Elizabeth May is the leader of Canada's Green Party and is currently the party's only MP in Ottawa. She recently announced her engagement to a gent named John Kidder, who happens to be the brother of the Canadian actress Margot Kidder.
Here's a little piece from the Toronto Star about the upcoming nuptials. As you might expect, May is promising that it will be "a low-carbon wedding". That's just as well, because if you read the entire story, you'll find that the happy couple recently jetted from Vancouver to Poland to attend a climate conference. Then they came straight home, right? Well no, actually -- they hopped another jet down to Sicily for a little private time. I'm guessing they're not voyaging home from there by sailing ship or rowboat.
Congratulations to Ms May on her engagement -- but she's going to have to stay awfully close to home for a good long time just to get her carbon footprint down to the level of the ordinary folk she aspires to lead. No exotic honeymoon for you, John and Elizabeth! And maybe cut back on the four far-flung homes the two of you currently divide your time among. It's only fair.
Monday, 31 December 2018
Thursday, 27 December 2018
Yawn! Not again!
A new survey by Canadian Imperial Bank of Commerce has found that Canadians say their #1 financial priority for 2019 is (drum-roll please)....paying down debt.
This is the ninth year in a row that debt reduction has topped the list, and if you've been reading this blog for a while you'll know that what's actually happened in each of those nine years is that household debt burdens have moved ever higher.
I think the only comment I need make here is, I'll believe it when I see it.
This is the ninth year in a row that debt reduction has topped the list, and if you've been reading this blog for a while you'll know that what's actually happened in each of those nine years is that household debt burdens have moved ever higher.
I think the only comment I need make here is, I'll believe it when I see it.
Monday, 24 December 2018
Galbraith--me--Keynes
The great Canadian economist John Kenneth Galbraith once said that economists didn't make forecasts because they thought they could predict the future; they made forecasts because people asked them to. That was certainly the case during my own career: predicting the inherently unknowable was a big part of the job. Still, you have to wonder who asks the economists at Canada's Department to Finance to do this: a long-term economic and fiscal projection.
The introduction notes that projections over several decades are subject to "a fair degree of uncertainty". That's putting it mildly, and it may explain why the updates to these projections are always snuck out just as Santa is loading up the old sleigh. The projections don't get a lot of media attention, although one wire service solemnly reported that the federal budget deficit was now forecast to disappear in 2040, "five years sooner than was projected last year".
There are things you can reasonably forecast for the long term. For any country, the rate of real GDP growth will oscillate around a base level dictated by the growth in the labour force and the rate of productivity gains. The first of those is certainly reasonably predictable, and it's quite reasonable to approximate productivity growth by extrapolating past trends, which is not, by the way, particularly good news for Canada. It's also not a stretch to assume that the inflation-targeting approach in place for the last two decades will be maintained, which can be layered onto the real GDP forecast to come up with a defensible projection for nominal GDP growth.
So far, so good. It's when you get into the fiscal policy forecasts that the trouble starts. Budget making is political. Canada faces a Federal election in 2019 and, assuming that the pattern of elections every four years is maintained, will see a total of six elections by 2040 when, if you recall, the deficit is now projected to fall to zero. That means there are six occasions on which a wrenching change in the direction of fiscal policy might occur, throwing even short term forecasts, let alone long term projections, into disarray.
Just look back a recent history. The Stephen Harper Tory government had been devoted to balanced budgets. Justin Trudeau decided almost on the spur of the moment during the 2015 election campaign to pledge a return to deficit financing for a limited time to boost the economy, a pledge that he believes won him the election.
In office, the Trudeaucrats have abandoned the "limited time" part of that pledge; there is now no timetable for a return to balance. The main opposition leader, a right-wing Tory lightweight named Andrew Scheer, will surely fight the 2019 election on a platform of fiscal responsibility. That got Doug Ford elected in Ontario, so you can't bet against it working at the national level, and if that happens, all current bets are off.
If there's that much uncertainty over the possible impact of an election that's ten months away, how can you even conceive of forecasting the next five elections after that? Now of course, the Department of Finance carefully spells out the assumptions it uses to generate its results, but they're basically all of a "steady as she goes" nature. Given the ever-widening gap between left and right wing policy approaches nowadays, it seems very unlikely that will be the case.
I started with a quote from an eminent three-named economist, so let's finish the same way. John Maynard Keynes once remarked, a propos of long term forecasting, "In the long run we are all dead". And on that cheerful note, let me wish everyone who has stopped by this blog during the past year a happy Christmas and a safe and prosperous new year!
The introduction notes that projections over several decades are subject to "a fair degree of uncertainty". That's putting it mildly, and it may explain why the updates to these projections are always snuck out just as Santa is loading up the old sleigh. The projections don't get a lot of media attention, although one wire service solemnly reported that the federal budget deficit was now forecast to disappear in 2040, "five years sooner than was projected last year".
