canada's job any easier in 2015. Whenever economic prospects for the various regions of the country start to diverge sharply, as they seem set to do, there are anguished calls for the Bank to adopt some kind of "regional monetary policy". Nobody is ever able to define quite what that might entail, but those cries will surely be heard ever more loudly in the months ahead. Gov Poloz is a lot less chippy in dealing with critics than his predecessor, Mark Carney, ever was, but his equanimity may soon be sorely tested.
Tuesday 2 December 2014
Cyber Monday blues
I haven't had a rant about the abysmal quality of most business reporting in the media for quite a while, but a piece in today's Toronto Star about how Cyber Monday panned out in the US is just too confusing to let pass. You can only find it in the print edition, so you'll have to trust me when I tell you I'm quoting it verbatim. The oddest thing about it is that it's not written by one of the Star's own multi-tasking reporters, but by someone at Bloomberg, who ought to know better.
OK, ready? The headline is "Web based purchases stall despite discounts".
That's not good then, is it? Sales were unchanged from last year? Well, no. Here's the first sentence from the body of the text:
"Internet holiday shopping in the US rose 8.7% on Cyber Monday...."
So when you said "stalled" you actually mean they rose? Or do you? Let's finish the sentence....
"slowing from the same time frame last year as consumers spread their online purchases over more days".
Ah. So when you say they rose, you actually mean they fell? Or do you? Let's move on to the second sentence:
"While sales Monday -- typically the busiest day for web shopping -- had increased as of 3 pm in New York, the growth wasn't as fast as last year, when sales had jumped 18.7% in the same period, according to IBM Corp".
So when you say "stalled" or "slowed" you don't actually mean that sales were the same as last year's, let alone lower. You just mean they didn't rise as fast as they did last year. In fact, you maybe don't even mean that: the reference to spreading purchases "over more days" almost certainly means that online shopping over the whole manic weekend was very healthy indeed. We won't actually know until the Commerce Department comes out with proper data for the whole US for the whole month -- not just up to 3 pm in New York on one particular day! -- so it's to be hoped and expected that the Fed won't be taking too much notice of this particular report.
Let's skip by the rest of the article (I'm sparing you an odd little reference to a $4000 Chanel handbag) and look at the final paragraph, one that strongly suggests that the writer doesn't spend much time thinking about statistics:
"Holiday shopping is key for retailers -- with sales in November and December accounting for about 19 percent of annual revenue according to the US National Retail Federation -- and more of that is shifting online".
It's well-known that the final two months of the year are crucial for retailers, but does that percentage seem right to you? I mean, November and December account for 16.67 percent of the year by daycount, so if sales really are concentrated in those months, they should surely account for more than 19% of annual revenues, right? But there's no sign that our intrepid reporter questioned that. Guess that's why you need bloggers.
OK, ready? The headline is "Web based purchases stall despite discounts".
That's not good then, is it? Sales were unchanged from last year? Well, no. Here's the first sentence from the body of the text:
"Internet holiday shopping in the US rose 8.7% on Cyber Monday...."
So when you said "stalled" you actually mean they rose? Or do you? Let's finish the sentence....
"slowing from the same time frame last year as consumers spread their online purchases over more days".
Ah. So when you say they rose, you actually mean they fell? Or do you? Let's move on to the second sentence:
"While sales Monday -- typically the busiest day for web shopping -- had increased as of 3 pm in New York, the growth wasn't as fast as last year, when sales had jumped 18.7% in the same period, according to IBM Corp".
So when you say "stalled" or "slowed" you don't actually mean that sales were the same as last year's, let alone lower. You just mean they didn't rise as fast as they did last year. In fact, you maybe don't even mean that: the reference to spreading purchases "over more days" almost certainly means that online shopping over the whole manic weekend was very healthy indeed. We won't actually know until the Commerce Department comes out with proper data for the whole US for the whole month -- not just up to 3 pm in New York on one particular day! -- so it's to be hoped and expected that the Fed won't be taking too much notice of this particular report.
Let's skip by the rest of the article (I'm sparing you an odd little reference to a $4000 Chanel handbag) and look at the final paragraph, one that strongly suggests that the writer doesn't spend much time thinking about statistics:
"Holiday shopping is key for retailers -- with sales in November and December accounting for about 19 percent of annual revenue according to the US National Retail Federation -- and more of that is shifting online".
It's well-known that the final two months of the year are crucial for retailers, but does that percentage seem right to you? I mean, November and December account for 16.67 percent of the year by daycount, so if sales really are concentrated in those months, they should surely account for more than 19% of annual revenues, right? But there's no sign that our intrepid reporter questioned that. Guess that's why you need bloggers.
Saturday 29 November 2014
If it's Saturday, this must be Senegal
Prime Minister Stephen Harper's recent travels make Santa's Christmas journey look like a walk around the block. Earlier in November, Harper went to China for a trade mission, but he cut the visit short by a day so that he could attend the Remembrance Day ceremonies back in Ottawa. Then he immediately jumped back aboard the government's aging Airbus A300 to hop off to New Zealand for the G20 summit and a spot of light Putin-baiting. Today we find him in Dakar, Senegal, for the opening ceremonies of la Francophonie, a largely ceremonial grouping of French-speaking nations.
This sort of globe-trotting is standard behaviour for political leaders trying to big themselves up with their domestic electorates, and of course Harper is facing an election some time in 2015. While the PM's away, his colleagues back home are equally busy setting themselves up for the vote. Finance Minister Joe Oliver introduced a Fall Economic Update that was effectively a mini-budget and included a raft of tax cuts. In case anyone was in any doubt that the current Parliament is in its lame duck phase, the statement was introduced at a lunch in Toronto rather than in the House of Commons.
The key element of the tax cuts, a plan to allow couples to save tax by splitting their incomes, was widely seen as unfair (as indeed it is), so Oliver quickly followed up with the announcement of a $5 billion package of "new" spending. The Government's claim is that this can now be afforded because the budget is coming back into surplus, even though just weeks ago it appeared to be saying that the tax cuts would eat up all of its fiscal room.
In any case, the spending hikes are much less than they seem, since most of the "new" items had already been announced. And as a measure of the Government's flagrant insincerity, even in dealings with those it supposedly favours, you could hardly do better than look at a new plan to help veterans dealing with mental health issues. This scheme accounted for about $200 million of the supposed $5 billion in "spending", but it transpires that the full sum will be spread out over fifty years! OK, so it's the job of government to provide for future generations, but it's remarkably shameless, even by the standards of the Harperites, to claim credit now for spending that won't actually take place until people yet unborn have done their military service.
There will be a lot more of this kind of chicanery as election day approaches. The so-called fixed election date is in October 2015, but it will be a mercy for the whole country if Harper decides to go for it a few months earlier.
This sort of globe-trotting is standard behaviour for political leaders trying to big themselves up with their domestic electorates, and of course Harper is facing an election some time in 2015. While the PM's away, his colleagues back home are equally busy setting themselves up for the vote. Finance Minister Joe Oliver introduced a Fall Economic Update that was effectively a mini-budget and included a raft of tax cuts. In case anyone was in any doubt that the current Parliament is in its lame duck phase, the statement was introduced at a lunch in Toronto rather than in the House of Commons.
The key element of the tax cuts, a plan to allow couples to save tax by splitting their incomes, was widely seen as unfair (as indeed it is), so Oliver quickly followed up with the announcement of a $5 billion package of "new" spending. The Government's claim is that this can now be afforded because the budget is coming back into surplus, even though just weeks ago it appeared to be saying that the tax cuts would eat up all of its fiscal room.
In any case, the spending hikes are much less than they seem, since most of the "new" items had already been announced. And as a measure of the Government's flagrant insincerity, even in dealings with those it supposedly favours, you could hardly do better than look at a new plan to help veterans dealing with mental health issues. This scheme accounted for about $200 million of the supposed $5 billion in "spending", but it transpires that the full sum will be spread out over fifty years! OK, so it's the job of government to provide for future generations, but it's remarkably shameless, even by the standards of the Harperites, to claim credit now for spending that won't actually take place until people yet unborn have done their military service.
There will be a lot more of this kind of chicanery as election day approaches. The so-called fixed election date is in October 2015, but it will be a mercy for the whole country if Harper decides to go for it a few months earlier.
Tuesday 25 November 2014
House rules
By and large, Canadians are not quite as obsessive about house prices as the Brits are -- but they're still fixated on the issue, as these two articles, which took up an entire page in today's Toronto Star, illustrate. Much of the analysis in the articles is lifted from a new report from Canada Mortgage and Housing Corporation (CMHC), the government-owned mortgage insurer, that attempts to "detect the presence of problematic conditions" in Canada's housing markets. CMHC concludes, and the journalists are happy to concur, that the risks of a major correction in Canadian house prices, even in the small number of urban centres where prices have been advancing most strongly, is relatively limited. It expresses some concern about overbuilding in Montreal and Toronto, but deems other urban centres to be "low risk".
Helpfully, the CMHC report includes an overview of the agency's internal methodology for analysis of market conditions. This focuses on four inter-related indicators: overheating, price acceleration, overvaluation and overbuilding. Looking at how CMHC evaluates these indicators, one surprising fact quickly emerges: although the level of interest rates is taken into account, it does not appear to play an explicit role in the final assessment.
Considering the concern that central bankers and others have expressed about the potentially dangerous impact of the long period of ultra-low interest rates we are living through -- or rather, about what happens when rates finally start to rise -- and keeping in mind that Canadian household debt levels remain near all-time highs in relation to incomes, this is remarkable. It becomes even more so if you look at some of the current numbers that CMHC seems so relaxed about. For example:
"At the national level, Canada’s resale market has been balanced since 2010, thus indicating that (house) price growth should be generally in line with overall inflation. However, national annual (house) price growth has exceeded growth in the overall consumer price index (CPI) almost every year since 2010. Through the first nine months of 2014, the average (house) price for Canada was up 6.9 per cent compared to the 1.9 per cent increase in the CPI."
Can this really be considered sustainable? After all, at a 6.9 percent annual pace, house prices double in just over a decade. Moreover, given weak underlying inflationary pressures and sluggish growth in employment, can there really be any doubt that the degree to which house prices are outpacing the general price level is almost entirely due to the torrent of cheap money provided by the Bank of Canada?
In effect, CMHC's conclusion seems to be only that current house prices are sustainable as long as nothing untoward happens on the interest rate front. That's not a very robust conclusion from the standpoint of policymakers. Nor, perhaps, from the standpoint of prospective homebuyers. In the first of the two linked articles, personal finance guru Adam Mayers opines that for people in the Toronto area, there's not much reason to delay getting into the market, what with five-year fixed rate money available at rates well below 3%. Recognizing the risk of higher rates down the road, however, Mayers counsels buyers to apply the money they save, thanks to ultra-low rates, to paying down the mortgage principal as quickly as possible.
That's great advice, but as the persistence of high household debt levels clearly shows, it's not advice that most people care to take. As and when interest rates start to rise, caveat emptor.
Helpfully, the CMHC report includes an overview of the agency's internal methodology for analysis of market conditions. This focuses on four inter-related indicators: overheating, price acceleration, overvaluation and overbuilding. Looking at how CMHC evaluates these indicators, one surprising fact quickly emerges: although the level of interest rates is taken into account, it does not appear to play an explicit role in the final assessment.
Considering the concern that central bankers and others have expressed about the potentially dangerous impact of the long period of ultra-low interest rates we are living through -- or rather, about what happens when rates finally start to rise -- and keeping in mind that Canadian household debt levels remain near all-time highs in relation to incomes, this is remarkable. It becomes even more so if you look at some of the current numbers that CMHC seems so relaxed about. For example:
"At the national level, Canada’s resale market has been balanced since 2010, thus indicating that (house) price growth should be generally in line with overall inflation. However, national annual (house) price growth has exceeded growth in the overall consumer price index (CPI) almost every year since 2010. Through the first nine months of 2014, the average (house) price for Canada was up 6.9 per cent compared to the 1.9 per cent increase in the CPI."
Can this really be considered sustainable? After all, at a 6.9 percent annual pace, house prices double in just over a decade. Moreover, given weak underlying inflationary pressures and sluggish growth in employment, can there really be any doubt that the degree to which house prices are outpacing the general price level is almost entirely due to the torrent of cheap money provided by the Bank of Canada?
