One of the benefits of federalism...

...is that it takes two levels of government to screw up to really tank the economy:

Consider the often-made comparison between Greece and the state of California. Both are in deep fiscal trouble, both have a history of fiscal irresponsibility. And the political deadlock in California is, if anything, worse — after all, despite the demonstrations, Greece’s Parliament has, in fact, approved harsh austerity measures.

But California’s fiscal woes just don’t matter as much, even to its own residents, as those of Greece. Why? Because much of the money spent in California comes from Washington, not Sacramento. State funding may be slashed, but Medicare reimbursements, Social Security checks, and payments to defense contractors will keep on coming.

For a change, Paul Krugman sticks to economics and doesn't blame George Bush for anything. His column provides a lucid assessment of Greece's economic predicament.

Given Dalton McGuinty's economic mismanagement of our province, Ontarians can indeed be thankful Ontario is not a unitary state.

Barack Obama: The Depression President?

The recent news that U.S. public works projects funded by the stimulus package will be required to use only U.S.-made iron and steel was not entirely unpredictable. On issues of trade, the Democrats are bad for Canada, and by extension global trade. If Barack Obama lets this stand he risks becoming known as the Depression President.

Thus far, the temptation among nations to shield their economies from the ravages of the global credit crisis has largely been limited to backstopping their financial sectors or bailing out struggling industries such as autos. To be sure, these efforts are at root protectionist, but it is still possible to believe that the primary intention is not to beggar thy neighbour.

The recent U.S. stimulus package approved by the U.S House of Representatives rips away any pretense of adherence to the principles of free trade. It is as if the legislators slept through their history lessons on the catalytic role of the Smoot-Hawley Act in the Great Depression.

So instead of standing up to the entreaties of Big Labour, Congress now looks to it for its marching orders.

"We've got manufacturing in America in a total and complete freefall. ... It's about time we had some economic patriots," said Leo Gerard, president of the United Steelworkers union.

And to make matters worse, Congress is not content to stop there:

Senators are working on an expanded version that would also include other materials such as cement, Sen. Sherrod Brown, an Ohio Democrat, told reporters.

Fortunately, Obama is on record as being opposed to protectionism:

By a cruel irony, President Obama used the steel business as an example of the futility of protectionism in his book The Audacity of Hope, where he wrote that "A tariff on imported steel may give temporary relief to U.S. steel producers, but it will make every American manufacturer that uses steel in its products less competitive in the world market."

Encouragingly, even Iggy sees the threat, although Jack remains true to form.

The Obama Administration is said to be "studying" the rule introduced by the House; meanwhile, our opposition leader, Michael Ignatieff, is asking pointed questions about it in the Commons when he might be better advised to form a united lobbying front with the Conservatives. (And Jack Layton is exemplifying the worsening international mood by calling for immediate countervailing action.)

We can only hope that there is substance behind Obama's rhetoric. Otherwise, things are going to get a lot worse.

An economist at the helm

As the global economy heads into troubled waters, Canada is fortunate to have Stephen Harper, an economist, at the helm. Let's just hope the voters resist the sirens' call to put Stéphane "do something" Dion at the helm.

Paradoxically, perhaps, the fact that orthodox economics has a good deal to say about how the Great Depression happened itself suggests that there is after all something puzzling about the Great Depression. What's puzzling is not that the depression happened, given policies that were resorted to, but that such destructive policies secured wide support despite their often readily-predictable, adverse consequences. But to call even such perversity a "mystery" is to be guilty of hyperbole. After all, politicians are rewarded for appearing to "do something," and not for their command of "abstract" theories.

h/t: Cafe Hayek

Obama fails the farm bill test

Change?

If you look around America today, you see the Olson logic playing out. Interest groups turn every judicial fight into an ideological war. They lobby for more spending on the elderly, even though the country is trillions of dollars short of being able to live up to its promises. They’ve turned environmental concern into subsidies for corn growers and energy concerns into subsidies for oil companies.

