Category Archives: Economy

Oct 15 2014
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Business, Economy, Politics

How to tempt a global downturn

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One of the great, not entirely discreditable, boasts of the current federal government has been its masterful handling of both the national economy and the public books during and after the Great Recession of 2008-09.

And, indeed, the world looked on in envy, as a piece in The Economist this past May reminded readers: “In the government’s retelling of the crisis, it alone stood between Canadians and doom.

“(The country) weathered the financial crisis well. No bank needed to be rescued: the World Economic Forum anointed Canada’s banking system the soundest in the world. Mark Carney was exported to the Bank of England in large part because of his work at the Bank of Canada. Stephen Harper, the prime minister, took to describing Jim Flaherty, who died on April 10th just weeks after leaving the cabinet, as “the best finance minister on the planet’.”

Of course, as The Economist writer, and many others, point out, Canada’s performance during the downturn owed as much to the sturdiness of its financial traditions and institutions than to the foresight of the sitting government.

But whichever successful combination of policy and regulatory fiat did the trick, the timing of Canada’s financial fortitude was inarguably auspicious.

Is it so today, 62 months into the recovery?

The question is more than merely academic. Lately, the dreaded ‘r’-word has been making rounds, if not yet headlines, in the world’s increasingly turbulent capital markets, leaving many economists to ponder when the dominoes will again begin to fall, and which nations are most vulnerable when they do.

According to London-based economist Philip Pilkington, writing in Aljazeera America last month, “The current consensus among American policymakers and commentators, including Federal Reserve Chairwoman Janet Yellen, is that the U.S. economic recovery is well underway. But not everyone agrees with this assessment. One firm in particular, the Jerome Levy Forecasting Centre a New York–based economic consultancy, warned that the world economy might plunge into another recession in 2015 that will take down the U.S. economy with it.”

What makes this all the more troubling is that these guys are no Chicken Littles. When they say the sky is falling, they’re always right. Mr. Pilkington notes: “Levy economists. . .use The Profits Perspective forecasting model developed by Jerome Levy in 1908. . .(and) have accurately predicted every major financial event in the past few decades, including the financial crisis, which many mainstream economists said was unforeseeable.”

All of which leads Mr. Pilkington to conclude that U.S. policymakers continue to underestimate the impact emerging economies, whose growth rates have substantially slowed in the past couple of years, have on developed ones.

“They have once again become hypnotized by their overly simplistic, abstract models, which exposed their failure in 2008,” he writes. “This generates a rather bizarre argument about what constitutes slow wage growth. Meanwhile a storm that could tip the world back into recession seems to be gathering in the emerging market economies. It is perhaps time to listen to and engage with the economists who saw the last crisis coming. If these self-reinforcing tendencies within the profession continue, it seems unlikely that we could effectively face down future economic problems.”

Has any of this showed up on the radar in the war rooms of Ottawa’s economic planners?

Certainly, Parliamentary Budget Officer Denis Frechette and his researchers wonder what justifies collecting billions-of-dollars more in Employment Insurance premiums than are required to pay for the system over the next two years – a circumstance that, they insist, will likely suppress job creation.

“PBO estimates that the Small Business Job Credit will create 200 new full‐time equivalent jobs in 2015 and 600 new jobs in 2016,” their report to Parliament stated last week. “PBO estimates the premium rate freeze will reduce full‐time equivalent employment by 2,000 jobs in 2015 and a further 8,000 jobs in 2016.”

Just in time, perhaps, for the next great, jobs-devouring recession.

Brilliant, boys and girls!

That’s how the onetime envy of the world becomes its laughingstock.

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Oct 08 2014
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Economy, Energy, Environment, Politics

Fracking’s other, hidden challenge

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New Brunswick Premier Brian Gallant did himself an enormous political favour during his recent election campaign by sticking to his guns, insisting that he would follow through with a temporary ban on hydraulic fracturing in the province until experts convinced him that the drilling practice is broadly benign.

After all, the one thing a lightly informed voter can get behind is a candidate for elected office who successfully appeals to the public’s expectation of clean water, air and soil.