In effect, CMHC's conclusion seems to be only that current house prices are sustainable as long as nothing untoward happens on the interest rate front. That's not a very robust conclusion from the standpoint of policymakers. Nor, perhaps, from the standpoint of prospective homebuyers. In the first of the two linked articles, personal finance guru Adam Mayers opines that for people in the Toronto area, there's not much reason to delay getting into the market, what with five-year fixed rate money available at rates well below 3%. Recognizing the risk of higher rates down the road, however, Mayers counsels buyers to apply the money they save, thanks to ultra-low rates, to paying down the mortgage principal as quickly as possible.
That's great advice, but as the persistence of high household debt levels clearly shows, it's not advice that most people care to take. As and when interest rates start to rise, caveat emptor.
Saturday 22 November 2014
Undisprovable
Well, that didn't take long! Slate's in-house meteorologist, Eric Holthaus, is first out of the gate with the suggestion that the colossal snowfall in Buffalo this week can be attributed to.... global warming!
Pop quiz, folks: if last week had seen Buffalonians strolling down Genesee Street in shorts and sunbathing by Lake Erie in 90-degree weather, to what would Eric Holthaus have attributed that?
Pop quiz, folks: if last week had seen Buffalonians strolling down Genesee Street in shorts and sunbathing by Lake Erie in 90-degree weather, to what would Eric Holthaus have attributed that?
Friday 21 November 2014
It's all about wealth
In my previous blog post I looked at a report from StatsCan that suggested that income distribution in Canada had become less unequal between 2006 and 2012. Today we have a report from UBS and something called Wealth-X that seems to confirm the contrary point I was trying to make: if you look at wealth rather than income, you get a quite different picture.
Let's skip over the jaw-dropping fact that 0.004% of the world's adult population accounts for 13% of global wealth and look at the Canadian numbers. And what do we find? Remarkably, it appears that both the number of "ultra-rich" in Canada, and the size of their stash, are increasing faster than the comparable numbers in the United States. ("Ultra-rich" is defined as holding more than $30 million in net assets).
If I can go a bit Piketty on you for a second, one intriguing finding of the survey is that 75 percent of Canada's ultra-rich are considered to be self-made, with only 13 percent inheriting it. You have to wonder how they calculated that: by asking people to self-define, maybe? Few people are likely to report themselves as being one of the "idle rich" if they have any choice in the matter. Those numbers are certainly out of line with many of Piketty's findings, which place considerable emphasis on inheritance.
In any case, since the average ultra-rich Canadian is 63 years old, it seems inevitable that inherited wealth will form a growing proportion of the total in the years ahead. That will further entrench the rising level of inequality to which Piketty and others have drawn attention, ensuring that his comparisons with the gilded age of Fitzwilliam Darcy and Pere Goriot lose none of their relevance.
Let's skip over the jaw-dropping fact that 0.004% of the world's adult population accounts for 13% of global wealth and look at the Canadian numbers. And what do we find? Remarkably, it appears that both the number of "ultra-rich" in Canada, and the size of their stash, are increasing faster than the comparable numbers in the United States. ("Ultra-rich" is defined as holding more than $30 million in net assets).
If I can go a bit Piketty on you for a second, one intriguing finding of the survey is that 75 percent of Canada's ultra-rich are considered to be self-made, with only 13 percent inheriting it. You have to wonder how they calculated that: by asking people to self-define, maybe? Few people are likely to report themselves as being one of the "idle rich" if they have any choice in the matter. Those numbers are certainly out of line with many of Piketty's findings, which place considerable emphasis on inheritance.
In any case, since the average ultra-rich Canadian is 63 years old, it seems inevitable that inherited wealth will form a growing proportion of the total in the years ahead. That will further entrench the rising level of inequality to which Piketty and others have drawn attention, ensuring that his comparisons with the gilded age of Fitzwilliam Darcy and Pere Goriot lose none of their relevance.
Tuesday 18 November 2014
Falling inequality in Canada? Maybe
Amid all the justified handwringing about rising economic inequality around the world, Statistics Canada came out today with an unexpected finding. Apparently the share of national income going to the top one percent of the population fell to a six-year low in 2012. The richest slice of Canadian society (about 260,000 taxpayers) now corrals 10.3% of national income, down from a peak of 12% in 2006. The share of income going to the top 5 percent and top 10 percent also fell.
The earnings of Canada's top one percent certainly pale against the comparable number for the US, which is north of 18% and is continuing to rise. But hold the (Niagara) champagne, because these data don't tell the full story, and Canada is not quite an egalitarian utopia. Recall that the key focus of much of the literature on inequality, including Thomas Piketty's doorstopper, Capital in the 21st century, is on inequality of wealth distribution rather than annual income.
No doubt the prolonged declines in equity prices in the wake of the financial crisis hit the wealthiest hardest, but stock prices have bounced back sharply in the last year or two. That not only means that wealth inequality is on the rise again in Canada: it also means that income inequality may have ticked up again in the two years since StatsCan compiled its data, as dividends, which are self-evidently a larger component of incomes at the top end than at the bottom, have continued to grow.
And then there's housing costs, which the OECD and others have pointed to as a significant contributor to inequality in Canada. House prices in Toronto, Vancouver and Calgary, the three most economically dynamic cities in Canada, continue to rise sharply, while less fortunate areas fall further behind. This too suggests that if one were to look at wealth rather than income, one would see a much different picture from the one StatsCan is painting.
Oddly enough, it's unlikely that any political party will have much to say about today's data. The Tories are quite comfortable with the rich getting richer anyway, while the Liberals and NDP, both of whom have expressed concern over rising inequality, may actually be a little aggrieved at StatsCan for undermining some of their arguments!
The earnings of Canada's top one percent certainly pale against the comparable number for the US, which is north of 18% and is continuing to rise. But hold the (Niagara) champagne, because these data don't tell the full story, and Canada is not quite an egalitarian utopia. Recall that the key focus of much of the literature on inequality, including Thomas Piketty's doorstopper, Capital in the 21st century, is on inequality of wealth distribution rather than annual income.
No doubt the prolonged declines in equity prices in the wake of the financial crisis hit the wealthiest hardest, but stock prices have bounced back sharply in the last year or two. That not only means that wealth inequality is on the rise again in Canada: it also means that income inequality may have ticked up again in the two years since StatsCan compiled its data, as dividends, which are self-evidently a larger component of incomes at the top end than at the bottom, have continued to grow.
And then there's housing costs, which the OECD and others have pointed to as a significant contributor to inequality in Canada. House prices in Toronto, Vancouver and Calgary, the three most economically dynamic cities in Canada, continue to rise sharply, while less fortunate areas fall further behind. This too suggests that if one were to look at wealth rather than income, one would see a much different picture from the one StatsCan is painting.
Oddly enough, it's unlikely that any political party will have much to say about today's data. The Tories are quite comfortable with the rich getting richer anyway, while the Liberals and NDP, both of whom have expressed concern over rising inequality, may actually be a little aggrieved at StatsCan for undermining some of their arguments!
Sunday 16 November 2014
Bullies and hypocrites
Right-wing leaders of middling powers are falling over themselves to take credit for Vladimir Putin's early exit from the G20 summit in Brisbane. According to the Canadian media, it was tough talk from Stephen Harper ("you need to get out of Ukraine") that did it; the British press is equally clear that it was a dressing-down by David Cameron. The conference host, Tony Abbott, had tried to get his shots in first by promising to "shirtfront" Putin. This is a term I'm not familiar with, but apparently it's used in rugby, so I imagine it involves plenty of mud and swearing.
Here's something to think about. If Putin were to order his forces to retake every now-independent state that was once part of the USSR, he'd be invading fewer sovereign countries than the US and/or its allies have seen fit to wage war in over the last three decades. (Don't believe me? Start counting back from Syria and Iraq currently, travel via Grenada, Serbia, Panama and many others, and don't stop until you get to Vietnam, Laos and Cambodia).
I don't know what Putin's up to in Ukraine; probably no good. But if he left Brisbane early, I don't imagine it was because Abbott, Cameron and Harper had made him feel ashamed. That's not an emotion he seems capable of feeling. It's more likely that he was finding the stench of hypocrisy a bit overwhelming.
Here's something to think about. If Putin were to order his forces to retake every now-independent state that was once part of the USSR, he'd be invading fewer sovereign countries than the US and/or its allies have seen fit to wage war in over the last three decades. (Don't believe me? Start counting back from Syria and Iraq currently, travel via Grenada, Serbia, Panama and many others, and don't stop until you get to Vietnam, Laos and Cambodia).
I don't know what Putin's up to in Ukraine; probably no good. But if he left Brisbane early, I don't imagine it was because Abbott, Cameron and Harper had made him feel ashamed. That's not an emotion he seems capable of feeling. It's more likely that he was finding the stench of hypocrisy a bit overwhelming.
Wednesday 12 November 2014
So much for the budget surplus!
The Canadian Federal Government led by Stephen Harper has been open for years about its fiscal agenda: slash spending in order to bring the budget into surplus by 2015, then dole out all kinds of tax cuts to middle-class voters ahead of the expected October 2015 election date. However, Harper couldn't keep it in his pants that long. Just a couple of weeks ago he announced that the tax cuts, including a wildly inequitable income splitting scheme for married couples, would be effective for the 2014 tax year.
The result? Today, Finance Minister Joe Oliver announced that instead of recording a tiny surplus this year, Ottawa will instead record a deficit of about $3 billion. (All figures in Canadian dollars). The same tax cuts also mean that the projected surplus of more than $6 billion previously forecast for 2015 will now be just $1.9 billion. Surpluses are expected to continue over the following five years, but as Oliver admitted today, the fall in resource prices, notably for oil, has heightened the risks surrounding that projection.
As with everything the Harper government does, this is all about partisan political advantage, rather than the national interest. A couple of weeks ago, a Tory spokesman on a TV news show used the term "Trudeau tax" about every ten seconds over an entire five-minute interview. It's clear that the Tories intend to paint themselves as the only friends of the "middle class", whatever that is, while portraying Justin Trudeau's Liberals and Tom Mulcair's NDP as old fashioned tax-and-spend lefties.
The economy is still doing well enough, albeit not as well as the Tories like to claim, so it will be, along with Harper's nauseating macho posturing on the international scene, the key theme in the election, whenever that comes. And when will that be?? Early in his near-decade in office, Harper introduced a law providing for fixed election dates. Under the terms of that law, the election is supposed to be held on October 15 of next year, but there are growing reasons to think it will be held sooner than that.
Harper ignored his own law to call an early election four years ago, and there are plenty of signs, including the tax cuts, that he's setting the stage to do the same again in 2015. Trials relating to some of the political scandals resulting from Harper's stunt of stuffing the Senate with his cronies will get underway in the spring, and it will be hard to stop some of the muck from sticking to Harper. The Tories also have to be concerned that Justin Trudeau may continue to grow into his job as Liberal leader, and that there may not be as many opportunities next year for Harper to big himself up on the world stage. A late winter/early spring election seems more likely than the supposed "fixed date" in October.
By introducing the tax cuts ahead of schedule -- and before there's actually a surplus to give away -- Harper is trying to preempt the opposition parties, daring them even to suggest that they would roll back the cuts and do something different with the surplus. It might work, but it's actually riskier than it looks. As long as the tax cuts were just a political pledge, it was possible for a lot of voters to think they might benefit, which would encourage some, at least, to vote Tory.
However, now that the details are known, it's very clear that the number of people who will benefit is quite small, and many of them are probably Tory supporters anyway. People will start filing their 2014 income taxes early in the new year, and large numbers will then realize that they've been sold a bill of goods. Harper might try to get around that by holding an election as early as February, before most people have done their taxes, but given Canada's climate, calling an election in the winter is never popular, especially with the candidates. Harper's breathtaking cynicism has kept him in office up to now, but his luck may be set to run out.
The result? Today, Finance Minister Joe Oliver announced that instead of recording a tiny surplus this year, Ottawa will instead record a deficit of about $3 billion. (All figures in Canadian dollars). The same tax cuts also mean that the projected surplus of more than $6 billion previously forecast for 2015 will now be just $1.9 billion. Surpluses are expected to continue over the following five years, but as Oliver admitted today, the fall in resource prices, notably for oil, has heightened the risks surrounding that projection.