The $307 billion farm bill that rolled through Congress is a perfect example of the pattern. Farm net income is up 56 percent over the past two years, yet the farm bill plows subsidies into agribusinesses, thoroughbred breeders and the rest.

[...]

The question amid this supposed change election is: Who is going to end this sort of thing?

Barack Obama talks about taking on the special interests. This farm bill would have been a perfect opportunity to do so. But Obama supported the bill, just as he supported the 2005 energy bill that was a Christmas tree for the oil and gas industries.

[...]

Obama, sad to say, failed the farm bill test.

Nine out of 10 economists...

Mr. Flaherty believes Ontario is failing to adapt to a changing world because its business taxes are the highest in Canada. In a speech in Toronto yesterday, he offered as evidence Ontario's declining share of national GDP; its weaker than average economic growth; and, an unemployment rate higher than the national average. He said the federal government has cut corporate income tax rates from to 15% from 22.1%, while Ontario's rate is only half a percentage point lower than in 2000, "with no plans in place for further reductions."

Mr. McGuinty's response is that tax cuts are not enough on their own and that governments have to make targeted investments in troubled industries to stimulate growth.

Let's see:The manufacturing sector is not doing too well in Ontario, although the rest of the country seems to be doing okay.But isn't the auto sector the problem? Well, if we strip out transportation equipment, which includes autos....

Hey, look at that: Ontario still lags.

Doug Porter, deputy chief economist at BMO Capital Markets, says, nine out of 10 economists would side with Mr. Flaherty and advocate creating as favourable an economic environment as possible and then allowing the market to pick the winners and losers.

What does he know? Ontario's "targeted investments" are working out so well.


Update: Flaherty takes another kick at McGuinty in a speech yesterday:

In fact, a combination of the strong Canadian dollar, a slowing U.S. economy, higher energy prices and increased competition from emerging markets has left several sectors struggling. Here in the manufacturing heartland of Canada the impact has been acute. But the economic impact is in direct contrast to national economic trends generally.

For instance, we are experiencing the second-longest period of economic expansion in Canadian history. Yet Ontario's share of the national nominal GDP has gone from 41.4% in 2002 to 38.6% in 2006.

Ontarians are seeing a lack of leadership, a lack of vision and a lack of economic stewardship.

Ontario manufacturing underperforms

Ontario's economy has been lagging the rest of the country for some time. The "economic engine" of Canada is clearly sputtering.

The easy explanation is that the Ontario economy is weak because of the province's greater dependence on the manufacturing sector. This weakness reflects the struggle by Ontario manufacturers to adapt to the sharp run up in the Canadian dollar, higher energy prices and intense competition from China.

However, manufacturers elsewhere in the country also face these pressures. And they seem to be doing a better job of coping. While manufacturing shipments from Ontario dropped 1.2% in 2007, shipments rose 1.7% elsewhere in the country. Moreover, out of a total of 21 subsectors, the rest of Canada outperformed Ontario in 15.

Click on chart for larger image.

Maybe Dalton McGuinty needs to consider what his government is doing wrong before asking the feds for help. Any suggestions?

Another bookstore bites the dust

It's rather sad to see another independent bookstore close. I once worked in one (which is also no longer in business) and have spent a lot of money in them.

Alas, I rarely buy books from bookstores anymore. I still buy books, just not from bookstores. Amazon.ca (notice my banner link) now gets most of my business. Apparently, I'm not the only one:

Staff at The Book Room, a 169-year-old shop presently located on a corner of Halifax's bustling Barrington Street, unwittingly opened the box to discover the same titles they already had in stock -- plus an invoice from one of the big Internet booksellers.

"Somebody had ordered a bunch of books from Amazon," Charles Burchell, who managed the bookstore for more than 40 years, recounted in a recent interview. "To find that it was books we had on our shelves that they could have had in five minutes rather than five days if they'd walked downstairs ... that really made us sit up and take notice."

It was a slap in the face to the independent store that has been fighting a losing battle against book behemoths, the proliferation of literature to supermarkets and big box stores and the convenience of Internet ordering for the better part of a decade.

