Nicholas Kristoff had a column in the NYT recently that bemoaned the likely course of US economic policy in the event that Mitt Romney were to win the election. He argued, on supposedly Keynesian grounds, that strict austerity would be exactly the wrong course for the US to follow at this time.
There are at least three points to be made here.
First, assuming that the new administration can get past the looming "fiscal cliff", there's a broad consensus that the US economic outlook through 2013 and beyond is looking much rosier. A genuine recovery seems to be getting underway. This is starting to look like a good election to win: the next President, whoever he may be, will be able to claim credit for the rebound, setting the stage for the same party to win again in 2016.
Second, Kristoff surely doesn't believe that Romney will actually start hacking away at government spending if he takes over the White House. Over the past three decades or so, Republicans have had a much worse record of fiscal irresponsibility than Democrats, at least until the financial crisis forced Barack Obama's hand back in 2009. See this earlier post for a fascinating illustration (not by me!) of this point.
Third, Kristoff misleads when he cites current events in Europe in support of his anti-austerity argument. He states that the UK economy is contracting this year. This was true in the first half of the year, but recently released GDP data for Q3 showed a sharp rebound in growth, sufficient to recoup all of the output lost in the preceding three quarters of "double dip recession". In fact, Kristoff has missed a real opportunity here. The Q3 bounce owed a lot to the massive expenditure on the London Olympic Games, so if he had got his facts straight, he would have been able to use the recent path of the UK economy as strong evidence that fiscal stimulus can work.
Kristoff's article has made me wonder for the first time if he and some of the other Keynesian policy wonks, including Paul Krugman, are continuing to fight the last war when there's a new war beginning. You wouldn't know it from listening to these folks, but the Obama administration's response to the financial crisis was Keynesianism on steroids. If a genuine recovery is getting under way, policy discussion in the US should at least be starting to focus on how and when to remove the extraordinary amount of stimulus that's currently in place. Somehow, Keynesians never seem to be quite as vocal about that as they are about initiating the stimulus in the first place.
Monday, 5 November 2012
Friday, 2 November 2012
Trying to have it both ways
Canada's attitude to foreign ownership of the country's major industries has generally fluctuated between suspicion and outright hostility. Many years ago, the old Foreign Investment Review Agency (FIRA) was a byword for economic xenophobia. FIRA is long gone, but the Federal government maintains -- and does not hesitate to use -- the power to rule on whether proposed foreign investments are in the national interest. Some sectors of the economy are off-limits to foreigners altogether: banking, for example. Foreign involvement in that industry is tightly regulated, even as Canadian banks go on acquisition sprees abroad. My own former employer, Toronto Dominion, now has more branches in the US than in Canada, yet Canadians would never tolerate a US bank building up such a position within Canada.
In the past, the main concern for Canadian policymakers was to prevent excessive US control over the domestic economy. Nowadays, the would-be investors come from further afield. Last year, the Canadian government attracted international opprobrium for turning down the proposed acquisition of Potash Corp. by BHP Billiton of Australia. Currently there are at least two major deals awaiting the Federal nod, both in the petroleum sector. A proposed takeover of Progress Energy by Petronas of Malaysia has already been turned down, though the Government has given Petronas an opportunity to make fresh representations. Also pending is a megadeal for CNOOC of China to purchase Nexen Inc.
The Government is stalling on making a final decision on the CNOOC-Nexen deal, supposedly on the grounds that it wants at the time it announces its decision also to set out its general approach to foreign ownership. (Prediction: it will be ambiguous). The fact that an authentically right-wing government like the current one in Ottawa has to agonize over this is the clearest possible indication of the level of public hostility that still exists towards foreign investors.
An added complication is the rise of sovereign wealth funds, in countries from China to the Middle East, who are constantly on the lookout for investment opportunities in Canada and elsewhere. Here's the thing, though: Canada has its own equivalent of the sovereign wealth funds, in the shape of the massive public sector pension funds of the larger Provinces, notably Ontario and Quebec. These funds are enthusiastic buyers of foreign assets, especially in the UK, where they own stakes in the Channel Tunnel and various airports -- the type of assets that Canadian governments of almost any stripe would almost certainly place off-limits for foreign buyers.