As with everything the Harper government does, this is all about partisan political advantage, rather than the national interest. A couple of weeks ago, a Tory spokesman on a TV news show used the term "Trudeau tax" about every ten seconds over an entire five-minute interview. It's clear that the Tories intend to paint themselves as the only friends of the "middle class", whatever that is, while portraying Justin Trudeau's Liberals and Tom Mulcair's NDP as old fashioned tax-and-spend lefties.
The economy is still doing well enough, albeit not as well as the Tories like to claim, so it will be, along with Harper's nauseating macho posturing on the international scene, the key theme in the election, whenever that comes. And when will that be?? Early in his near-decade in office, Harper introduced a law providing for fixed election dates. Under the terms of that law, the election is supposed to be held on October 15 of next year, but there are growing reasons to think it will be held sooner than that.
Harper ignored his own law to call an early election four years ago, and there are plenty of signs, including the tax cuts, that he's setting the stage to do the same again in 2015. Trials relating to some of the political scandals resulting from Harper's stunt of stuffing the Senate with his cronies will get underway in the spring, and it will be hard to stop some of the muck from sticking to Harper. The Tories also have to be concerned that Justin Trudeau may continue to grow into his job as Liberal leader, and that there may not be as many opportunities next year for Harper to big himself up on the world stage. A late winter/early spring election seems more likely than the supposed "fixed date" in October.
By introducing the tax cuts ahead of schedule -- and before there's actually a surplus to give away -- Harper is trying to preempt the opposition parties, daring them even to suggest that they would roll back the cuts and do something different with the surplus. It might work, but it's actually riskier than it looks. As long as the tax cuts were just a political pledge, it was possible for a lot of voters to think they might benefit, which would encourage some, at least, to vote Tory.
However, now that the details are known, it's very clear that the number of people who will benefit is quite small, and many of them are probably Tory supporters anyway. People will start filing their 2014 income taxes early in the new year, and large numbers will then realize that they've been sold a bill of goods. Harper might try to get around that by holding an election as early as February, before most people have done their taxes, but given Canada's climate, calling an election in the winter is never popular, especially with the candidates. Harper's breathtaking cynicism has kept him in office up to now, but his luck may be set to run out.
Tuesday 11 November 2014
Remembrance Day: perspective, please!
Wall-to-wall Remembrance Day coverage in the media today, which is as it should be in the centennial year of the start of the Great War, falsely labelled at the time as "the war to end all wars". If only.
Amid all the public ceremonies, large and small, it's hard not to notice that private honouring of the fallen is being rapidly supplanted by orchestrated displays of mass emotion, the sort of thing we've become depressingly accustomed to since the death of Princess Diana. It's no longer enough to emote and remember in quiet dignity: you have to emote and remember in ways that meet public approval.
Over in the UK, there's a bit of a fuss about a "poppy hijab" that some Muslim women have been wearing to show their respect. Some non-Muslims wonder why it's necessary for anyone to do anything beyond the traditional pin-on poppy, while some Muslim women feel that it's a distortion of the purpose of the hijab. As Muslim activist Sonia Ahmad puts it,
“My hijab is a visual sign of my religiosity and devotion to Allah and not a walking talking billboard on which to showcase my patriotism and undying loyalty to Britain. No other religious group is pressured to prove their allegiance in the same way.”
No other religious group, maybe, but the pressure on everyone to conform is growing by the year. Just ask soccer player James McClean, of Wigan Athletic, who declined to wear a poppy on his shirt for a recent game. McClean grew up in Derry, and his personal memory of the armed forces concerns the Bloody Sunday massacre of unarmed civilians, rather than brave Tommies going over the top at Passchendaele. For his pains, he's been subjected to a torrent of abuse and threats via social media.
I find myself on McClean's side here, though for different reasons. My father was a genuine war hero, decorated by two countries for his bravery. He took part in the Dieppe raid, the invasion of Italy, and the assault on Walcheren Island toward the end of the war, when he was badly wounded and left for dead when his ship had to be abandoned. He carried shrapnel around in his body for the rest of his days. And he never wore a poppy. He grew up between the wars knowing that the whole poppy tradition had been established by General Lord Haig, a man who sent hundreds of thousands of men to certain death on the battlefields of Flanders and was looking for a way to expiate his guilt. My father wanted nothing to do with it, and I see no reason to disagree with him.
On the op-ed page o the Toronto Star today, there's a rambling piece by one Heather Menzies that includes what must surely be the most crass comment ever made about war and remembrance. Says she,
"War is a violation of the human body and spirit, and of the earth, in a way that is as devastating as climate change".
If you were looking for a way to trivialize war and insult the memory of the fallen, you couldn't come up with anything better (worse?) than that.
As I've written here before, the only proper way to remember the fallen is to work to find ways to stop adding to their numbers. Prime Minister Stephen Harper led the Remembrance Day ceremonies in Ottawa today just weeks after committing Canadian soldiers and materiel to the war against ISIS/ISIL. He's clearly calculating that there are votes to be had in portraying himself as a tough war leader when elections roll around next year. I'm not sure if that's hypocrisy, exactly, but it's damned close to it.
Amid all the public ceremonies, large and small, it's hard not to notice that private honouring of the fallen is being rapidly supplanted by orchestrated displays of mass emotion, the sort of thing we've become depressingly accustomed to since the death of Princess Diana. It's no longer enough to emote and remember in quiet dignity: you have to emote and remember in ways that meet public approval.
Over in the UK, there's a bit of a fuss about a "poppy hijab" that some Muslim women have been wearing to show their respect. Some non-Muslims wonder why it's necessary for anyone to do anything beyond the traditional pin-on poppy, while some Muslim women feel that it's a distortion of the purpose of the hijab. As Muslim activist Sonia Ahmad puts it,
“My hijab is a visual sign of my religiosity and devotion to Allah and not a walking talking billboard on which to showcase my patriotism and undying loyalty to Britain. No other religious group is pressured to prove their allegiance in the same way.”
No other religious group, maybe, but the pressure on everyone to conform is growing by the year. Just ask soccer player James McClean, of Wigan Athletic, who declined to wear a poppy on his shirt for a recent game. McClean grew up in Derry, and his personal memory of the armed forces concerns the Bloody Sunday massacre of unarmed civilians, rather than brave Tommies going over the top at Passchendaele. For his pains, he's been subjected to a torrent of abuse and threats via social media.
I find myself on McClean's side here, though for different reasons. My father was a genuine war hero, decorated by two countries for his bravery. He took part in the Dieppe raid, the invasion of Italy, and the assault on Walcheren Island toward the end of the war, when he was badly wounded and left for dead when his ship had to be abandoned. He carried shrapnel around in his body for the rest of his days. And he never wore a poppy. He grew up between the wars knowing that the whole poppy tradition had been established by General Lord Haig, a man who sent hundreds of thousands of men to certain death on the battlefields of Flanders and was looking for a way to expiate his guilt. My father wanted nothing to do with it, and I see no reason to disagree with him.
On the op-ed page o the Toronto Star today, there's a rambling piece by one Heather Menzies that includes what must surely be the most crass comment ever made about war and remembrance. Says she,
"War is a violation of the human body and spirit, and of the earth, in a way that is as devastating as climate change".
If you were looking for a way to trivialize war and insult the memory of the fallen, you couldn't come up with anything better (worse?) than that.
As I've written here before, the only proper way to remember the fallen is to work to find ways to stop adding to their numbers. Prime Minister Stephen Harper led the Remembrance Day ceremonies in Ottawa today just weeks after committing Canadian soldiers and materiel to the war against ISIS/ISIL. He's clearly calculating that there are votes to be had in portraying himself as a tough war leader when elections roll around next year. I'm not sure if that's hypocrisy, exactly, but it's damned close to it.
Friday 7 November 2014
Looking up, but not for the young
To the surprise of most analysts, Canada's employment picture continued to improve in October. Given the whipsaw pattern that employment has traced out over the past couple of years, the consensus expectation was for a small decline in employment for the month after a strong gain in September. Instead, the economy added 43,000 jobs in October, marking the first time that employment has risen in two consecutive months since late 2012. The national unemployment rate fell to 6.5%, its lowest level since the November 2008, when the financial crisis was just starting to bite.
Job gains were seen in the private sector and among the self-employed, with public sector employment falling slightly. The beleaguered manufacturing sector continued to report remarkably volatile employment levels, with the number of jobs rising by 33,000, while resource sector employment fell by more than 20,000. This latter number is unsurprising, given the collapse in global commodity prices in recent months. It remains to be seen whether the fall in the exchange rate will allow the manufacturing sector to continue picking up the slack in the months ahead.
There are worrying elements within the generally improving picture. The labour force participation rate is falling, particularly among younger workers, who still face an unemployment rate in excess of 12 percent. Bank of Canada Governor Stephen Poloz has been severely criticized this week for suggesting that unemployed young people should do volunteer work if they are unable to find paid employment. He noted that this would avoid something that's apparently known as "scarring" on one's resume, which means an unexplained gap between two spells of employment. What two spells of employment would those be, Governor? With the young finding it so hard to find jobs at all, "scarring" might be considered the least of their problems.
Job gains were seen in the private sector and among the self-employed, with public sector employment falling slightly. The beleaguered manufacturing sector continued to report remarkably volatile employment levels, with the number of jobs rising by 33,000, while resource sector employment fell by more than 20,000. This latter number is unsurprising, given the collapse in global commodity prices in recent months. It remains to be seen whether the fall in the exchange rate will allow the manufacturing sector to continue picking up the slack in the months ahead.
There are worrying elements within the generally improving picture. The labour force participation rate is falling, particularly among younger workers, who still face an unemployment rate in excess of 12 percent. Bank of Canada Governor Stephen Poloz has been severely criticized this week for suggesting that unemployed young people should do volunteer work if they are unable to find paid employment. He noted that this would avoid something that's apparently known as "scarring" on one's resume, which means an unexplained gap between two spells of employment. What two spells of employment would those be, Governor? With the young finding it so hard to find jobs at all, "scarring" might be considered the least of their problems.
Wednesday 5 November 2014
Inflation: still "a monetary phenomenon"?
Milton Friedman's famous dictum that "inflation is always and everywhere a monetary phenomenon" is looking badly shopworn these days. When central banks announced their intention of combatting the financial crisis through record-low interest rates and quantitative easing, monetarists were quick to warn that hyperinflation was surely just around the corner. Even those economists who applauded the unconventional stimulus were concerned about what might happen if "normal" monetary conditions were not restored fairly quickly. Yet here we are, more than half a decade on, with interest rates still locked at record lows and massive amounts of monetary stimulus still sloshing around in the financial system -- and deflation is still a more pressing fear than inflation. Were the Friedmanites wrong?
It's a simple question, but not one that has a black-and-white answer. When most people think about inflation, they have in mind retail or consumer prices for goods and services. Truth to tell, that's also what Friedman was mainly talking about too. But there's also such a thing as asset price inflation, when the prices of such things as equities and real estate move sharply higher. There was plenty of that around during the Greenspan era, and there's no doubt that QE and ultra-low borrowing costs have given us more of the same in the last five years.
Many central bankers are nervous about this asset price bubble, and almost seem to wish that consumer prices would start to perk up, so that they can start to tap on the monetary brakes -- but consumer prices are refusing to cooperate. Why is that?
If we look back to the Greenspan era at the Federal Reserve, we find a central bank, or at least a central bank Chairman, convinced that expertly-applied monetary policy was the major factor behind the era of consumer price stability. In truth, there was always much more to it than that. Greenspan always acknowledged that rising productivity, largely related to the information revolution, played a major role, but he never paid much attention to another key factor: the flood of low-cost, high quality manufactured goods from China and other parts of the developing world. It's arguable that the Chairman of Walmart played a greater role than the Chairman of the Fed in ensuring US price stability in the early years of this century.
The relative importance of the factors keeping inflation low has changed subtly in the last few years. Cheap Asian imports are still helping, but not as much as they did a decade or so ago. Strongly rising labour productivity, especially in the US, is now more important, not least because the fruits of that productivity growth are generally not being passed on to workers in the form of higher wages, as routinely happened in the past. Labour incomes have been largely stagnant for many years, a fact that reflects a number of key changes in labour markets. These include the rapid spread of "right to work" laws among US states and, increasingly, in other parts of the world; continued outsourcing, both internationally and to lower labour cost jurisdictions; the replacement of full-time jobs by part-time and contract positions, which generally carry fewer benefits; and new union contracts that allow employers to pay new hires much lower wages than the existing workforce.