"It said to me that there's a group of people out there who don't want to make use of a bookstore," Mr. Burchell lamented. "We really couldn't see a future anymore."

It is easy to get all nostalgic, but this is about economics. Before the internet, a knowledgeable clerk in an independent bookstore was a key source of information. Most clearly loved books and could be a very valuable resource, particularly if their interests happened to coincide with yours. In part, it was this knowledge that you paid for when you bought a book at list price.

With the internet, that information and more is available online for free. The economies of scale for an online bookseller in providing this information are virtually limitless. An independent bookstore cannot really compete against that without embracing the same tools or by focusing on very specialized market niches.

Sadly, it is either adapt or perish.

A lesson for tax and spend liberals

Hell, the Conservative Party might learn something too.

Dan Mitchell of the Cato Institute explains the relationship between tax rates, government revenues and economic growth:



via Café Hayek

No need to make winter tires mandatory in Ontario

Anyone who has ever driven in the snow knows that winter tires are a good idea. All-season radials just don't cut it in the snowy regions of the country, particularly if they have some mileage on them.

When I lived in Montreal, I had snow tires. Montreal gets a lot of snow. It was stupid not to put winter tires on your car. Hence, Quebec's recent move to make winter tires mandatory is largely redundant. Most people use them. Those that don't get into more accidents.

In published reports, the head of a Quebec task force on road safety, Jean-Marie de Koninck, pointed to statistics showing snow tires help save lives.

"There's about 10% of the people right now that don't have winter tires on and they're involved in 38% of the accidents on the road in the winter," de Koninck said before Christmas.

The simple solution is for insurers to charge lower premiums to drivers who put snow tires on their cars than to drivers who do not. Quebec's system of no-fault insurance is probably behind its move to preempt a market solution to the problem since the driver who is responsible for an accident does not bear the full cost of the damage he causes. As a result, his future insurance premiums will reflect only the damage done to his own car.

Which brings us to Dalton McGuinty.

Ontario may follow the lead of its provincial neighbour and make winter snow tires madatory for winter driving.

[...]

Premier Dalton McGuinty has said he will consider making it a law in Ontario and OPP Commissioner Julian Fantino has already said he is behind the idea.

Have you seen car insurance premiums in this province? Get into one at-fault accident and your premiums will skyrocket. What better incentive is there to put snow tires on your car than that? That is, if you really need them at all.

Here in Toronto, we don't get a lot of snow. What we do get tends to melt quickly, aided by prodigious amounts of salt.

Do the math. If you only drive in southern Ontario and avoid driving the two or three times a season when we might get a meaningful amount of snow, it makes little economic sense to spend hundreds of dollars on snow tires. Moreover, cars with snow tires are considerably less fuel efficient. If you drive on snow-free roads the rest of the time, you will be burning extra gas.

That doesn't sound like the environmentally correct thing to do. And if the climate change lobby is to be believed, it will only hasten the rise in average temperatures in Ontario.

With winter in Ontario supposedly on the endangered list, why would McGuinty even consider making winter tires mandatory in Ontario? One can only conclude that if Dalton does go ahead with this, he doesn't believe his own hype about global warming.

Venezuelan poor getting relatively poorer

Hugo Chavez pictures himself as the champion of the poor. Yet, the Venezuelan poor are getting relatively poorer.

Hugo's friends must be doing very well indeed. How come I'm not surprised?


h/t: Marginal Revolution

Hurtling toward have-not status

Dalton McGuinty is now arguing for more social program spending by the federal government.

Canadian premiers foreshadowed a coming clash with Prime Minister Stephen Harper Friday over his pledge to diminish Ottawa's role in creating national social programs, warning that poorer Canadians could suffer.

"I'm a bit concerned about it. Are we talking about preventing the federal government from at some point in the future setting up social programs like daycare or pharmacare? Because I don't support that," Ontario Premier Dalton McGuinty said as the premiers wrapped up their annual meeting.

Not long ago, McGuinty was complaining about Ontario having to pay the bill for other provinces.