But whether or not you believe fellows like Gywn Morgan, a former Canadian energy executive, who recently argued in a Globe an Mail commentary that the “technology. . .has one of the most impressive industrial safety records ever compiled,” that “in the United States, where some 1.2 million wells have been hydraulically fractured over the past 60 years, the Bureau of Land Management and the Environmental Protection Agency have found no supportable evidence of fracture-induced water contamination,” and that, “here in Canada, more than 200,000 wells have been fractured in Alberta, British Columbia and Saskatchewan with a similarly sterling record,” another problem emerges – one that’s not so cut and dry.

The chief argument for permitting the development of tight, onshore oil and gas plays in New Brunswick is economic. In fact, proponents routinely insist, it’s a no-braine:  the province needs jobs and the government needs new sources of money (i.e., taxes and/or royalties from production companies) to balance its books and pay down its accumulated debt. If fracking, girded by effective regulations, is safe, then what are we waiting for? Drill, baby, drill!

But what if the economics of shale gas extraction – at least to the host jurisdictions – are not always as attractive or predictable as they appear?

Jeremy Scott of Forbes magazine recently examined various U.S. state budgets, noting that, for the third consecutive year, overall tax revenues have risen. Referencing some enlightening numbers-crunching by Todd Haggerty, a policy specialist in the fiscal affairs department of the National Conference of State Legislatures (NCSL), Mr. Scott reported “state tax revenues went up 6.1 per cent in fiscal 2013 to a total of $846 billion, says the NCSL. Personal income tax revenues were up 10.3 per cent, while corporate collections surged 7.9 per cent.”

In fact, those states that opened their doors to frackers some years ago, have been leading the boom in tax dollars. Says the Forbes piece: “In 2004 North Dakota’s severance tax (a levy imposed on producers in the United States for mining or otherwise extracting non-renewable resources) raised $175 million a year. In 2013, it raised $2.46 billion. West Virginia’s boom hasn’t been as dramatic as North Dakota’s, but its severance tax revenue increased from $204 million in 2004 to $608 million in 2013.”

On the other hand, “in Kentucky, severance taxes raised $172 million in 2003, rose to $346 million in 2012, but then dropped back to $269 million in 2013.”

And herein lies the problem. The oil and gas industry is notoriously fickle and subject to its own pricing, supply and demand cycles. The industry can reliably guarantee a certain amount of economic activity accruing from its ministrations, especially at the outset of full, commercial production, but those assurances become less dependable as time goes on.    

“Kentucky illustrates the problem with relying on severance taxes and the fracking boom for revenue stability,” Mr. Scott writes. “As traditional energy states like Texas have shown, taxes on the extraction of natural gas can fluctuate wildly. Texas raised $974 million from severance taxes in 2004, $4.1 billion in 2008, $1.9 billion in 2010, and then $4.6 billion. That’s healthy growth, but it’s hardly consistent. Colorado is an even better example. Its severance tax revenue rose from $37 million in 2003 to $285 million in 2009, before falling back to $71 million in 2010.”

Of course, to fracking’s true believers in New Brunswick (and there are still a few), such revenue instability is better than no revenue at all.

But it could become a nightmare for any premier who, once convinced of fracking’s safety, relies too heavily on its proceeds to balance the public accounts.

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Sep 18 2014
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Economy, Energy

Boning up on fracking 101

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The spectacle of an energy company’s CEO teaching the abecedarian facts about a drilling technology that’s been around for at least ten years to candidates for the highest elected office in the province is undeniably amusing.

Still, one or two of our premier wannabes might have cracked a book before showing up for class.

One can only imagine what crossed the mind of Corridor Resources’ Phil Knoll when he decided to pen a lengthy letter to the heads of New Brunswick’s five political parties essentially explaining that, no, gentlemen, it is not possible to extract gas from shale formations in this part of the Maritimes without fracturing the rock.

According to the letter, acquired by the Saint John Telegraph-Journal, Mr. Knoll is categorical: “There is no other method to release the natural gas from tight sandstone or shale other than through fracturing the rock. That is the reality.”