These developments are all inter-related, and labour unions have found themselves all but powerless to stop them. The "race to the bottom" for wages and benefits has kept costs of production low, which has directly contributed to the inflation stability that most developed countries continue to experience. However, it's becoming ever clearer that there's a downside: the absence of wage growth means that domestic demand is growing at a glacial pace in most countries, despite the efforts of central banks to goose it through expansionary policies.
Here, in fact, is the unhappy paradox: for a variety of reasons that have almost nothing to do with central banks, wildly expansionary monetary policy, both in the Greenspan era and post-financial crisis, has triggered neither inflation nor particularly robust real growth. It has, however, permitted the formation of one asset price bubble after another -- and as we saw back in 2007/8, when those bubbles start to burst, it's deflation and not inflation that policymakers have to worry most about.
It's a simple question, but not one that has a black-and-white answer. When most people think about inflation, they have in mind retail or consumer prices for goods and services. Truth to tell, that's also what Friedman was mainly talking about too. But there's also such a thing as asset price inflation, when the prices of such things as equities and real estate move sharply higher. There was plenty of that around during the Greenspan era, and there's no doubt that QE and ultra-low borrowing costs have given us more of the same in the last five years.
Many central bankers are nervous about this asset price bubble, and almost seem to wish that consumer prices would start to perk up, so that they can start to tap on the monetary brakes -- but consumer prices are refusing to cooperate. Why is that?
If we look back to the Greenspan era at the Federal Reserve, we find a central bank, or at least a central bank Chairman, convinced that expertly-applied monetary policy was the major factor behind the era of consumer price stability. In truth, there was always much more to it than that. Greenspan always acknowledged that rising productivity, largely related to the information revolution, played a major role, but he never paid much attention to another key factor: the flood of low-cost, high quality manufactured goods from China and other parts of the developing world. It's arguable that the Chairman of Walmart played a greater role than the Chairman of the Fed in ensuring US price stability in the early years of this century.
The relative importance of the factors keeping inflation low has changed subtly in the last few years. Cheap Asian imports are still helping, but not as much as they did a decade or so ago. Strongly rising labour productivity, especially in the US, is now more important, not least because the fruits of that productivity growth are generally not being passed on to workers in the form of higher wages, as routinely happened in the past. Labour incomes have been largely stagnant for many years, a fact that reflects a number of key changes in labour markets. These include the rapid spread of "right to work" laws among US states and, increasingly, in other parts of the world; continued outsourcing, both internationally and to lower labour cost jurisdictions; the replacement of full-time jobs by part-time and contract positions, which generally carry fewer benefits; and new union contracts that allow employers to pay new hires much lower wages than the existing workforce.
These developments are all inter-related, and labour unions have found themselves all but powerless to stop them. The "race to the bottom" for wages and benefits has kept costs of production low, which has directly contributed to the inflation stability that most developed countries continue to experience. However, it's becoming ever clearer that there's a downside: the absence of wage growth means that domestic demand is growing at a glacial pace in most countries, despite the efforts of central banks to goose it through expansionary policies.
Here, in fact, is the unhappy paradox: for a variety of reasons that have almost nothing to do with central banks, wildly expansionary monetary policy, both in the Greenspan era and post-financial crisis, has triggered neither inflation nor particularly robust real growth. It has, however, permitted the formation of one asset price bubble after another -- and as we saw back in 2007/8, when those bubbles start to burst, it's deflation and not inflation that policymakers have to worry most about.
Thursday 30 October 2014
The Reds' rocket's glare
I'm old enough to remember each stage of mankind's space exploration -- Sputnik 1, Leika and Belka, Telstar, Yuri Gagarin, Alan Sheppard, Mercury/Gemini/Apollo, the ISS and so on. Like a lot of people of my age, I get a bit sad when I contemplate the fact that the great age of space exploration ended more than three decades ago, when the Apollo moon voyages stopped. At a time of cold war tension, the space race was a very healthy and beneficial competition between the superpowers. Today's efforts seem picayune in comparison.
Still, I hadn't realised just how bad things had become until I saw the accounts of the NASA-sponsored rocket launch that went badly wrong just seconds after blast-off in Virginia earlier this week. Strapped for cash, NASA has been privatizing its efforts, so the ill-fated launch was in fact being carried out by a sub-contractor called Orbital Sciences. And as Wolf Blitzer told the world the day after the explosion, the rocket they were trying to use was a forty-year old one from the former USSR! In fact, it was of a type that the folks at Baikonur (that was the USSR's Cape Canaveral) had experienced all sorts of launchpad problems with all those years ago -- so many problems that the rockets were deemed unserviceable, and were ordered to be scrapped. For whatever reason, this didn't happen, and so these many years later Orbital Science pitched up, bought them and offered them to NASA.
Wolf Blitzer didn't seem bothered by this startling revelation. In fact, he almost saw it as a plus -- blame the Russkies! After all, he pointed out, there aren't a lot of US-made rockets out there that NASA and its sub-contractors could buy instead. Really? The US military doesn't seem to be suffering from a shortage of rockets, and it seems unlikely in the extreme that they're procuring theirs from Russia, China or anywhere else. Back in the heyday of the space program, there was an enormous amount of cross-fertilization between NASA and the military. Whether for financial or security reasons, it appears this is no longer the case.
Blitzer and his expert panelists agreed that this week's setback will not stop NASA's outsourcing efforts, because it's so much cheaper than doing everything for itself. It's not clear how you make that calculation when NASA's entire payload was incinerated less than 100 feet above the launch pad, on the very same day that a Russian supply ship to the ISS made an uneventful trip. But if he's right, then anyone with a stash of the UK's old Blue Steel and Blue Streak rockets, which never seemed to get higher than the launch gantry without exploding, might finally be able to cash in.
Still, I hadn't realised just how bad things had become until I saw the accounts of the NASA-sponsored rocket launch that went badly wrong just seconds after blast-off in Virginia earlier this week. Strapped for cash, NASA has been privatizing its efforts, so the ill-fated launch was in fact being carried out by a sub-contractor called Orbital Sciences. And as Wolf Blitzer told the world the day after the explosion, the rocket they were trying to use was a forty-year old one from the former USSR! In fact, it was of a type that the folks at Baikonur (that was the USSR's Cape Canaveral) had experienced all sorts of launchpad problems with all those years ago -- so many problems that the rockets were deemed unserviceable, and were ordered to be scrapped. For whatever reason, this didn't happen, and so these many years later Orbital Science pitched up, bought them and offered them to NASA.
Wolf Blitzer didn't seem bothered by this startling revelation. In fact, he almost saw it as a plus -- blame the Russkies! After all, he pointed out, there aren't a lot of US-made rockets out there that NASA and its sub-contractors could buy instead. Really? The US military doesn't seem to be suffering from a shortage of rockets, and it seems unlikely in the extreme that they're procuring theirs from Russia, China or anywhere else. Back in the heyday of the space program, there was an enormous amount of cross-fertilization between NASA and the military. Whether for financial or security reasons, it appears this is no longer the case.
Blitzer and his expert panelists agreed that this week's setback will not stop NASA's outsourcing efforts, because it's so much cheaper than doing everything for itself. It's not clear how you make that calculation when NASA's entire payload was incinerated less than 100 feet above the launch pad, on the very same day that a Russian supply ship to the ISS made an uneventful trip. But if he's right, then anyone with a stash of the UK's old Blue Steel and Blue Streak rockets, which never seemed to get higher than the launch gantry without exploding, might finally be able to cash in.
Wednesday 29 October 2014
QEDead
As expected, the US Federal Reserve announced today that it will end its quantitative easing program (well, sort of -- more on this below), in view of the continuing improvement in the US economy. It emphasized that it would not consider raising interest rates for a "considerable" period of time, but also hardened its rhetoric slightly by removing the adjective "significant" from its description of the degree of slack in the labour market.
This piece by the BBC's Robert Peston is a bit rambling and repetitive, but it's not a bad summary of what we know about the good and bad achieved by half a decade of unprecedented money creation. As Peston notes, fears that QE would set of a bout of unbridled inflation have proven unfounded. At the same time, hopes that QE would get the US economy back on its feet have been agonizingly slow to materialize. Companies have been reluctant to take advantage of exceptionally low borrowing costs to increase investment, while banks have been equally unwilling to extend fresh credit than the Fed and other central banks had hoped.
It's perhaps worth reminding ourselves here that central banks (and governments) have in effect spent the past five years trying to get banks to suck and blow at the same time -- providing credit to finance business expansion while aggressively getting their own balance sheets back into shape. As last week's news out of Europe suggests, this latter process is still not complete, with a couple of dozen institutions still failing to meet capital requirements.
Despite the Fed's cautious optimism, there's still a real risk that the US could find itself in another bout of stagnation if growth continues to slow in China and fails to recover in Europe. If that happens, asset prices, which have certainly been boosted by QE even if the broader economy hasn't, would come under pressure. This loops us back to the point in the first paragraph, that the Fed has only "sort of" ended QE. The program may be over, but the Fed's balance sheet stands at a staggering $3.7 trillion, eight times larger than it was before the QE purchases started. Nobody seems to have much idea what to do about that, but if the Fed can't begin the process of shrinking its balance sheet fairly soon, how much room to maneuver will it have when the next crisis rolls around?
This piece by the BBC's Robert Peston is a bit rambling and repetitive, but it's not a bad summary of what we know about the good and bad achieved by half a decade of unprecedented money creation. As Peston notes, fears that QE would set of a bout of unbridled inflation have proven unfounded. At the same time, hopes that QE would get the US economy back on its feet have been agonizingly slow to materialize. Companies have been reluctant to take advantage of exceptionally low borrowing costs to increase investment, while banks have been equally unwilling to extend fresh credit than the Fed and other central banks had hoped.
It's perhaps worth reminding ourselves here that central banks (and governments) have in effect spent the past five years trying to get banks to suck and blow at the same time -- providing credit to finance business expansion while aggressively getting their own balance sheets back into shape. As last week's news out of Europe suggests, this latter process is still not complete, with a couple of dozen institutions still failing to meet capital requirements.
Despite the Fed's cautious optimism, there's still a real risk that the US could find itself in another bout of stagnation if growth continues to slow in China and fails to recover in Europe. If that happens, asset prices, which have certainly been boosted by QE even if the broader economy hasn't, would come under pressure. This loops us back to the point in the first paragraph, that the Fed has only "sort of" ended QE. The program may be over, but the Fed's balance sheet stands at a staggering $3.7 trillion, eight times larger than it was before the QE purchases started. Nobody seems to have much idea what to do about that, but if the Fed can't begin the process of shrinking its balance sheet fairly soon, how much room to maneuver will it have when the next crisis rolls around?
Monday 27 October 2014
First, do no harm
Kaci Hickox, the nurse who wound up as the first victim of New Jersey Governor Chris Christie's mandatory ebola quarantine, wasted no time in lawyering up and threatening to sue over her "inhumane" treatment. It's not yet known whether Christie's decision today to allow her to spend the rest of her quarantine in Maine will change her mind. In the meantime, the pros and cons of the quarantine rules imposed in Illinois and New York state as well as New Jersey, and firmly opposed by the White House, are getting plenty of airplay.
The case against the quarantines is spelled out in this Slate piece by Josh Voorhees. The argument is basically twofold. First, there's no reason to think that quarantining asymptomatic individuals who've been in contact with ebola patients will do anything to reduce the risks of a larger-scale outbreak within the US. Second, if the threat of being quarantined on returning home deters doctors and nurses from traveling to West Africa to deal with the outbreak there, then controlling that outbreak and preventing it from spreading further will become much more difficult.
Those are important points, and certainly Voorhees is convinced by them. However, it seems harsh to conclude, as Voorhees does, that the states that are imposing these quarantines are doing so for political rather than medical reasons. Consider this quote from Kaci Hickox: "We need to be careful about letting politicians make medical decisions". That would be easier to argue if the decisions made by medical professionals in recent weeks had been better. The second nurse to come down with the virus in Dallas, after treating the patient from Liberia, saw no reason not to fly to Cleveland and back during the incubation period for the disease. What makes this so worrying is that she contacted the CDC for advice and was told to go right ahead. Voorhees mentions this case but says airily that the CDC now admits that may have been a mistake. Indeed so, and it's the sort of mistake that prompts politicians like Chris Christie to take draconian steps like the mandatory quarantine.