Upcoming election or not, this apparent change of heart would seem to reflect the expectation that if the Ontario economy continues to slip relative to the rest of the country, it won't be long before the other provinces are on the hook to pay Ontario's bills.

Isn't equalization wonderful?

Bush has nothing to do with it

Despite wishful thinking on the part of the Toronto Star, general contempt for George Bush has likely had little effect on increasing immigration flows from the United States to Canada.

An analysis of immigration statistics done by the Montreal-based Association for Canadian Studies showed the number of Americans who moved to Canada in 2006 hit a 30-year high, almost double the number who moved north in 2000 when Bush was elected for a first term as U.S. president.

The analysis also showed the southward brain drain is being narrowed somewhat, and most of the American migrants are highly educated people who may be moving to Canada for quality of life and social reasons.

The numbers were not huge – 10,942 Americans moved to Canada last year, far smaller than the influx predicted when bogus maps of the United States of Canada began hitting the Internet in the waning days of the 2004 campaign.

Sure, the number of U.S. immigrants almost doubled. But we are talking about an increase of only 5,000 people. That would hardly be a story even if every single one of those immigrants came here explicitly because of George Bush.

If you want to go down the path of spurious correlations, one could just as easily say more Americans are moving here because Canadians have finally come to their senses and elected a Conservative government. Undoubtedly, that will motivate some Americans to overcome their reservations about moving to high-tax, socialist Canada.

That interpretation, of course, is anathema to The Star. It is far easier to interview one gay, antiwar, labour organizer from Seattle to make the case of Canada as a progressive nirvana providing refuge against the Republican fascists:

For 34-year-old labour organizer Tom Kertes, the move last April from Seattle, Wash., to Toronto was based on human rights.

"The words 'human rights' are foreign words in the U.S.,'' Kertes said.

"They only apply to other countries.''

He moved to Toronto with his partner Ron Braun and the two plan to marry, something they could not do in Washington state.

He also cited the war in Iraq and the torture of Iraqi prisoners by Americans – and the failure of the Bush administration to clearly disavow such practice – as contributing factors to what is a major decision.

Much has happened since the year 2000. The election of George W Bush coincided with the bursting of the technology bubble. Several people I know (Canadians all) who moved down to the States have since retreated back to the land of free health care after being let go by Nortel and other technology firms. They made a lot money while it lasted. And the fact that U.S. income taxes are low and the Canadian dollar was trading at 67 U.S. cents made it seem like even more.

Today, the tables are turned. Resource industries such as oil and metals are going gangbusters, while the Canadian dollar is trading a little shy of par. The unemployment rate is the lowest in more than thirty years.

With the Canadian dollar having risen more than 30% over the 2000 to 2006 period, Canadian salaries look much more attractive to any American considering the possibility of working here, even taking into account higher personal income tax rates in Canada. That is tantamount to a 30% raise.

It is a real stretch to try to read anything political into the latest immigration statistics. Economic factors are driving migration flows, no matter what Toronto Star editors might believe.

Kyoto and only Kyoto

I should know better than to try to engage Liberals in an honest debate about climate change, particularly young Liberals. The ultimate futility of debating with Stéphane Dion's young kool-aid drinkers is amply demonstrated in the exchange below on YouTube.

BalancedApproach (1 week ago) marked as spam

Ha ha ha! A tax credit on life preservers! Typical idiotic conservative thinking. Genius! The Young Liberals really hit the nail on the head. What a sharp crew. Awesome commercial. Well done.

comfyfur (4 days ago) marked as spam

Ha ha ha! One tonne challenge! Spend a bundle on advertising and wait for people to voluntarily cut carbon emissions. Absolutely brilliant. Only problem is our GHG emissions went up 27%. The Liberals were never serious about climate change. In contrast, CPC policies might actually work. Will we hit Kyoto? Not a chance. It was never possible. But now, at least, we are putting in place policies that will lead to real cuts in GHG emissions in the coming years. The Liberals should be embarrassed.