There are things you can reasonably forecast for the long term. For any country, the rate of real GDP growth will oscillate around a base level dictated by the growth in the labour force and the rate of productivity gains. The first of those is certainly reasonably predictable, and it's quite reasonable to approximate productivity growth by extrapolating past trends, which is not, by the way, particularly good news for Canada. It's also not a stretch to assume that the inflation-targeting approach in place for the last two decades will be maintained, which can be layered onto the real GDP forecast to come up with a defensible projection for nominal GDP growth.
So far, so good. It's when you get into the fiscal policy forecasts that the trouble starts. Budget making is political. Canada faces a Federal election in 2019 and, assuming that the pattern of elections every four years is maintained, will see a total of six elections by 2040 when, if you recall, the deficit is now projected to fall to zero. That means there are six occasions on which a wrenching change in the direction of fiscal policy might occur, throwing even short term forecasts, let alone long term projections, into disarray.
Just look back a recent history. The Stephen Harper Tory government had been devoted to balanced budgets. Justin Trudeau decided almost on the spur of the moment during the 2015 election campaign to pledge a return to deficit financing for a limited time to boost the economy, a pledge that he believes won him the election.
In office, the Trudeaucrats have abandoned the "limited time" part of that pledge; there is now no timetable for a return to balance. The main opposition leader, a right-wing Tory lightweight named Andrew Scheer, will surely fight the 2019 election on a platform of fiscal responsibility. That got Doug Ford elected in Ontario, so you can't bet against it working at the national level, and if that happens, all current bets are off.
If there's that much uncertainty over the possible impact of an election that's ten months away, how can you even conceive of forecasting the next five elections after that? Now of course, the Department of Finance carefully spells out the assumptions it uses to generate its results, but they're basically all of a "steady as she goes" nature. Given the ever-widening gap between left and right wing policy approaches nowadays, it seems very unlikely that will be the case.
I started with a quote from an eminent three-named economist, so let's finish the same way. John Maynard Keynes once remarked, a propos of long term forecasting, "In the long run we are all dead". And on that cheerful note, let me wish everyone who has stopped by this blog during the past year a happy Christmas and a safe and prosperous new year!
Wednesday, 19 December 2018
Donald won't like it
As expected, the US Federal Reserve announced a 25 basis point increase in the funds rate target today. Earlier this week, Donald Trump had suggested it was crazy for the Fed even to be thinking about a further rate hike; evidently Trump is starting to worry that the economy is turning sour, taking away one of the key "achievements" he likes to brag about.
It probably wouldn't do any good to point this out to Trump, but let's say it anyway. By calling on the Fed not to hike rates, Trump made it just about impossible for the Fed not to do so. Even if there had been some Fed governors inclined to hold rate stable for now, Trump's intervention effectively ruled that out. The market's reaction if it ever began to suspect that monetary policy was being set from the Oval Office really doesn't bear thinking about.
A lot of market-watchers have been focused less on today's decision, which was basically seen as a done deal, and more on what clues the Fed might offer about its actions in 2019. Not many, it turns out: considering the wild gyrations in the stock market, the collapse of oil prices and the ongoing trade tensions between the US and just about everybody, the statement is remarkably anodyne. Risks to the outlook are generally balanced, so future decisions will be data-dependent. Begging Donald Trump's pardon, there will probably be further tightening in 2019, but the pace is likely to slow down considerably from what we have seen in the last little while.
It probably wouldn't do any good to point this out to Trump, but let's say it anyway. By calling on the Fed not to hike rates, Trump made it just about impossible for the Fed not to do so. Even if there had been some Fed governors inclined to hold rate stable for now, Trump's intervention effectively ruled that out. The market's reaction if it ever began to suspect that monetary policy was being set from the Oval Office really doesn't bear thinking about.
A lot of market-watchers have been focused less on today's decision, which was basically seen as a done deal, and more on what clues the Fed might offer about its actions in 2019. Not many, it turns out: considering the wild gyrations in the stock market, the collapse of oil prices and the ongoing trade tensions between the US and just about everybody, the statement is remarkably anodyne. Risks to the outlook are generally balanced, so future decisions will be data-dependent. Begging Donald Trump's pardon, there will probably be further tightening in 2019, but the pace is likely to slow down considerably from what we have seen in the last little while.
Bank of Canada sidelined
Regardless of where the Federal Reserve goes next, the case for the Bank of Canada to raise rates again any time soon has just about disappeared. Data released this morning by Statistics Canada reveal that the year-on-year increase in headline CPI eased to 1.7 percent in November from 2.4 percent in October. The November figure was the smallest annual increase since January of this year.