Then there's the case of the doctor now under treatment for ebola at Bellevue in New York City. After returning from a stint in West Africa, he resumed his normal routine, riding the subway and going bowling, even though he started noticing signs of fatigue and lethargy. He only presented himself at Bellevue when he developed a fever. Again, this is not the kind of astute medical decision to inspire Gov. Christie et al to leave things to the professionals.
The fear that quarantines will deter medical professionals from going to Africa to tackle the ebola outbreak there is a real one, but there's a flipside to that too. If doctors and nurses are allowed to re-enter the US without any quarantine and the result is a sudden spread of the disease within the US, the almost inevitable response will be for the Federal Government to focus all its efforts on eradicating the disease at home, rather than allowing even more professionals to travel to West Africa and risk becoming infected. That would be in nobody's best interest, especially not West Africa's.
It remains to be seen whether the three states that have imposed these restrictions will bow to Washington's wishes and rescind them. On the whole it seems unlikely: having taken the initial step, no Governor is likely to take the risk of changing his mind and then seeing the disease get loose within his jurisdiction. Until the promised ebola vaccines are rolled out, heavy-handed measures like quarantines will remain part of the story.
The case against the quarantines is spelled out in this Slate piece by Josh Voorhees. The argument is basically twofold. First, there's no reason to think that quarantining asymptomatic individuals who've been in contact with ebola patients will do anything to reduce the risks of a larger-scale outbreak within the US. Second, if the threat of being quarantined on returning home deters doctors and nurses from traveling to West Africa to deal with the outbreak there, then controlling that outbreak and preventing it from spreading further will become much more difficult.
Those are important points, and certainly Voorhees is convinced by them. However, it seems harsh to conclude, as Voorhees does, that the states that are imposing these quarantines are doing so for political rather than medical reasons. Consider this quote from Kaci Hickox: "We need to be careful about letting politicians make medical decisions". That would be easier to argue if the decisions made by medical professionals in recent weeks had been better. The second nurse to come down with the virus in Dallas, after treating the patient from Liberia, saw no reason not to fly to Cleveland and back during the incubation period for the disease. What makes this so worrying is that she contacted the CDC for advice and was told to go right ahead. Voorhees mentions this case but says airily that the CDC now admits that may have been a mistake. Indeed so, and it's the sort of mistake that prompts politicians like Chris Christie to take draconian steps like the mandatory quarantine.
Then there's the case of the doctor now under treatment for ebola at Bellevue in New York City. After returning from a stint in West Africa, he resumed his normal routine, riding the subway and going bowling, even though he started noticing signs of fatigue and lethargy. He only presented himself at Bellevue when he developed a fever. Again, this is not the kind of astute medical decision to inspire Gov. Christie et al to leave things to the professionals.
The fear that quarantines will deter medical professionals from going to Africa to tackle the ebola outbreak there is a real one, but there's a flipside to that too. If doctors and nurses are allowed to re-enter the US without any quarantine and the result is a sudden spread of the disease within the US, the almost inevitable response will be for the Federal Government to focus all its efforts on eradicating the disease at home, rather than allowing even more professionals to travel to West Africa and risk becoming infected. That would be in nobody's best interest, especially not West Africa's.
It remains to be seen whether the three states that have imposed these restrictions will bow to Washington's wishes and rescind them. On the whole it seems unlikely: having taken the initial step, no Governor is likely to take the risk of changing his mind and then seeing the disease get loose within his jurisdiction. Until the promised ebola vaccines are rolled out, heavy-handed measures like quarantines will remain part of the story.
Thursday 23 October 2014
Coming home to roost
It would appear that Stephen Harper got the direction of causation backwards. Earlier this month, when he committed Canada's military to a combat role against ISIS/ISIL, the Prime Minister asserted that it was necessary for Canada to join its allies on the front lines in Iraq and Syria, to prevent terrorism from spreading to home soil. The authorities are not yet being definitive on the motives behind this week's despicable and cowardly murders in St-Jean-sur-Richelieu and Ottawa; however, given what we know about the perpetrators -- two troubled young men who were recent converts to Islam -- it's all but certain that they were motivated by anger at Harper's decision.
As conservative governments go, Harper's Tories are something of an anomaly. Most right -wing governments will gleefully slash social programs, but tend to leave intact or even boost funding for activities that they see as core functions of government: a strong military, and a tough approach to law enforcement at home. The Harperites, however, in their deficit-slaying zeal, have taken the axe to those things too, leaving the military and the security services chronically underfunded.
That's why Canada's initial pledge of "up to 65" military training personnel to work with the Iraqi Army turned out in practice to be just 29 soldiers. It's why Canada's contribution to the air campaign against ISIS/ISIL consists of six thirty-year-old CF18s -- and it's why it may be necessary to send eight aircraft, to allow for cannibalization of parts as the planes become increasingly hard to maintain. In the international arena, Canada's foreign policy under Harper's direction is bellicose rather than belligerent -- Harper may talk the talk, but he's left the armed forces in a position where they can't walk the walk.
Lack of funding may also explain why this week's attacks were able to happen. The Canadian intelligence agency, CSIS, has a list of about 90 individuals who are perceived as domestic terrorist threats. Both of this week's killers were on that list*, but the agency lacked the funding to keep them under anything like proper surveillance. The only step that had been taken was to revoke their passports. This may have stopped them from traveling to Syria, but that simply meant that they carried out their homicidal urges closer to home.
There's more. The shooter in Ottawa was able to march right into the Central Block of the Parliament buildings. A couple of years ago, the Harper government was warned that security on Parliament Hill was scandalously lax -- it's much harder to gain access to most private office buildings than into the heart of the Canadian government. For budgetary reasons, nothing was done to beef up security in response to those warnings. As a result, the shooter got a long way into the building before he was shot, not by one of the security guards who belatedly appeared, but by the normally ceremonial Sergeant-at-Arms, a retired military man now being hailed as a hero.
None of this is meant in any way to pin the blame for this week's atrocities on Harper: that blame lies only with the two murderers who carried out the attacks. But it seems hard to deny that Harper's obsessive deficit cutting has left Canadians more vulnerable than they need to be. Harper has today pledged expeditious steps to tighten domestic anti-terrorism efforts. Too late, alas for Corporal Nathan Cirillo of Hamilton and Warrant Officer Patrice Vincent of St-Jean-sur-Richelieu. RIP.
* Update/correction, 24 October: It now turns out that the Ottawa killer was not on the CSIS/RCMP priority watch list, which has precisely 93 names on it. However, he was a "person of interest" to the security services, and when he applied for a passport recently, they stalled the application out of fear that he planned to travel to Syria.
And a puzzling and sad note: his mother is a senior public servant in the Immigration Department. She had lost contact with her son for five years or more. Then, just a week ago, he showed up in Ottawa and they had lunch together.
As conservative governments go, Harper's Tories are something of an anomaly. Most right -wing governments will gleefully slash social programs, but tend to leave intact or even boost funding for activities that they see as core functions of government: a strong military, and a tough approach to law enforcement at home. The Harperites, however, in their deficit-slaying zeal, have taken the axe to those things too, leaving the military and the security services chronically underfunded.
That's why Canada's initial pledge of "up to 65" military training personnel to work with the Iraqi Army turned out in practice to be just 29 soldiers. It's why Canada's contribution to the air campaign against ISIS/ISIL consists of six thirty-year-old CF18s -- and it's why it may be necessary to send eight aircraft, to allow for cannibalization of parts as the planes become increasingly hard to maintain. In the international arena, Canada's foreign policy under Harper's direction is bellicose rather than belligerent -- Harper may talk the talk, but he's left the armed forces in a position where they can't walk the walk.
Lack of funding may also explain why this week's attacks were able to happen. The Canadian intelligence agency, CSIS, has a list of about 90 individuals who are perceived as domestic terrorist threats. Both of this week's killers were on that list*, but the agency lacked the funding to keep them under anything like proper surveillance. The only step that had been taken was to revoke their passports. This may have stopped them from traveling to Syria, but that simply meant that they carried out their homicidal urges closer to home.
There's more. The shooter in Ottawa was able to march right into the Central Block of the Parliament buildings. A couple of years ago, the Harper government was warned that security on Parliament Hill was scandalously lax -- it's much harder to gain access to most private office buildings than into the heart of the Canadian government. For budgetary reasons, nothing was done to beef up security in response to those warnings. As a result, the shooter got a long way into the building before he was shot, not by one of the security guards who belatedly appeared, but by the normally ceremonial Sergeant-at-Arms, a retired military man now being hailed as a hero.
None of this is meant in any way to pin the blame for this week's atrocities on Harper: that blame lies only with the two murderers who carried out the attacks. But it seems hard to deny that Harper's obsessive deficit cutting has left Canadians more vulnerable than they need to be. Harper has today pledged expeditious steps to tighten domestic anti-terrorism efforts. Too late, alas for Corporal Nathan Cirillo of Hamilton and Warrant Officer Patrice Vincent of St-Jean-sur-Richelieu. RIP.
* Update/correction, 24 October: It now turns out that the Ottawa killer was not on the CSIS/RCMP priority watch list, which has precisely 93 names on it. However, he was a "person of interest" to the security services, and when he applied for a passport recently, they stalled the application out of fear that he planned to travel to Syria.
And a puzzling and sad note: his mother is a senior public servant in the Immigration Department. She had lost contact with her son for five years or more. Then, just a week ago, he showed up in Ottawa and they had lunch together.
Monday 20 October 2014
The evil of three lessers
Watching the Toronto mayoral election from our safe vantage point on the south side of the lake has been a depressing experience, so thank the Lord there's only a week to go until polling day. It's hard to believe that a city of almost three million people is likely to elect one of the gruesome threesome who are leading in the opinion polls.
The best-known of the three is probably Doug Ford, who replaced his younger brother Rob on the ballot paper when Rob was diagnosed with an unusual form of cancer. Doug appears to have maintained his brother's support in the so-called "Ford Nation" (basically angry suburbanites) but has been unable to widen his appeal, if the polls are to be believed. His politics are virtually identical to his brother's -- "respect for taxpayers", implausible promises to build subways all over the place -- but he doesn't have Rob's odd likability. If you need a mnemonic to tell the Fords apart, then there's a rhyming one that will do just fine: for Rob and Doug, read Slob and Thug.
Doug also shares with his sibling an effortless, almost reflexive mendaciousness, even when lying serves no particular purpose. One example from the campaign will have to suffice. Responding to suggestions that he and his brother were borderline racists, Doug announced that this couldn't possibly be the case because his wife was Jewish. This came as a surprise to his audience -- and to his wife!
Close to Doug Ford on the ideological spectrum is John Tory, whose surname sums him up pretty well. If Doug Ford is new money (his father founded a successful manufacturing company). then Tory is old, establishment money. He's had a checkered career in business -- some successes but also one large failure -- but an entirely unsuccessful one in politics, having suffered several rejections when he's attempted to seek office in the past,
Tory's one and only notable campaign platform is a plan to build a commuter rail line dubbed SmartTrack to relieve Toronto's chronic congestion problems. It will be quite remarkable if this scheme propels him into office. For one thing, it's not really his idea: the Province has already announced plans for a much larger electrification of Toronto's regional rail network, including the lines Tory wants to use for SmartTrack. For another, to the extent that Tory has tweaked the Province's ideas for his own scheme, the changes are all for the worse. A quite pointless adjustment to one end of the route is almost certainly impossible to construct, especially in the 7-year timeframe Tory is promising, and his proposed financing technique (TIF or tax increment financing) is basically a shell game.
Opposing these two worthies from the left of the political spectrum is Olivia Chow. She started the campaign with a deep reservoir of voter goodwill, based on her long service on city council and the recent loss of her well-liked husband, the former Federal opposition leader Jack Layton. By virtue of a dithering, unfocused campaign and an occasional inability to make herself heard, she has squandered most of that support, and looks likely to finish behind both Tory and Ford on voting day.
One disappointment in watching Chow has been her lack of grace in dealing with her opponents. Again, one example will suffice. At one of the innumerable debates among the candidates, the moderator asked each participant to say something nice about one of their opponents. The other candidates managed this well enough, praising one another's commitment to the city, work ethic and such. When Chow was asked to say something positive about John Tory, all she could come up with was "he has an expensive suit and a very full Rolodex".