And if any political hopeful thinks that fracking (industry slang for hydraulic fracturing, the process by which water and chemicals, or, less commonly, gas, are injected under pressure into sedimentary rock to liberate the fossil fuel trapped there) can be restricted only to the production phase of development, he should think again.

“During the exploration phase, the only way to accurately determine the size of the resource and whether it can be produced economically is through the use of fracture stimulation,” Mr. Knoll explains. “Seismic research and the drilling of stratigraphic core holes can help evaluate the geological formations and their composition at different depths.”

What’s more, he writes, the debate in New Brunswick about hydraulic fracturing – whether, as its opponents claim, it will release vast quantities of methane into the drinking supply, enabling local farmers to literally light their water on fire – is largely misguided if not entirely moot.

In fact, over the past 10 years Corridor has used fracture stimulation to drill 43 wells with, as Mr. Knoll confirms, “no adverse impacts on potable water aquifers. . .Corridor operates some wells that were fractured 10 years ago and still produce natural gas without additional fracturing. Across North America, it is common to have wells producing more than 20 years after initial fracture stimulation.”

All of which suggests that fracking can, at least in this instance, be done safely. But that’s never really been at issue. The underlying quandry in the debate has always been: Will it?

That’s the question an article in Scientific American posed last year, to wit: “A new review article funded by the National Science Foundation and published in Science on May 16 examines what fracking may be doing to the water supply. ‘This is an industry that’s in its infancy, so we don’t really know a lot of things,’ explains environmental engineer Radisav Vidic of the University of Pittsburgh, who led this review. ‘Is it or isn’t it bad for the environment? Is New York State right to ban fracking, and is Pennsylvania stupid for [allowing it]?’ According to the review, the answer is no. ‘There is no irrefutable impact of this industry on surface or groundwater quality in Pennsylvania,’ Vidic says.”

Still, the article continues, “That’s not to say there haven’t been problems. That’s because there are many ways for things to go wrong with a natural gas well during the fracking process. A new well – or the 100,000 or so existing but forgotten wells – can allow natural gas from. . .deposits to migrate up and out of the rock and into water or basements. Leaking methane, in addition to being a potential safety hazard, is also a potent greenhouse gas that exacerbates climate change, although that environmental impact was not examined in this study.”

However New Brunswickers choose to chart their collective energy future, the wisest course will always begin with the self determination to obtain the best of all possible facts.

After all, to avert a risk, you must first understand it.

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Aug 26 2014
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Economy, Education, Workplace

Leaders must read the writing on the wall

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Like creating jobs and ending poverty, no issue is more liable to elicit a chorus of unanimity from otherwise divergent political voices than building a literate workforce.

The question that customarily divides campaigners along traditional party lines during an election cycle is: How?

Specifically, in New Brunswick’s case, how do do we improve adult literacy levels (56 per cent of people in this province can’t read well enough to function competently on a daily basis), and burnish language, numeracy and problem-solving skills among anglophone and francophone children here (they come in last among their peers across Canada, according to one well-respected Organisation for Economic Co-operation and Development study)?

Conservative Leader and reigning premier David Alward seems to think the challenge requires superior multi-tasking abilities: “Certainly, the work we have begun on inclusion and ensuring that every child has an opportunity to learn to their fullest extent,” he told the Saint-John Telegraph last week on his way to never quite finishing his thought, let alone sentence. “The work as well to ensure we have healthy bodies through increased physical activity.”

He’s right, to the extent that a lazy, unfit frame more often houses a similarly afflicted mind, unsuited to and ill-equipped for learning.

But New Democrat Leader Dominic Cardy is more in line with current pedagogical thinking when he suggests a simple, elegant fix. “If we create a universally accessible, affordable high-quality early childhood education system, linking existing private infrastructure in schools and centres with government-supported ones where necessary, that is going to unleash a huge amount of economic,” he told the T-J.

How much economic potential ECE manages to unleash in jurisdictions where it is systematically introduced and integrated with later grades in the public school system is a matter of some debate.