The sharp slowing in inflation mainly reflects a reversal in energy prices, which had been largely responsible for headline CPI moving above the Bank's 2 percent target around the middle of the year. Gasoline prices now stand 5.4 percent lower than in November 2017. Anecdotally, it seems very likely that further falls in gasoline prices -- the retail price of a litre of regular grade is now below $1 in my neck of the woods -- will push the headline figure lower still when the December data are reported.
All eight principal sub-components of the index remain in positive territory year-on-year. However, all three of the Bank's preferred core measures are now back below the 2 percent target, with all of them standing at 1.9 percent.
With CPI comfortably in check and wage gains slowing markedly in spite of the tightness of the labour market, the case for the Bank of Canada to raise its target rate any further in the first quarter of 2019 now seems very weak indeed. Of course, the persistence of historically low rates will still leave the Bank fretting over the continuing willingness of Canadian households to take on debt. Even there, however, the Bank may be about to catch a break, with most forecasters looking for the housing market across the country to turn in a weak performance in 2019.
It's remarkable to contemplate the possibility that a policy interest rate of 1.75 percent might mark the peak of this tightening cycle. With increasing doubts surrounding the global growth outlook, however, that may well turn out to be the case.
The sharp slowing in inflation mainly reflects a reversal in energy prices, which had been largely responsible for headline CPI moving above the Bank's 2 percent target around the middle of the year. Gasoline prices now stand 5.4 percent lower than in November 2017. Anecdotally, it seems very likely that further falls in gasoline prices -- the retail price of a litre of regular grade is now below $1 in my neck of the woods -- will push the headline figure lower still when the December data are reported.
All eight principal sub-components of the index remain in positive territory year-on-year. However, all three of the Bank's preferred core measures are now back below the 2 percent target, with all of them standing at 1.9 percent.
With CPI comfortably in check and wage gains slowing markedly in spite of the tightness of the labour market, the case for the Bank of Canada to raise its target rate any further in the first quarter of 2019 now seems very weak indeed. Of course, the persistence of historically low rates will still leave the Bank fretting over the continuing willingness of Canadian households to take on debt. Even there, however, the Bank may be about to catch a break, with most forecasters looking for the housing market across the country to turn in a weak performance in 2019.
It's remarkable to contemplate the possibility that a policy interest rate of 1.75 percent might mark the peak of this tightening cycle. With increasing doubts surrounding the global growth outlook, however, that may well turn out to be the case.
Tuesday, 18 December 2018
A modest proposal
With apologies to the inimitable Jonathan Swift......
I've written here before about Western democracies turning into the kind of gerontocracies that Mao Zedong would have envied. The United States is the prime example, with its septuagenarian President. Arrayed against Trump on the Democratic side is an equally un-spry bunch: Bernie Sanders, Hillary Clinton, Joe Biden. Elizabeth Warren, Nancy Pelosi, all of them well past the Biblical three-score-and-ten. Sure, there are some younger folks in the Democratic Party, such as Beto O'Rourke or Alexandra Ocario-Cortes, but come on! We all saw how Hillary basically forced the Democrats to accept her awful candidacy in 2016, and now Pelosi has imposed herself onto a doubt-ridden party as Majority Leader. Chances of someone young and dynamic running against Trump in 2020 already look slim.
Over in the UK things may be even worse, with dead people set to deliver a Brexit that young people don't want. One researcher, using actuarial data, has made a remarkable calculation. If you just take the people who actually voted in 2016 and eliminate those who have died in the last thirty months, the tiny majority for Brexit has just about vanished, because the older people who were the main supporters of that ludicrous decision are moving on to meet their maker. Think about that next time Theresa May or Jacob Rees-Mogg asserts that a second vote would be a betrayal of democracy.
What can be done about this? Well, here we come to my modest proposal which, you will be relieved to learn, has nothing to do with eating babies. We don't allow people under the age of eighteen to vote because we judge they can't be relied on to determine what's in their and their country's interest. Yet we allow people to continue voting right up to the point when they take their last breath, even though they won't have to live with the consequences if they make insane decisions, like Brexit. Should there maybe be an age beyond which citizens are no longer permitted to help in setting public policies which they won't have to pay for and which will far outlive them? No vote before 18, no vote after 80??
I'm not entirely serious about this because I know it's a non-starter, but I'm not entirely unserious either. I've long felt that the obligations of the old to the young far outweigh the obligations of the young to the old. Right now we oldsters are doing a bang-up job of leaving an unholy mess to our descendants. Something needs to be done to rein us in -- anyone have a better idea?