Time to grow up, perhaps? When Canadian banks are hoovering up branch networks across the US, and Canadian pension funds are buying up strategic assets in Europe, maybe the government should try to offer comparable treatment to companies wanting to bring money into Canada. That would take a bit of courage: the tone of public debate on the CNOOC/Nexen deal, in particular, shows that Canadians still want to keep foreign investors well away from the "commanding heights" of the economy.
In the past, the main concern for Canadian policymakers was to prevent excessive US control over the domestic economy. Nowadays, the would-be investors come from further afield. Last year, the Canadian government attracted international opprobrium for turning down the proposed acquisition of Potash Corp. by BHP Billiton of Australia. Currently there are at least two major deals awaiting the Federal nod, both in the petroleum sector. A proposed takeover of Progress Energy by Petronas of Malaysia has already been turned down, though the Government has given Petronas an opportunity to make fresh representations. Also pending is a megadeal for CNOOC of China to purchase Nexen Inc.
The Government is stalling on making a final decision on the CNOOC-Nexen deal, supposedly on the grounds that it wants at the time it announces its decision also to set out its general approach to foreign ownership. (Prediction: it will be ambiguous). The fact that an authentically right-wing government like the current one in Ottawa has to agonize over this is the clearest possible indication of the level of public hostility that still exists towards foreign investors.
An added complication is the rise of sovereign wealth funds, in countries from China to the Middle East, who are constantly on the lookout for investment opportunities in Canada and elsewhere. Here's the thing, though: Canada has its own equivalent of the sovereign wealth funds, in the shape of the massive public sector pension funds of the larger Provinces, notably Ontario and Quebec. These funds are enthusiastic buyers of foreign assets, especially in the UK, where they own stakes in the Channel Tunnel and various airports -- the type of assets that Canadian governments of almost any stripe would almost certainly place off-limits for foreign buyers.
Time to grow up, perhaps? When Canadian banks are hoovering up branch networks across the US, and Canadian pension funds are buying up strategic assets in Europe, maybe the government should try to offer comparable treatment to companies wanting to bring money into Canada. That would take a bit of courage: the tone of public debate on the CNOOC/Nexen deal, in particular, shows that Canadians still want to keep foreign investors well away from the "commanding heights" of the economy.
Thursday, 1 November 2012
Clear as mud
According to our local freesheet, the Niagara Advance, this area used to be one of the traffic accident capitals of Canada. In recent years, however, strenuous efforts by the town's highways department have brought the accident rate down to much more acceptable levels.
One thing that doesn't help is the naming of the rural roads, which dates back to the time a couple of centuries ago when the land was first surveyed and subdivided. Here's the list from the "Advance" of the most dangerous rural intersections in Niagara on the Lake; I swear I am not making this up:
Concession 1 at Line 2
Concession 1 at Line 3
Concession 1 at Line 6
Concession 2 at Line 1
Concession 2 at Line 2
Concession 2 at Line 3
And here's the first priority for further improvements to get the accident rate even lower:
"Add advance street name signs to intersection advance warning signs and stop-ahead signs, to allow drivers to make navigation decisions before reaching the intersection, as a benefit to drivers who aren't local".
Is the "Advance" suggesting that drivers might be finding it tough to figure out their way around the area? I can't imagine why that should be the case.
One thing that doesn't help is the naming of the rural roads, which dates back to the time a couple of centuries ago when the land was first surveyed and subdivided. Here's the list from the "Advance" of the most dangerous rural intersections in Niagara on the Lake; I swear I am not making this up:
Concession 1 at Line 2
Concession 1 at Line 3
Concession 1 at Line 6
Concession 2 at Line 1
Concession 2 at Line 2
Concession 2 at Line 3
And here's the first priority for further improvements to get the accident rate even lower:
"Add advance street name signs to intersection advance warning signs and stop-ahead signs, to allow drivers to make navigation decisions before reaching the intersection, as a benefit to drivers who aren't local".