Still, the results of one recent study, published last fall, of 693 Ontario kids in Grade One indicated that those who had participated in two years of full-day kindergarten (FDK) in that province were much better equipped to thrive in school than those who had not.

The research, undertaken by Queen’s and MacMaster universities concluded, “Overall, students in FDK are better prepared to enter Grade 1 and to be more successful in school. In every area, students improved their readiness for Grade 1 and accelerated their development. Comparisons of children with two years of FDK instruction and children with no FDK instruction showed that FDK reduced risks in social competence development from 10.5 per cent to 5.8 per cent; in language and cognitive development from 15.8 per cent to 4.3 per cent; (and) in communication skills and general knowledge development from 10.5 per cent to 5.8 per cent.”

In fact, in recent years, the efficacious effects of early child education on literacy, numeracy and problem-solving has been rigorously studied all over the world. And the findings all lead to the same conclusion: It works.

Last October, the Solutions Network of the United Nations issued a report that recommended that  “all girls and boys complete affordable and high-quality early childhood development programs, and primary and secondary education to prepare them for the challenges of modern life and decent livelihoods (and that) all youth and adults have access to continuous lifelong learning to acquire functional literacy, numeracy, and skills to earn a living through decent employment or self-employment.”

At virtually the same time, The Economist appealed to the world’s governments to demonstrate some timely common sense: “Investment in the young should focus on early education. Pre-school is a crucial first step to improving the lot of disadvantaged children, and America is an international laggard. According to the OECD, it ranks only 28th out of 38 leading economies in the proportion of four-year-olds in education.”

Can New Brunswick afford a universal, integrated, accessible system of early childhood education in an age of massive, structural public deficits and debt? It is, admittedly, an enormously tough sell only because it defies any short-term rationale.

But if we don’t start thinking in the long term, and demand that our political leaders follow suit, our fiscal and economic perdition will become permanent features of our society – a society where illiteracy and innumeracy run rampant among the increasingly ignorant majority. 

Aug 19 2014
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Economy, Government

Crunching the numbers that don’t add up

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Perhaps it was in the air over at Statistics Canada, but an embarrassing misadventure underestimating jobs growth in the country this summer seems oddly appropriate for an agency that’s missing 20 per cent of its staff and $30 million of its budget.

Still, that was one doozy of a blunder.

Earlier this month, the federal numbers-crunching organization reported that the Canadian economy created a mere 200 positions in July, far fewer than economists had been expecting. Then, just last week, officials issued a statement confirming that the actual number was 42,000:   

“An error has been detected in the processing of the August 8 Labour Force Survey release. This error impacts only the July 2014 estimates. The source of the error has been identified.”

What’s more, “Statistics Canada takes this matter very seriously and is immediately launching a review of the data verification processes in place. This does not affect other statistical programs. A report on the results of the review will be published on the Statistics Canada website as soon as it is available.”

It’s not then end of the world, of course. But the mistake caught many economists by surprise, given the agency’s well-earned, international billing for accuracy and verisimilitude.

“I struggle to think of a comparable foul-up anywhere in the world,” wrote Derek Holt, vice-president of Scotiabank Economics, in a memo to the investment community. “The revisions are broad sweeping and affected every major measure in a highly significant manner. Theories regarding how one single factor could be responsible for the revisions went straight out the window as StatsCan pointed to a systems error that affected everything.”

In an interview with the Globe and Mail, he added, “I think they (StatsCan) are still among the elite statistical agencies in the world. There’s no doubting that this was an uncharacteristic but rather large mistake. . .on this particular one that unfortunately blemishes what is otherwise a pretty solid reputation.”

Jim Stanford, an economist with Unifor, the largest private-sector union in Canada, goes further.

“I can’t say whether the funding cutbacks and the siege atmosphere that is evident at Statistics Canada contributed to this particular mistake, but they certainly have contributed to Statistics Canada tarnished reputation,” he told the Globe. “You’ve had a government now for eight years that’s often hostile to what I would call fact-based policy discussion and I do believe that has diminished Statistics Canada’s standing.”