BalancedApproach (4 days ago) marked as spam

Nice try. The reality is that the Liberal plans on the environment were very progressive, but were put in place in 2005. So while they were very progressive, the tories cut them before they were able to do much.
As for the tories, they have little place suggesting others should be embarassed. After all, this is the party led by a man who called Kyoto a socialist scam and who has continually denied the existence of climate change. He might as well deny that the sky is blue.

comfyfur (2 days ago) marked as spam

Progressive? WTF? Liberal climate change policies were all rhetoric. Moreover, Chretien sabotaged Kyoto by agreeing to hugely unrealistic targets given Canada's population growth, climate, large land mass and resource-based economy. Add to that the fact that they wasted a dozen years consulting to defer any substantive action. It is really not surprising that industry did nothing while waiting for the government to get its act together.

BalancedApproach (2 days ago) marked as spam

Nice try, comfyfur. There's just a little something standing in your way: the facts. Look up Kyoto sometime before you trot out unresearched Conservative rhetoric. The Kyoto protocol was ratified by Canada on December 17, 2002 and came into force in February 2005. So the Liberals couldn't have wasted 12 years as you claim. Heck, the protocol wasn't even in effect for 12 months before the Conservatives took office! Sorry to expose your argument using the dirty trick that is Historical fact.

comfyfur (2 days ago) marked as spam

BA, hardly a dirty trick. For someone purportedly "balanced," you seem to have chosen sides. The Liberals had loads of time to show their cards on climate change. They were talking of it well before Kyoto was signed. Negotiations began in 1997. Since that time, all we got was rhetoric and snoozefest consultations. I sat through enough of them. The important thing is that we now appear serious about taking action. It is the right thing to do, whatever your political stripe.

BalancedApproach (2 days ago) marked as spam

I am glad that you agree that my exposing your partisan lie for what it is using historical fact is not a dirty trick. My saying it was of course meant tongue-in-cheek. That said, the fact remains that the protocol was not signed until 2002 and didn't come into force until 2005. The Tories took power 11 months later and have yet to do anything. I agree it's time to something. Now tell Harper that.

comfyfur (2 days ago) marked as spam

Ah yes. Don't debate ideas. Call people liars, or bullies. With a bit of googling I found a Sierra Club report card on Liberal climate change policy. Here are the Liberals' grades:

1993 Grade: D,
1994 Grade: C+,
1995 Grade: D+,
1996 Grade: D-,
1997 Grade: F.

Climate change is not Kyoto. The Liberals have been pretending to deal with the issue for a long time.

BalancedApproach (2 days ago) marked as spam

What is about Conservatives that whenever they get called out on their inaction and their lies, the only thing they can say for themselves is "But the Liberals did/didn't do this!!!!". Guess what, the Cons are in government now and they have been for the majority of time Kyoto has been in place. Either do something substantive (which they haven't yet) or get out of office for someone who will (Dion).

comfyfur (2 days ago) marked as spam

It all comes down to following Kyoto, no matter that that is unattainable. There is no other course of action. Dion says he will do it nonetheless. All aboard Dion's green train. He will deliver us unto Kyoto.

Sorry.

The issue is a lot more complex than that.

BalancedApproach (1 day ago) marked as spam

The simple fact of the matter is that Kyoto is not unattainable. That's a fairy tale the Conservatives under the disgraceful "leadership" of Stepher "Der Fuhrer" Harper have been spinning. Sorry buddy, but that dog won't hunt. The facts and the science is against Harper, just as it was against him when he tried to deny climate change. It's time he stopped dragging his feet. Dion and his Liberals are willing to do the job. If Harper won't do it, he needs to step aside for some real leadership.

comfyfur (1 day ago) marked as spam

You are absolutely right BA. Technically, Kyoto is not unattainable. But no politician in his right mind would attempt it. At this point, you'd have to shut half the economy down to achieve it.

Now, if Chretien had committed to only an 8% increase in emissions, rather than a 6% reduction, to reflect Canada's unique circumstances, we might have had a chance. However, the folly of his commitment totally paralyzed the government. The Liberals didn't do the job. Is anyone really surprised?