When the campaign started (back on January 2!!), there were some promising candidates in the field. Many have dropped out because of the expense of running such a long campaign and the difficulty of competing with the Ford family circus. There's one excellent candidate I'd be voting for if I were actually in Toronto (a left-leaning lawyer named Ari Goldberg) but the winner is going to be one of the three profiled above -- probably John Tory. Does Toronto deserve better? It's hard to argue that -- you tend to get the politicians you deserve. But it surely needs someone better.
The best-known of the three is probably Doug Ford, who replaced his younger brother Rob on the ballot paper when Rob was diagnosed with an unusual form of cancer. Doug appears to have maintained his brother's support in the so-called "Ford Nation" (basically angry suburbanites) but has been unable to widen his appeal, if the polls are to be believed. His politics are virtually identical to his brother's -- "respect for taxpayers", implausible promises to build subways all over the place -- but he doesn't have Rob's odd likability. If you need a mnemonic to tell the Fords apart, then there's a rhyming one that will do just fine: for Rob and Doug, read Slob and Thug.
Doug also shares with his sibling an effortless, almost reflexive mendaciousness, even when lying serves no particular purpose. One example from the campaign will have to suffice. Responding to suggestions that he and his brother were borderline racists, Doug announced that this couldn't possibly be the case because his wife was Jewish. This came as a surprise to his audience -- and to his wife!
Close to Doug Ford on the ideological spectrum is John Tory, whose surname sums him up pretty well. If Doug Ford is new money (his father founded a successful manufacturing company). then Tory is old, establishment money. He's had a checkered career in business -- some successes but also one large failure -- but an entirely unsuccessful one in politics, having suffered several rejections when he's attempted to seek office in the past,
Tory's one and only notable campaign platform is a plan to build a commuter rail line dubbed SmartTrack to relieve Toronto's chronic congestion problems. It will be quite remarkable if this scheme propels him into office. For one thing, it's not really his idea: the Province has already announced plans for a much larger electrification of Toronto's regional rail network, including the lines Tory wants to use for SmartTrack. For another, to the extent that Tory has tweaked the Province's ideas for his own scheme, the changes are all for the worse. A quite pointless adjustment to one end of the route is almost certainly impossible to construct, especially in the 7-year timeframe Tory is promising, and his proposed financing technique (TIF or tax increment financing) is basically a shell game.
Opposing these two worthies from the left of the political spectrum is Olivia Chow. She started the campaign with a deep reservoir of voter goodwill, based on her long service on city council and the recent loss of her well-liked husband, the former Federal opposition leader Jack Layton. By virtue of a dithering, unfocused campaign and an occasional inability to make herself heard, she has squandered most of that support, and looks likely to finish behind both Tory and Ford on voting day.
One disappointment in watching Chow has been her lack of grace in dealing with her opponents. Again, one example will suffice. At one of the innumerable debates among the candidates, the moderator asked each participant to say something nice about one of their opponents. The other candidates managed this well enough, praising one another's commitment to the city, work ethic and such. When Chow was asked to say something positive about John Tory, all she could come up with was "he has an expensive suit and a very full Rolodex".
When the campaign started (back on January 2!!), there were some promising candidates in the field. Many have dropped out because of the expense of running such a long campaign and the difficulty of competing with the Ford family circus. There's one excellent candidate I'd be voting for if I were actually in Toronto (a left-leaning lawyer named Ari Goldberg) but the winner is going to be one of the three profiled above -- probably John Tory. Does Toronto deserve better? It's hard to argue that -- you tend to get the politicians you deserve. But it surely needs someone better.
Thursday 16 October 2014
Climbing the wall
Global equity markets have been scaling the proverbial "wall of worry" for the last couple of weeks. Most major indexes are in or close to correction territory (falls of 10 percent or more), with the gains for the entire calendar year to date wiped out in the space of just a few sessions.
Looking around the world, maybe it's hard to be surprised by this. Sanctions on Russia, in response to the crisis in Ukraine, are weighing on already-weak European economies; ISIS/ISIL is threatening a conflagration in the entire Middle East; there are signs that the momentum in the Chinese economy has waned, which will inevitably rekindle fears over the solvency of the country's financial system; and now there's ebola, which could deliver a major hit to global growth if it were to get loose in one of the major economies.
Only the last of these is really new, however, and should not prove to be a major drag on growth unless the health authorities in the developed world really are as inept as they've seemed at times in the past couple of weeks. (Yes, we do mean you, Texas Health and the CDC). The other negatives have been known for many months, and yet markets had continued to move ahead regardless, until just recently. So what is it that's changed?
The factor that many analysts are choosing to focus on is the fall in oil prices. As an explanation for the current weakness, this needs to be treated with caution. Although the IEA has revised its crude oil demand forecast down slightly in recent days, it still expects demand for the year as a whole to be higher than a year ago. The signs of slowdown in the global economy are not so severe as to suggest that the anticipation of falling oil demand is behind the price weakness. Rising oil production, especially in the US, seems to be the root cause.
Is this really a negative for the US and other countries? It may weigh heavily on the share prices of oil companies (and it's potentially damaging for the oil patch here in Canada, with its abundance of expensive-to-produce crude), but it's a boon for the profitability of truckers, airlines and a whole host of other energy consuming sectors. And it's an even bigger boost for consumers, who are likely to see lower prices for gasoline, natural gas and even groceries in the coming months, which should stimulate real consumer demand.
If energy is not the main negative, then we're left to assume that the key factor may be the looming removal of monetary stimulus in the US and elsewhere -- what one analyst in the linked article refers to as "monetary morphine". The rise in equity markets in the past couple of years has always seemed out of line with the underlying strength of the global economy, fuelled by cheap money rather than real optimism about the outlook.
The big question now is whether the fall in equities will spook the Fed and other central banks into halting or even reversing their plans to unwind monetary stimulus -- a "Yellen put", if you will. The even bigger question for the longer term is whether failing to return monetary conditions to something more normal will set the stage for a rerun of the 2008 financial crisis, or something even worse, not too far down the road.
Looking around the world, maybe it's hard to be surprised by this. Sanctions on Russia, in response to the crisis in Ukraine, are weighing on already-weak European economies; ISIS/ISIL is threatening a conflagration in the entire Middle East; there are signs that the momentum in the Chinese economy has waned, which will inevitably rekindle fears over the solvency of the country's financial system; and now there's ebola, which could deliver a major hit to global growth if it were to get loose in one of the major economies.
Only the last of these is really new, however, and should not prove to be a major drag on growth unless the health authorities in the developed world really are as inept as they've seemed at times in the past couple of weeks. (Yes, we do mean you, Texas Health and the CDC). The other negatives have been known for many months, and yet markets had continued to move ahead regardless, until just recently. So what is it that's changed?
The factor that many analysts are choosing to focus on is the fall in oil prices. As an explanation for the current weakness, this needs to be treated with caution. Although the IEA has revised its crude oil demand forecast down slightly in recent days, it still expects demand for the year as a whole to be higher than a year ago. The signs of slowdown in the global economy are not so severe as to suggest that the anticipation of falling oil demand is behind the price weakness. Rising oil production, especially in the US, seems to be the root cause.
Is this really a negative for the US and other countries? It may weigh heavily on the share prices of oil companies (and it's potentially damaging for the oil patch here in Canada, with its abundance of expensive-to-produce crude), but it's a boon for the profitability of truckers, airlines and a whole host of other energy consuming sectors. And it's an even bigger boost for consumers, who are likely to see lower prices for gasoline, natural gas and even groceries in the coming months, which should stimulate real consumer demand.
If energy is not the main negative, then we're left to assume that the key factor may be the looming removal of monetary stimulus in the US and elsewhere -- what one analyst in the linked article refers to as "monetary morphine". The rise in equity markets in the past couple of years has always seemed out of line with the underlying strength of the global economy, fuelled by cheap money rather than real optimism about the outlook.
The big question now is whether the fall in equities will spook the Fed and other central banks into halting or even reversing their plans to unwind monetary stimulus -- a "Yellen put", if you will. The even bigger question for the longer term is whether failing to return monetary conditions to something more normal will set the stage for a rerun of the 2008 financial crisis, or something even worse, not too far down the road.
Friday 10 October 2014
Go figure!
The wild monthly gyrations in Canada's employment data continue. StatsCan reported today that the economy added 74,000 jobs in September, almost all of them full time. This was a much stronger result than most experts had predicted. However, the erratic nature of the employment data over the last several months, together with growing fears over the outlook for the global economy and commodity prices, warrants caution.
The most bizarre aspect of the previous month's employment report was StatsCan's claim that about 98,000 private sector jobs had been lost, the most for any single month in the history of the data, with an offsetting and equally unprecedented leap in self-employment offsetting most of the loss. Guess what? In September, StatsCan estimates that 130,000 private sector positions were created. Neither the August nor the September data seems to bear any resemblance to what can be observed in the economy -- there have been no major layoffs, but equally no big plant openings either.
It still looks as though there may be something amiss in StatsCan's data collection, or perhaps its seasonal adjustment techniques. Q3 is normally the time of the auto makers' model year switchover, which sometimes leads to workers being furloughed, but that wouldn't account for the reported jump in self-employment in August, which was largely reversed in September.
Unreliable data make it difficult for even the most plugged-in experts to forecast the future, and one such has today announced that it's throwing in the towel: the Bank of Canada! Governor Stephen Poloz has announced that the Bank will be dropping its "general market guidance" -- the use of terms like "easing bias" or "tightening bias" -- in the belief that doing so will help to reduce market volatility. Poloz's predecessor, Mark Carney, was big on guidance, but his attempts to introduce it at the Bank of England have backfired quite badly.
From now on, the BoC intends to lay out its analysis of the economy and let market participants draw their own conclusions. In principle this sounds like a good thing -- economists and analysts will have to examine the economic data, rather than carrying out an exegesis on Gov Poloz's pronouncements. It's a bit unfortunate, however, that the Bank is unveiling this new approach at a time when faith in StatsCan's data is as low as it's ever been.
The most bizarre aspect of the previous month's employment report was StatsCan's claim that about 98,000 private sector jobs had been lost, the most for any single month in the history of the data, with an offsetting and equally unprecedented leap in self-employment offsetting most of the loss. Guess what? In September, StatsCan estimates that 130,000 private sector positions were created. Neither the August nor the September data seems to bear any resemblance to what can be observed in the economy -- there have been no major layoffs, but equally no big plant openings either.
It still looks as though there may be something amiss in StatsCan's data collection, or perhaps its seasonal adjustment techniques. Q3 is normally the time of the auto makers' model year switchover, which sometimes leads to workers being furloughed, but that wouldn't account for the reported jump in self-employment in August, which was largely reversed in September.
Unreliable data make it difficult for even the most plugged-in experts to forecast the future, and one such has today announced that it's throwing in the towel: the Bank of Canada! Governor Stephen Poloz has announced that the Bank will be dropping its "general market guidance" -- the use of terms like "easing bias" or "tightening bias" -- in the belief that doing so will help to reduce market volatility. Poloz's predecessor, Mark Carney, was big on guidance, but his attempts to introduce it at the Bank of England have backfired quite badly.
From now on, the BoC intends to lay out its analysis of the economy and let market participants draw their own conclusions. In principle this sounds like a good thing -- economists and analysts will have to examine the economic data, rather than carrying out an exegesis on Gov Poloz's pronouncements. It's a bit unfortunate, however, that the Bank is unveiling this new approach at a time when faith in StatsCan's data is as low as it's ever been.
Wednesday 8 October 2014
You don't say!
The IMF is warning that low interest rates pose a potential threat to global financial stability, and hence to the entire global economy. In its Global Financial Stability Report, the Fund frets that low interest rates are leading investors to take on greater risks as they search for higher yielding assets. As a result, it believes that prices "in virtually all the major asset classes are simultaneously stretched". Consumer prices may not be rising, but then they weren't a decade ago either, when the Greenspan Fed allowed itself to believe that there was no harm in persisting with cheap money policies. We know how that ended up.
The Fund isn't just waking up to this, of course, but its warnings are definitely becoming a bit more urgent, if not yet panic-stricken. As a number of central bankers and others have admitted in the last couple of years, it was all very well and good to slash rates and pump money into the system to prevent an outright collapse, but nobody gave any real thought to how all of this would be unwound. There's no sign even now that any of the main central banks has a firm plan. The Fed has set the ball rolling by halting its QE program, but it's unclear whether Ms Yellen and her colleagues will continue to stay the course if the recent pullback in equity markets becomes more pronounced.