He has a point.

In 2010, when the federal government announced it was scrapping the mandatory long-form census in favour of a “voluntary” household survey, editorials across Canada screeched their opprobrium. The nation’s two top statisticians, Munir Sheikh and Phil Cross, actually resigned their posts at StatsCan in diaphanously concealed protest.

In a news release, Mr. Sheikh wrote that while he could not “reveal and comment on (the) advice” he gave the government “because this information is protected under the law,” he wanted to “take this opportunity to comment on a technical statistical issue which has become the subject of media discussion. This relates to the question of whether a voluntary survey can become a substitute for a mandatory census. . .It can not.”

Indeed, last summer Robert Gerst, a partner in charge of operational excellence and research and statistical methods at Calgary-based Converge Consulting Group Inc., had choice words for the federal government’s evident preference for voodoo science over rigorous research.

“Take the first data releases from the national household survey of Statistics Canada,” he wrote in a commentary for the Waterloo Region Record. “The quality of the results has come under criticism because the voluntary survey replaced the compulsory long-form census questionnaire. In effect, this replaced a random sample with a non-random sample. Non-random samples have their place, but making conclusions about the population isn’t one of them.

Naturally, then, “no conclusions about the Canadian population can be drawn from the national household survey.”

The monthly Labour Force Survey is not the same type of beast. Given the rigorous process on which it depends, it should be virtually immune to errors.

That it is not is a troubling sign that, thanks to limited resources and battered morale, mistakes might well become a statistically meaningful trend at Canada’s numbers-crunching agency.

Aug 08 2014
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Democracy, Economy, Politics

The consequences of a slow-growth era

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In a report that will bring only scowls to the faces of Conservative party operatives and their masters in Cabinet, a McGill University economics professor argues that the time has come for a kinder, gentler hand at the tiller of the national economy.

It’s not that the HMS Canuckistan is in any real danger of sinking under the weight of the jobless hordes its ferrying from one unpromising corner of the country to the other. Indeed, both the Bank of Canada and the International Monetary Fund predict that the Canadian economy will, in fact, grow marginally by 2.2 per cent this year and 2.4 per cent in 2015.   

It’s just that politicians and policymakers have fired up the engines about as much as they can, and there’s not much more they can do to speed the pace. They, and we, must face facts: This boat is permanently puttering.

“Canadian monetary policy has little ability to further stimulate Canadian growth. Given the large amount of uncertainty now faced by Canadian firms, further reductions in the policy interest rate are unlikely to be effective in stimulating aggregate demand,” writes Christopher Ragan in a commentary for the C.D. Howe Institute.  “In addition, the ongoing problems associated with very low interest rates cannot be ignored and may soon present the Bank of Canada with a compelling case for rate increases.”

Yes, “Canadian fiscal authorities have more room to manoeuvre than their counterparts in many other developed countries.” Still, “there remain solid arguments for budgets to be brought back to balance in the next few years.”

Since neither monetary nor fiscal instruments are likely to leverage faster economic growth, and since the private sector remains as jittery as a cat in roomful of rockers when it comes to parting with its money for capital investment and skills development and training, slow growth is here to stay, at least for the foreseeable future.

So, then, what’s a prudent government to do?

“Canadian policymakers should accept the continuation of Canada’s slow-growth recovery for the next few years. Slow growth has undesirable consequences, however, including longer unemployment spells, more part-time employment, and a greater incidence of long-term unemployment. Policymakers should focus on addressing the associated burden by enhancing income support for the unemployed, increasing the mobility of workers and improving incentives for labour-market training.”

Put it another way: Politicians in bad times have a duty to observe the progressive natures of their souls and care for the underprivileged, relieve the burdens of the downtrodden and disenfranchised and, in general, act like human beings for once in a very long while.

In fact, none of this has been part of the job description, at least in the western political canon, since Margaret Thatcher and Ronald Reagan ran away with the keys to the democratic system’s castle some 30 years ago.

Still, it’s high time that those we elect to public office recognize that fierce individualism and the frontier spirit of so-called free-market capitalism carry with them certain drawbacks – one of which is the tendency to blow the world’s financial systems to kingdom come every so often.