I've written here before about Western democracies turning into the kind of gerontocracies that Mao Zedong would have envied. The United States is the prime example, with its septuagenarian President. Arrayed against Trump on the Democratic side is an equally un-spry bunch: Bernie Sanders, Hillary Clinton, Joe Biden. Elizabeth Warren, Nancy Pelosi, all of them well past the Biblical three-score-and-ten. Sure, there are some younger folks in the Democratic Party, such as Beto O'Rourke or Alexandra Ocario-Cortes, but come on! We all saw how Hillary basically forced the Democrats to accept her awful candidacy in 2016, and now Pelosi has imposed herself onto a doubt-ridden party as Majority Leader. Chances of someone young and dynamic running against Trump in 2020 already look slim.
Over in the UK things may be even worse, with dead people set to deliver a Brexit that young people don't want. One researcher, using actuarial data, has made a remarkable calculation. If you just take the people who actually voted in 2016 and eliminate those who have died in the last thirty months, the tiny majority for Brexit has just about vanished, because the older people who were the main supporters of that ludicrous decision are moving on to meet their maker. Think about that next time Theresa May or Jacob Rees-Mogg asserts that a second vote would be a betrayal of democracy.
What can be done about this? Well, here we come to my modest proposal which, you will be relieved to learn, has nothing to do with eating babies. We don't allow people under the age of eighteen to vote because we judge they can't be relied on to determine what's in their and their country's interest. Yet we allow people to continue voting right up to the point when they take their last breath, even though they won't have to live with the consequences if they make insane decisions, like Brexit. Should there maybe be an age beyond which citizens are no longer permitted to help in setting public policies which they won't have to pay for and which will far outlive them? No vote before 18, no vote after 80??
I'm not entirely serious about this because I know it's a non-starter, but I'm not entirely unserious either. I've long felt that the obligations of the old to the young far outweigh the obligations of the young to the old. Right now we oldsters are doing a bang-up job of leaving an unholy mess to our descendants. Something needs to be done to rein us in -- anyone have a better idea?
Thursday, 13 December 2018
Another warning on household debt
The high level of household indebtedness in Canada has been causing alarm in official circles (and on this blog) for several years now. Even as the Bank of Canada has been gently moving interest rates higher, it has continued to identify high household debt as a factor that could limit its ability to move policy toward more neutral settings.
On a national basis, the household debt/income ratio seems to have stopped increasing this year, although at 1.71 (or debt at 171 percent of income, if you prefer) as of mid-2018 it is hardly reassuring. That's a significantly higher figure than was seen in the US before the financial crisis. South of the border the debt burden has been heading lower for the past several years, whereas in Canada it had been steadily rising before appearing to plateau this year.
Now we have a new report from Canada Mortgage and Housing Corporation (CMHC), pointing out significant and worrisome differences in the debt burden between major cities across the country. The lowest ratio, at 1.06, is found in the small city of Saint John, New Brunswick. The highest by far is in Vancouver, at 2.42, followed by Toronto at 2.08. Given that these are respectively the third largest and largest cities in Canada by population, these numbers suggest that a significant number of Canadians are at significant risk of financial difficulties if interest rates continue to rise.
It seems likely that the Bank of Canada will be keeping rates on hold for the next few months, mainly because there are few signs that the apparent tightness in the labour market is leading to wage pressures. The problem for the Bank is that the CMHC data seem to show that, despite actual increases in debt servicing costs and repeated warnings of more to come, Canadians are showing little inclination to start paying down their debts. With the housing markets in both Toronto and Vancouver showing signs of moving higher again, high household debt promises to remain a headache for policymakers well into the future.
On a national basis, the household debt/income ratio seems to have stopped increasing this year, although at 1.71 (or debt at 171 percent of income, if you prefer) as of mid-2018 it is hardly reassuring. That's a significantly higher figure than was seen in the US before the financial crisis. South of the border the debt burden has been heading lower for the past several years, whereas in Canada it had been steadily rising before appearing to plateau this year.
Now we have a new report from Canada Mortgage and Housing Corporation (CMHC), pointing out significant and worrisome differences in the debt burden between major cities across the country. The lowest ratio, at 1.06, is found in the small city of Saint John, New Brunswick. The highest by far is in Vancouver, at 2.42, followed by Toronto at 2.08. Given that these are respectively the third largest and largest cities in Canada by population, these numbers suggest that a significant number of Canadians are at significant risk of financial difficulties if interest rates continue to rise.
It seems likely that the Bank of Canada will be keeping rates on hold for the next few months, mainly because there are few signs that the apparent tightness in the labour market is leading to wage pressures. The problem for the Bank is that the CMHC data seem to show that, despite actual increases in debt servicing costs and repeated warnings of more to come, Canadians are showing little inclination to start paying down their debts. With the housing markets in both Toronto and Vancouver showing signs of moving higher again, high household debt promises to remain a headache for policymakers well into the future.
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