Is the "Advance" suggesting that drivers might be finding it tough to figure out their way around the area? I can't imagine why that should be the case.
Monday, 29 October 2012
Phoney Tony wants a new job
Tony Blair says the EU needs an elected President. I wonder if he has any candidates in mind.
Storm surge
The news media in these parts are giving wall-to-wall coverage to the "Frankenstorm", Hurricane Sandy, which is headed for Southern Ontario by way of Atlantic City. This morning the three nice folks who hector me at breakfast time from our local talk radio station, CKTB, were expressing amazement at the reaction of some of the locals.
It seems that during the weekend, the Mayor of Niagara Falls ventured to suggest that if citizens happened to see a buildup of fallen leaves blocking the storm drains, they might consider shovelling them out of the way in order to avoid flooding when the predicted rains arrive. Cue outrage, on the lines of "I pay my taxes, why should I have to keep the storm drains clear?"
With a natural disaster looming, I don't think I'd be inclined to stand too firmly on that point of principle. If one of these anti-social types suffers a heart attack during the storm, you wonder how they'll feel if their neighbour refuses to offer first aid, on the basis that "we pay taxes for doctors and nurses to do that kind of thing".
Further thoughts, 30 October:
* Just to show not all Canadians are like Outraged of Niagara Falls, the Toronto local newscast yesterday evening showed a resident of the low-lying Beach neighbourhood using a snow shovel to clear leaves from storm drains all around the area -- well done that man!
* Amid all the mayhem, a small miracle courtesy of Hurricane Sandy. The usually insufferable Piers Morgan was on CNBC in his usual mid-evening slot yesterday, anchoring the coverage of the storm, and managed to do a good job -- none of the customary smirking and bombast. Bet it won't last!
It seems that during the weekend, the Mayor of Niagara Falls ventured to suggest that if citizens happened to see a buildup of fallen leaves blocking the storm drains, they might consider shovelling them out of the way in order to avoid flooding when the predicted rains arrive. Cue outrage, on the lines of "I pay my taxes, why should I have to keep the storm drains clear?"
With a natural disaster looming, I don't think I'd be inclined to stand too firmly on that point of principle. If one of these anti-social types suffers a heart attack during the storm, you wonder how they'll feel if their neighbour refuses to offer first aid, on the basis that "we pay taxes for doctors and nurses to do that kind of thing".
Further thoughts, 30 October:
* Just to show not all Canadians are like Outraged of Niagara Falls, the Toronto local newscast yesterday evening showed a resident of the low-lying Beach neighbourhood using a snow shovel to clear leaves from storm drains all around the area -- well done that man!
* Amid all the mayhem, a small miracle courtesy of Hurricane Sandy. The usually insufferable Piers Morgan was on CNBC in his usual mid-evening slot yesterday, anchoring the coverage of the storm, and managed to do a good job -- none of the customary smirking and bombast. Bet it won't last!
Thursday, 25 October 2012
UK economy bounces back: that's got to be bad news!
The UK economy emerged from its "double dip" recession in Q3, posting much better than expected GDP growth of 1% over the previous quarter. So everything in the garden's lovely now, right? Well, no, actually. If you're determined to be pessimistic, there are now two things for you to worry about. Choose your poison!
First, since much of the expansion in the latest quarter was directly attributable to the impact of the London Olympic Games, the economy is bound to come to a screeching halt now that the Games are receding into the past: bring on the triple dip! Unconvinced? Well how about this alternative scenario: if the economy really is getting its groove back, as George Osborne would certainly like to believe, then the UK must be in for a fearsome bout of inflation because of all that QE-created money sloshing about the place.