BalancedApproach (22 hours ago) marked as spam

More Conservative fear mongering followed by blaming the Liberals. Once again, the fact remains, Harper is in government now. Either he puts up and does something or he shuts up and lets a real leader like Dion do the job. Green economics can be insanely profitable, especially if we get in the game early. As ususal Harper isn't interested in losing his big oil, cowtown base. Canada includes 9 other provinces and 3 territories though. Time he learned that.

comfyfur (12 hours ago) marked as spam

You simply cannot reduce the amount of heating oil you use by half overnight unless you are willing to freeze. Similarly, to improve your gas mileage, or to switch to a public transit alternative, requires you to invest in new, more efficient equipment. That takes time.

Unfortunately, we have lost precious time, under both the Liberals AND the Conservatives. Now, at least, it looks like most people are on side with the need to do something.

BalancedApproach (10 hours ago) marked as spam

The potential solutions to the problem are more various and more involved than simply reducing heating oil and improving gas mileage. It is through making use of this varied response that we can indeed reach Kyoto. While time may have been lost in the past, it is the Conservatives that continue waste time now and deny that Kyoto can be met at all. We cannot as a nation accept this defeatist attitude. Either they get on it or they let the Liberals do it. It just makes sense.

comfyfur (6 hours ago) marked as spam

Reducing GHG emissions is about changing the way we do everything: heating and cooling our homes, how we get to work, the food we eat, the products we consume.

For much of what we do, we have been locked in by previous choices. To evolve to a less-profligate, GHG lifestyle means reorganizing how we live and eventually replacing most of what we have now. You cannot snap your fingers or pass a law to change things overnight. You know that. Dion knows that. So get real.

BalancedApproach (5 hours ago) marked as spam

More basless attacks on Kyoto instead of action. Typical Tory. Kyoto has never been about trying to change over night. Nice try, though. It's about incremental, but meaningful change and looking toward green technologies. Closing your eyes won't make the problem go away. It's time to act. Stop blaming the Liberals. Stop dragging your feet. Stop saying it can't be done. Just DO it!

comfyfur (59 minutes ago) marked as spam

I give up BA. There is no need to attack Kyoto. It is already dead. But I do question how you have framed your argument about climate change to be Kyoto and only Kyoto. That is not moving anything forward. It is pointless rhetoric.

We missed the target. To hit it now (i.e., cut average GHG emissions by 2008-12 by more than 30%) is virtually impossible. It is simply delusional to think we could achieve that. We would not be any further ahead if the Liberals had stayed in power.

What to do about high oil prices

With those greedy oil companies gouging us at the pumps again, what are poor consumers to do?

While there is always the temptation to let the politicians "solve" the problem (after all, they did such a good job with the gun registry), perhaps we could fix things ourselves.

I don't know, maybe we could try:

1. driving less;
2. switching to smaller, fuel-efficient cars;
   
3. riding a bicycle;
4. taking public transit; and
   
5. moving closer to work.

If none of these ideas help, then let's just put all our pension savings into oil stocks.

The Foreign Takeover of Canada

Cardinal47 is not alone in worrying about a possible foreign takeover of Canada. There has been a lot of hand wringing about it of late. But really, is "Where is Pierre Trudeau when we need him?" the best we can come up with?

If you look at sheer numbers, you could probably make the case that Canadian firms are taking over more foreign firms than the number of foreign takeovers of Canadian firms. However, since Canadian takeovers tend to be considerably smaller in size, in dollar terms, it is probably the other way around.

Now the curious thing about all this is that Canada is running a big surplus on the current account, which means we are exporting capital. The problem is that Canadian foreign investment tends to be of the portfolio variety, not direct investment which gives one effective control.

What is it that makes our corporate elites so timid and risk averse? I would suggest it is past policies like FIRA and other measures that have shielded our businesses from competition. As a result, we just aren't very good capitalists.

Raising the shields is not going to make us better. Quite the opposite. However, in bringing down the barriers, we are likely to get a little bloody. It won't be pretty at first. But we are going to have to learn to compete globally or get used to being second rate.