The US, UK and others have been happy over the years to brandish the IMF's advice like a cudgel at countries whose policies they disapproved of. It will be instructive to see whether they will be equally keen to follow its advice, now that they themselves are the ones coming under criticism.
The Fund isn't just waking up to this, of course, but its warnings are definitely becoming a bit more urgent, if not yet panic-stricken. As a number of central bankers and others have admitted in the last couple of years, it was all very well and good to slash rates and pump money into the system to prevent an outright collapse, but nobody gave any real thought to how all of this would be unwound. There's no sign even now that any of the main central banks has a firm plan. The Fed has set the ball rolling by halting its QE program, but it's unclear whether Ms Yellen and her colleagues will continue to stay the course if the recent pullback in equity markets becomes more pronounced.
The US, UK and others have been happy over the years to brandish the IMF's advice like a cudgel at countries whose policies they disapproved of. It will be instructive to see whether they will be equally keen to follow its advice, now that they themselves are the ones coming under criticism.
Monday 6 October 2014
ebollocks
The fact that there's a man close to death from ebola in a Dallas hospital is all Uncle Sam's fault. Mark Steyn says so, so it must be true.
America's favorite right-wing Canadian blowhard blames the situation on US border security. In his view, those cheery folks that you meet when you enter the country are too busy looking out for Kinder Surprise eggs and illicit bagpipes (really!) to spot a real threat like ebola when it's staring them in the face.
Except it wasn't staring them in the face, was it? When Thomas Duncan approached the immigration desk at Dulles, he wasn't showing any symptoms, and he wasn't yet infectious. Steyn comes up with all sorts of other reasons why he should have been refused admission, but truth to tell, he presented as a perfectly normal traveller on a routine family visit. For much the same reason, you can't really blame United Airlines. There was no reason to turn Duncan away when he checked in for his transatlantic flight in Brussels.
Texas Health Presbyterian hospital in Dallas, well that's another matter, though the startling incompetence or negligence shown there doesn't seem to trouble Mark Steyn. That's surprising, because a few years ago, when the SARS outbreak took a nasty toll in Toronto, Steyn was quick to blame the medics. Well, not the medics exactly: Steyn blamed Canada's "socialized" medical system for creating the conditions in which SARS could spread within the supposedly hygienic walls of a hospital. But Texas Health Presbyterian isn't "socialized", of course, so Steyn has had to direct his vitriol elsewhere, and it's the poor old border agents who are getting it in the neck this time.
Steyn's not the only one going gaga over ebola. CNN, never shy about spreading panic, rigged out a shouty doctor named Gilbert Mobley in a hazmat suit and sent him into the terminal at Atlanta airport before interviewing him on air. Mobley baldly accused the Center for Disease Control of lying about the risks the virus poses to Americans. Bizarrely, he claimed that dealing with the Thomas Duncan case had overwhelmed the health authorities in Dallas, before warning darkly about how bad things could get if ebola spread to a third world country such as Mexico.
That's no doubt true in theory, but is it sufficiently likely in practice to justify scaring people? The number of people travelling between the affected countries and Mexico or anywhere else in Central America must be microscopically small. Thomas Duncan made a deliberate choice to travel to the US when he knew he had come into contact with ebola, on the assumption (wrong, as it now appears) that he'd have access to good medical care there if he in fact came down with the disease. It's unlikely he, or anyone else back in Liberia contemplating a similar journey, weighed up the merits of flying to Mexico City or Guatemala City instead.
CNN was careful to advise its viewers that Mobley is not an expert on ebola. No surprise there: those good folks are putting their own health on the line in an effort to get the disease under control, so they're far too busy to take part in distasteful stunts at the world's busiest airport.
America's favorite right-wing Canadian blowhard blames the situation on US border security. In his view, those cheery folks that you meet when you enter the country are too busy looking out for Kinder Surprise eggs and illicit bagpipes (really!) to spot a real threat like ebola when it's staring them in the face.
Except it wasn't staring them in the face, was it? When Thomas Duncan approached the immigration desk at Dulles, he wasn't showing any symptoms, and he wasn't yet infectious. Steyn comes up with all sorts of other reasons why he should have been refused admission, but truth to tell, he presented as a perfectly normal traveller on a routine family visit. For much the same reason, you can't really blame United Airlines. There was no reason to turn Duncan away when he checked in for his transatlantic flight in Brussels.
Texas Health Presbyterian hospital in Dallas, well that's another matter, though the startling incompetence or negligence shown there doesn't seem to trouble Mark Steyn. That's surprising, because a few years ago, when the SARS outbreak took a nasty toll in Toronto, Steyn was quick to blame the medics. Well, not the medics exactly: Steyn blamed Canada's "socialized" medical system for creating the conditions in which SARS could spread within the supposedly hygienic walls of a hospital. But Texas Health Presbyterian isn't "socialized", of course, so Steyn has had to direct his vitriol elsewhere, and it's the poor old border agents who are getting it in the neck this time.
Steyn's not the only one going gaga over ebola. CNN, never shy about spreading panic, rigged out a shouty doctor named Gilbert Mobley in a hazmat suit and sent him into the terminal at Atlanta airport before interviewing him on air. Mobley baldly accused the Center for Disease Control of lying about the risks the virus poses to Americans. Bizarrely, he claimed that dealing with the Thomas Duncan case had overwhelmed the health authorities in Dallas, before warning darkly about how bad things could get if ebola spread to a third world country such as Mexico.
That's no doubt true in theory, but is it sufficiently likely in practice to justify scaring people? The number of people travelling between the affected countries and Mexico or anywhere else in Central America must be microscopically small. Thomas Duncan made a deliberate choice to travel to the US when he knew he had come into contact with ebola, on the assumption (wrong, as it now appears) that he'd have access to good medical care there if he in fact came down with the disease. It's unlikely he, or anyone else back in Liberia contemplating a similar journey, weighed up the merits of flying to Mexico City or Guatemala City instead.
CNN was careful to advise its viewers that Mobley is not an expert on ebola. No surprise there: those good folks are putting their own health on the line in an effort to get the disease under control, so they're far too busy to take part in distasteful stunts at the world's busiest airport.
Wednesday 1 October 2014
The cost of ebola
CNN is giving its customary wall-to-wall coverage to the news that a man in a Texas hospital has been diagnosed with ebola. He was turned away from the hospital when he presented himself showing symptoms, even though he told the nurse he had recently arrived from Liberia. He was only admitted when he arrived again in an ambulance several days later, much more seriously ill.
How, Wolf and Anderson are asking, could this possibly have happened?
Well, here's one possibility. The poor man is a Liberian national. If he couldn't make it past the triage nurse, could it have been because his credit card was found wanting?
Hope I'm wrong.
How, Wolf and Anderson are asking, could this possibly have happened?
Well, here's one possibility. The poor man is a Liberian national. If he couldn't make it past the triage nurse, could it have been because his credit card was found wanting?
Hope I'm wrong.
Tuesday 30 September 2014
Updating the anthem
There's a move afoot in Canada to amend the national anthem, O Canada, to remove a non-gender-inclusive phrase. The words "all thy sons" should, it's proposed, give way to "all of us". Seems unobjectionable, though you'd be amazed how many traditionalists (i.e. the Tory government in Ottawa) want to stick with the old words.
There's another issue here, though. Once you start picking away at the words, the whole anthem emerges as a viper's nest of problems. Let's go through it line by line.
O Canada, our home and native land.
Not any more it isn't! Canada's a country of immigrants, so it's not really the "native land" for a large percentage of the population. And while we're at it, a lot of Canadians live abroad, so when they sing the anthem, it's not really their home, is it?
True patriot love, in all thy sons command.
We've already agreed that the sexism has to go, but what about that word "patriot"? Patriotism is famously "the last refuge of a scoundrel", and that's surely not what we want to say about ourselves, is it?
With glowing hearts we see thee rise, the true north strong and free.
Whaddaya mean, north? The most populous parts of Canada lie south of large chunks of the United States. (For example, Toronto lies to the south of Seattle, Portland and Minneapolis). In addition, Canada lies south of most of the parts of Europe from which its white settlers came, including the pioneering French and English.
From far and wide O Canada we stand on guard for thee.
Clearly non-inclusive of folks with disabilities who are unable to stand when the anthem is sung. The "stand on guard" part is anachronistically militaristic too, especially with Canada spending so little on its armed forces these days.
God keep our land glorious and free, O Canada we stand on guard for thee.
Who dragged the Deity into this?? Clearly not appropriate in this more "enlightened" day and age!
So where does all of that leave us? Let's put it back together.
O Canada, our favourite patch of land
Warm sentiments in all of us command
With glowing hearts we see thee rise, a very big country
From far and wide O Canada
We gather 'round for thee
Let's hope our land stays glorious and free
O Canada we gather 'round for thee!
Inspiring, no? Think I should have a go at the French language version?
There's another issue here, though. Once you start picking away at the words, the whole anthem emerges as a viper's nest of problems. Let's go through it line by line.
O Canada, our home and native land.
Not any more it isn't! Canada's a country of immigrants, so it's not really the "native land" for a large percentage of the population. And while we're at it, a lot of Canadians live abroad, so when they sing the anthem, it's not really their home, is it?
True patriot love, in all thy sons command.
We've already agreed that the sexism has to go, but what about that word "patriot"? Patriotism is famously "the last refuge of a scoundrel", and that's surely not what we want to say about ourselves, is it?
With glowing hearts we see thee rise, the true north strong and free.
Whaddaya mean, north? The most populous parts of Canada lie south of large chunks of the United States. (For example, Toronto lies to the south of Seattle, Portland and Minneapolis). In addition, Canada lies south of most of the parts of Europe from which its white settlers came, including the pioneering French and English.
From far and wide O Canada we stand on guard for thee.
Clearly non-inclusive of folks with disabilities who are unable to stand when the anthem is sung. The "stand on guard" part is anachronistically militaristic too, especially with Canada spending so little on its armed forces these days.
God keep our land glorious and free, O Canada we stand on guard for thee.
Who dragged the Deity into this?? Clearly not appropriate in this more "enlightened" day and age!
So where does all of that leave us? Let's put it back together.
O Canada, our favourite patch of land
Warm sentiments in all of us command
With glowing hearts we see thee rise, a very big country
From far and wide O Canada
We gather 'round for thee
Let's hope our land stays glorious and free
O Canada we gather 'round for thee!
Inspiring, no? Think I should have a go at the French language version?
Friday 26 September 2014
Looking for inflation (in all the wrong places)
Bank of England Governor Mark Carney is warning that the day when the Bank starts raising interest rates is "getting closer". Well, duh. As my mother would have said, "so is Christmas", though there's the obvious difference that we know precisely when Christmas is going to arrive, whereas Carney is just being a tease. He's concerned that after more than half a decade of ultra-accommodative monetary policy, financial markets are becoming complacent and less risk-averse as they search for returns in a low-yield world. The same might be said to apply in real estate markets, in London and elsewhere.
If that's the case, then what's holding the BoE and other central banks back? As this article reporting a speech by Carney's new Deputy Governor makes clear, it's mostly the lack of any evidence that wage pressures are increasing. Fed Chair Janet Yellen has repeatedly made a similar point regarding the US. But why would anyone expect rising wage pressures? Unions have been forced on the defensive worldwide; labour laws have been amended in favour of employers; globalization means that corporations are constantly moving production from jurisdiction to jurisdiction in search of lower costs; firms are systematically replacing full-time jobs with part-time and contract positions. How are wages supposed to rise in these circumstances?
If the key drivers of wage trends were cyclical, then it would be appropriate for central banks to monitor labour markets closely and to warn of the need to tighten policy once signs emerged of wage cost pressures. As it is, all the evidence seems to suggest that what we are seeing is a sustained, secular fall in wages -- or, as it's increasingly commonly expressed, a long-term rise in income inequality. If this is the case, labour market trends are the wrong place for central bankers to focus on as they set monetary policy.
So where should they be looking instead? Here's a clue: when Carney made his statement-of-the-obvious, UK share prices promptly took a dive. For the last couple of years we have been living in a world in which asset prices (real estate as well as stocks) have been pushing ever higher, even though the vital signs of the world economy remain below par. As anyone who was watching aghast as the Greenspan era imploded could tell you, pumping money into the system creates an asset price bubble.