The simple fact is that in one quarter, the UK economy has recouped all of the loss in GDP sustained during the much-hyped double dip. That should be cause for celebration, but you'd never know it from most of the media commentary, or from the reaction of trade bodies like the British Chambers of Commerce. A small cheer, then, for Iain Martin over at the Telegraph website, for trying to see the brighter side of the situation. However, I fear it's going to take a lot more good news to dispel the economic pessimism that has become so pervasive over the last few months, not just in the UK but throughout the world.
First, since much of the expansion in the latest quarter was directly attributable to the impact of the London Olympic Games, the economy is bound to come to a screeching halt now that the Games are receding into the past: bring on the triple dip! Unconvinced? Well how about this alternative scenario: if the economy really is getting its groove back, as George Osborne would certainly like to believe, then the UK must be in for a fearsome bout of inflation because of all that QE-created money sloshing about the place.
The simple fact is that in one quarter, the UK economy has recouped all of the loss in GDP sustained during the much-hyped double dip. That should be cause for celebration, but you'd never know it from most of the media commentary, or from the reaction of trade bodies like the British Chambers of Commerce. A small cheer, then, for Iain Martin over at the Telegraph website, for trying to see the brighter side of the situation. However, I fear it's going to take a lot more good news to dispel the economic pessimism that has become so pervasive over the last few months, not just in the UK but throughout the world.
Tuesday, 23 October 2012
The flipside of Coyne
James Coyne, who was Governor of the Bank of Canada from 1955 to 1961, passed away earlier this month in Winnipeg at the venerable age of 102. Coyne is best remembered for a territorial dispute with the government of John G. Diefenbaker and his Finance Minister, Donald Fleming, a dispute that has passed into history as the "Coyne affair". The Chief wanted the Bank to do more to stimulate the flagging Canadian economy; the Governor refused. Coyne then voted himself a big pension increase (!), at which point an enraged government passed a law declaring the position of Bank governor vacant (!!).
Coyne resigned the next day, but in effect won the battle for Bank autonomy, as his chosen successor, Louis Rasminsky, refused to take up the post until he was assured he would be free from government interference. Coyne, then, can be seen as a standard-bearer for the breed of aloof and untouchable central bank head that became commonplace by the end of the last century. Recall that it was only in 1997, with the election of the Blair government, that the Bank of England finally achieved full operational independence.
In fact, Coyne was even more of a fore-runner of the modern central banker than the bare bones story above would suggest. Although the common recollection is that he quit over the principle of Bank independence, his disputes with the government of the day were much more wide-ranging. Dief and Fleming were anxious to use loose fiscal policy to boost the economy. Coyne opposed this, and did not hesitate to make his views public, thereby straying well beyond the established limits of his responsibility.
Forty years after the Coyne affair, it had become commonplace for central bank heads to pontificate about anything and everything. None took advantage of the bully pulpit more actively than Fed Chairman Alan Greenspan. The Maestro was vehemently opposed to what he perceived as lax fiscal policy during the Clinton years, yet did a remarkable swerve to offer full public support for major tax cuts when the Bush Jr. administration came to office. Without Greenspan's intervention those tax cuts, which paved the way for the dire fiscal mess the US finds itself in today, might never have been enacted.
The noughties, then, were the apotheosis of the independent central banker, from Washington to Frankfurt to London. How do you think that went? It's not hard to make the case that, in sitting by and watching as the greatest asset bubble in history formed, the central bankers suffered one of the most remarkable collective failures, either of intellect or of will, in modern times. So, it should be said, did the politicians, analysts and economists who mostly acted as cheerleaders even as the excesses reached absurd proportions; but it's the central bankers, who are tasked with preventing this kind of nonsense, who must take most of the blame.
We live in world where a sports coach can get fired if his team loses two games in a row, but remarkably, no such fate has befallen the central bankers. Ben Bernanke at the Fed? Still in post. Mervyn King at the Bank of England? Ditto. Jean Claude Trichet at the ECB? Moved smoothly into a comfortable retirement at the end of his assigned term. Having wrought the crisis, the same gang has been given the job of fixing it.
There isn't even much discussion of altering the powers of the central banks, aside from some extremist mutterings in the US, where there is always an audience for Fed-bashing. (Hi there, Ron Paul!) Indeed, both the Bank of England and the ECB are in the process of gaining additional powers. A number of years ago, the former UK Chancellor, Ken Clarke, would occasionally muse out loud about how things were better when UK politicians could push the BoE around a bit. There's very little sympathy for that view these days, even though it's hard to see how even the most feckless of politicians could have arranged things much worse that the "professionals" at the central banks did in the half-decade or so before the financial crisis.
It seems evident that the complexity and inter-dependence of financial markets has made central banking an almost impossible job. The professionals at the banks have to run hard to keep up with the pace of innovation, while the politicians, having rid themselves of responsibility for this crucial but treacherous area of public policy, have no desire to get back in the firing line. It's hard to imagine that this is what James Coyne envisaged when he squared off with John Diefenbaker, but he's part of the long history that has brought us to where we are today.
Coyne resigned the next day, but in effect won the battle for Bank autonomy, as his chosen successor, Louis Rasminsky, refused to take up the post until he was assured he would be free from government interference. Coyne, then, can be seen as a standard-bearer for the breed of aloof and untouchable central bank head that became commonplace by the end of the last century. Recall that it was only in 1997, with the election of the Blair government, that the Bank of England finally achieved full operational independence.
In fact, Coyne was even more of a fore-runner of the modern central banker than the bare bones story above would suggest. Although the common recollection is that he quit over the principle of Bank independence, his disputes with the government of the day were much more wide-ranging. Dief and Fleming were anxious to use loose fiscal policy to boost the economy. Coyne opposed this, and did not hesitate to make his views public, thereby straying well beyond the established limits of his responsibility.
Forty years after the Coyne affair, it had become commonplace for central bank heads to pontificate about anything and everything. None took advantage of the bully pulpit more actively than Fed Chairman Alan Greenspan. The Maestro was vehemently opposed to what he perceived as lax fiscal policy during the Clinton years, yet did a remarkable swerve to offer full public support for major tax cuts when the Bush Jr. administration came to office. Without Greenspan's intervention those tax cuts, which paved the way for the dire fiscal mess the US finds itself in today, might never have been enacted.
The noughties, then, were the apotheosis of the independent central banker, from Washington to Frankfurt to London. How do you think that went? It's not hard to make the case that, in sitting by and watching as the greatest asset bubble in history formed, the central bankers suffered one of the most remarkable collective failures, either of intellect or of will, in modern times. So, it should be said, did the politicians, analysts and economists who mostly acted as cheerleaders even as the excesses reached absurd proportions; but it's the central bankers, who are tasked with preventing this kind of nonsense, who must take most of the blame.
We live in world where a sports coach can get fired if his team loses two games in a row, but remarkably, no such fate has befallen the central bankers. Ben Bernanke at the Fed? Still in post. Mervyn King at the Bank of England? Ditto. Jean Claude Trichet at the ECB? Moved smoothly into a comfortable retirement at the end of his assigned term. Having wrought the crisis, the same gang has been given the job of fixing it.
There isn't even much discussion of altering the powers of the central banks, aside from some extremist mutterings in the US, where there is always an audience for Fed-bashing. (Hi there, Ron Paul!) Indeed, both the Bank of England and the ECB are in the process of gaining additional powers. A number of years ago, the former UK Chancellor, Ken Clarke, would occasionally muse out loud about how things were better when UK politicians could push the BoE around a bit. There's very little sympathy for that view these days, even though it's hard to see how even the most feckless of politicians could have arranged things much worse that the "professionals" at the central banks did in the half-decade or so before the financial crisis.
It seems evident that the complexity and inter-dependence of financial markets has made central banking an almost impossible job. The professionals at the banks have to run hard to keep up with the pace of innovation, while the politicians, having rid themselves of responsibility for this crucial but treacherous area of public policy, have no desire to get back in the firing line. It's hard to imagine that this is what James Coyne envisaged when he squared off with John Diefenbaker, but he's part of the long history that has brought us to where we are today.
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