Are the central banks really going to make the same mistake again, so soon after cleaning up the mess from the last time? Global equity markets have suffered some sharp reverses in recent days, so we may soon find out. Carney, with his Ottawa-bred caution and with an eye on the hyper London property market, probably won't be swayed from his intent to start tightening within the next few months. But I'm not nearly so sure about his counterpart in Washington. What price the "Yellen put"?
If that's the case, then what's holding the BoE and other central banks back? As this article reporting a speech by Carney's new Deputy Governor makes clear, it's mostly the lack of any evidence that wage pressures are increasing. Fed Chair Janet Yellen has repeatedly made a similar point regarding the US. But why would anyone expect rising wage pressures? Unions have been forced on the defensive worldwide; labour laws have been amended in favour of employers; globalization means that corporations are constantly moving production from jurisdiction to jurisdiction in search of lower costs; firms are systematically replacing full-time jobs with part-time and contract positions. How are wages supposed to rise in these circumstances?
If the key drivers of wage trends were cyclical, then it would be appropriate for central banks to monitor labour markets closely and to warn of the need to tighten policy once signs emerged of wage cost pressures. As it is, all the evidence seems to suggest that what we are seeing is a sustained, secular fall in wages -- or, as it's increasingly commonly expressed, a long-term rise in income inequality. If this is the case, labour market trends are the wrong place for central bankers to focus on as they set monetary policy.
So where should they be looking instead? Here's a clue: when Carney made his statement-of-the-obvious, UK share prices promptly took a dive. For the last couple of years we have been living in a world in which asset prices (real estate as well as stocks) have been pushing ever higher, even though the vital signs of the world economy remain below par. As anyone who was watching aghast as the Greenspan era imploded could tell you, pumping money into the system creates an asset price bubble.
Are the central banks really going to make the same mistake again, so soon after cleaning up the mess from the last time? Global equity markets have suffered some sharp reverses in recent days, so we may soon find out. Carney, with his Ottawa-bred caution and with an eye on the hyper London property market, probably won't be swayed from his intent to start tightening within the next few months. But I'm not nearly so sure about his counterpart in Washington. What price the "Yellen put"?
Monday 22 September 2014
Memo to Tony Blair: just SHUT UP!
I figure that Tony Blair doesn't even blow his nose these days unless someone else is paying to launder his handkerchiefs, so I wonder who's funding his latest outburst. The moneygrubbing warmonger has posted an essay on his website arguing that western countries need to commit ground forces in order to defeat the ISIS/ISIL threat. Air power alone won't do it, says he. He was on the news networks this morning with a deeply furrowed brow, delivering the same message.
These people never learn, do they? Blair has never admitted that he and his pals in London and Washington faked the case for war against Saddam Hussein back in 2003. Still less has he ever shown any sign of realizing that it was that misbegotten war that set off the mess threatening to incinerate the entire Middle East right now.
If we're going to send anyone in on the ground against ISIS, I nominate Blair, Bush 43 and Dick Cheney as the first guys to strap on the parachutes. It's your mess, gentlemen, and if anyone's going to risk their lives in a futile attempt to clean it up, it should be you.
These people never learn, do they? Blair has never admitted that he and his pals in London and Washington faked the case for war against Saddam Hussein back in 2003. Still less has he ever shown any sign of realizing that it was that misbegotten war that set off the mess threatening to incinerate the entire Middle East right now.
If we're going to send anyone in on the ground against ISIS, I nominate Blair, Bush 43 and Dick Cheney as the first guys to strap on the parachutes. It's your mess, gentlemen, and if anyone's going to risk their lives in a futile attempt to clean it up, it should be you.
Friday 19 September 2014
Scotland's NO vote changes everything
The people of Scotland may have voted NO to independence in yesterday's referendum, but the UK will never be the same again, thanks to the panicked promises of additional devolution that Westminster-based politicians made in the final days of the campaign. As a very articulate Tory MP told Canada's news channel before the results were announced, the outcome of a NO vote stands to be much messier for the whole UK than a YES would ever have been.
As a veteran of two referenda in Quebec and one-time resident of the UK (and partner of a half-Scottish wife), I've blogged a number of times about the similarities between the Quebec and Scottish separatist movements. However, to understand why yesterday's vote will make things so complicated for the UK in the future, we need to look at the differences between the two cases.
The driving force behind the Quebec and Scottish nationalist movements is very different. In Quebec, it's all about ethnicity. Oh sure, the Parti Quebecois was once broadly left-leaning, but those days are gone. The recent Quebec provincial election, which the PQ hoped would set the stage for a third referendum, saw the party adopt a thoroughly nasty stance toward English Canada and the Province's own non-francophone minorities. Mercifully, this was soundly repudiated by the voters. In truth, however, the mean-spirited tone was nothing new: recall former PQ leader Jacques Parizeau's somewhat inebriated concession speech after the 1995 referendum, which began "Yes, it's true that we lost, but to what? To money and the ethnic vote".
In contrast, although there's obviously an ethnic underpinning to Scottish nationalism, the movement as it presently stands is much more about different ways of viewing the economy and society. Scots see themselves as much more collectively-minded than their neighbours to the South. There was a telling campaign placard that copped up late in the day: "Vote YES and be rid of the Tories for ever". Pro-YES supporters included groups like "South Asians for Scottish independence", something that could never be imagined in modern Quebec.
This is both good news and bad news for the UK government as it tries to deal with the post-referendum situation. In Quebec, ethnicity will always be a divisive issue, which is why the "neverendum" nightmare of repeated sovereignty votes remains a real possibility. In Scotland, it should in principle be possible to forestall a rerun of Thursday's vote by devolving the powers that Scotland needs in order to achieve the kind of society it wants, without overweening interference from London.
Here, however, we run up against the second key difference between the two cases: Canada is now and has always been a confederal state: its ten Provinces have broad-ranging powers which are jealously protected from interference by the Federal government. The UK has, until recently, been mostly a unitary state. The devolution of power over the last two decades has awarded vastly different degrees of autonomy to assemblies in Edinburgh, Cardiff and Belfast, with no comparable level of self-rule for England, which is by far the dominant entity, in terms of population and economic clout, within the UK.
One of the ways that Canadian federal governments have sought to combat Quebec nationalism has been to give the provincial government there additional powers that help to address the ethnic grievances of the francophone population. Thus Quebec is allowed to have its own language laws giving priority to the use of French; it has a degree of control over immigration to the Province; and its legal system is still based on the Code Napoleon rather than the English common law-based system in the rest of Canada. These rights -- characterized as Quebec's "distinct society" -- are largely cost-free for the rest of Canada, and do not threaten the basis of the federal system.
This would be all but impossible to reproduce in the UK without far-reaching reforms of the nation's entire governance. The powers devolved in the past to Scotland, Wales and Northern Ireland have already led to stirrings of discontent in the English regions. If, as now seems likely, Scotland gets a whole host of new taxing powers and control over social programs, this discontent can only grow. To take but one example, Scotland is likely to get the right to set its own corporate tax rate. Politicians in the north of England have already voiced concern that this will place them at a serious disadvantage in attracting new businesses or retaining existing ones.
Whatever specific powers are agreed for Scotland in the next few weeks, it's all but certain that Wales and Northern Ireland will also want the same for themselves. This would potentially leave England, while still the dominant partner in the Union, in a weakened position, unless a way is found to devolve similar powers to some form of English assembly. But how would that work? London's dominance of the national economy means that an assembly for the whole of England would be all but useless. London can fend for itself against all comers; Liverpool, Hull and Newcastle, not so much.
And then there's what's known as the "West Lothian question". As Scotland has acquired more powers, there has been a lively debate about whether Scottish MPs at Westminster should be allowed to vote on matters that only affect England. Deputy Prime Minister Nick Clegg has already said that this issue needs to be addressed as part of the next round of devolution. If all three of England's Celtic partners in the UK wind up with greater powers, answering the West Lothian question will become even more of a priority.
We've recently been learning in Canada, courtesy of the excellent Chantal Hebert, just how unprepared the Federal government was for the possibility of a YES vote in the 1995 Quebec referendum. Scotland may have voted NO this week, but it remains to be seen whether David Cameron's government is any better prepared to deal with the vastly changed world that it now faces.
As a veteran of two referenda in Quebec and one-time resident of the UK (and partner of a half-Scottish wife), I've blogged a number of times about the similarities between the Quebec and Scottish separatist movements. However, to understand why yesterday's vote will make things so complicated for the UK in the future, we need to look at the differences between the two cases.
The driving force behind the Quebec and Scottish nationalist movements is very different. In Quebec, it's all about ethnicity. Oh sure, the Parti Quebecois was once broadly left-leaning, but those days are gone. The recent Quebec provincial election, which the PQ hoped would set the stage for a third referendum, saw the party adopt a thoroughly nasty stance toward English Canada and the Province's own non-francophone minorities. Mercifully, this was soundly repudiated by the voters. In truth, however, the mean-spirited tone was nothing new: recall former PQ leader Jacques Parizeau's somewhat inebriated concession speech after the 1995 referendum, which began "Yes, it's true that we lost, but to what? To money and the ethnic vote".
In contrast, although there's obviously an ethnic underpinning to Scottish nationalism, the movement as it presently stands is much more about different ways of viewing the economy and society. Scots see themselves as much more collectively-minded than their neighbours to the South. There was a telling campaign placard that copped up late in the day: "Vote YES and be rid of the Tories for ever". Pro-YES supporters included groups like "South Asians for Scottish independence", something that could never be imagined in modern Quebec.
This is both good news and bad news for the UK government as it tries to deal with the post-referendum situation. In Quebec, ethnicity will always be a divisive issue, which is why the "neverendum" nightmare of repeated sovereignty votes remains a real possibility. In Scotland, it should in principle be possible to forestall a rerun of Thursday's vote by devolving the powers that Scotland needs in order to achieve the kind of society it wants, without overweening interference from London.
Here, however, we run up against the second key difference between the two cases: Canada is now and has always been a confederal state: its ten Provinces have broad-ranging powers which are jealously protected from interference by the Federal government. The UK has, until recently, been mostly a unitary state. The devolution of power over the last two decades has awarded vastly different degrees of autonomy to assemblies in Edinburgh, Cardiff and Belfast, with no comparable level of self-rule for England, which is by far the dominant entity, in terms of population and economic clout, within the UK.
One of the ways that Canadian federal governments have sought to combat Quebec nationalism has been to give the provincial government there additional powers that help to address the ethnic grievances of the francophone population. Thus Quebec is allowed to have its own language laws giving priority to the use of French; it has a degree of control over immigration to the Province; and its legal system is still based on the Code Napoleon rather than the English common law-based system in the rest of Canada. These rights -- characterized as Quebec's "distinct society" -- are largely cost-free for the rest of Canada, and do not threaten the basis of the federal system.
This would be all but impossible to reproduce in the UK without far-reaching reforms of the nation's entire governance. The powers devolved in the past to Scotland, Wales and Northern Ireland have already led to stirrings of discontent in the English regions. If, as now seems likely, Scotland gets a whole host of new taxing powers and control over social programs, this discontent can only grow. To take but one example, Scotland is likely to get the right to set its own corporate tax rate. Politicians in the north of England have already voiced concern that this will place them at a serious disadvantage in attracting new businesses or retaining existing ones.
Whatever specific powers are agreed for Scotland in the next few weeks, it's all but certain that Wales and Northern Ireland will also want the same for themselves. This would potentially leave England, while still the dominant partner in the Union, in a weakened position, unless a way is found to devolve similar powers to some form of English assembly. But how would that work? London's dominance of the national economy means that an assembly for the whole of England would be all but useless. London can fend for itself against all comers; Liverpool, Hull and Newcastle, not so much.
And then there's what's known as the "West Lothian question". As Scotland has acquired more powers, there has been a lively debate about whether Scottish MPs at Westminster should be allowed to vote on matters that only affect England. Deputy Prime Minister Nick Clegg has already said that this issue needs to be addressed as part of the next round of devolution. If all three of England's Celtic partners in the UK wind up with greater powers, answering the West Lothian question will become even more of a priority.
We've recently been learning in Canada, courtesy of the excellent Chantal Hebert, just how unprepared the Federal government was for the possibility of a YES vote in the 1995 Quebec referendum. Scotland may have voted NO this week, but it remains to be seen whether David Cameron's government is any better prepared to deal with the vastly changed world that it now faces.
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