In this lies pragmatic reasons for Prof. Ragan’s prescriptions. In his commentary, he identifies four specific groups on whom the “burden of recessions and slow economic recoveries is likely to fall disproportionately.”

The first is comprised of people who lose their jobs as a direct result of economic blows. Then there are those who are new to the labour market (young people and immigrants) and can’t find gainful employment despite their often valiant attempts. “Third are those who find a new job but only one that is of lower quality than what they desire,” he writes. “Empirically, this group is often identified as involuntary part-time workers. The final group includes individuals who remain unemployed for an extended period of time, unable to find any job or one appropriate to their skills. Their burden is both the loss of income they experience as well as the likely degradation of their skills and reduced employability that often accompany long-term unemployment.”

If governments turn a blind eye to these individuals, they are essentially ignoring all but the comfortably affluent and the very rich. And alienating most of the voting public makes for mighty poor politics only a bit more than a year out from an election.

Scowl as they might, but those who currently stand at the helm of the economy ought to consider that when managing public expectations, kinder and gentler can also mean smarter.

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Jul 30 2014
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Business, Economy, Energy, Government

Ducking the dreaded ‘B-word’ in New Brunswick

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Those who maintain that in the absence of a global depression governments and the jurisdictions they administer do not go bankrupt – not, at least, in the barrel-wearing, down-and- out sort of way – do not remember Argentina.

In a 2008 edition of Der Spiegel, the magazine reported, “The signs of looming national bankruptcy are plentiful, and bankers in the Uruguayan capital of Montevideo know them well. In late 2001, they were the first to see the coming crash in Argentina. Men traveled across the Rio de la Plata, from Buenos Aires to Montevideo, carrying suitcases filled with US dollars. They stood in long lines at the city’s banks, depositing the contents of their suitcases into accounts and safe deposit boxes there. Uruguay is South America’s Switzerland, a safe haven for money in times of crisis. No one asks about where the millions come from.”

The article continued: “Once the Argentine businessmen had transferred their dollars abroad, the second phase of the collapse began. The Argentine government froze all bank accounts, capping the maximum amount an accountholder could withdraw at only $250 (€198) a week. Small investors, those who had left their money in the banks, were the hardest hit. Tens of thousands of desperate citizens stormed the banks, and many spent nights sleeping in front of the automated teller machines.”

Finally came the denouement of that country’s humiliation: “The last phase of the downturn began in the Buenos Aires suburbs. After consumption had dropped by 60 per cent, young men began looting supermarkets. In December 2001, 40,000 people gathered on Plaza de Mayo in front of the Casa Rosada, the presidential palace. There, they banged pots and pans together day and night, until an unnerved President Fernando de la Rúa fled by helicopter.”

Reach back even farther into history, if closer to home (at least culturally), and we may recall the economic wreckage of post-World War II Britain, which had to borrow the equivalent in today’s dollars of $150 billion from the United States just to keep the lights on, cops on the payroll and hospitals open. The Brits have only just paid back the Yanks the final installment of the loan.

In fact, national bankruptcies are a far more common occurrence in the modern world than many suspect – made all the more chilling by the thorough devastation they wreak on the afflicted economies.

Money’s not worth a plug nickel for anyone (except, perhaps, for those who had the foresight to move their cash to offshore, safe havens before the collapse). Schools and emergency rooms shut down with alarming speed. As for public pensions, you can forget about them altogether.

And because societies are vastly more complex and intra-dependent than are individuals, a jurisdiction can take years, even decades, to crawl back to some semblance of solvency.

Anyone who has endured a personal bankruptcy knows what it’s like to have a trustee like Price Waterhouse tethered to his ankle. But these guys are guardian angels compared to the dark minions who ply their trade at the International Monetary Fund.

It’s lamentable (though not surprising) that, in this run-up to the September 22 New Brunswick election, almost no one has uttered the ‘B-word’ in relation to the province’s dreadful fiscal shape.

It appears we live in a perpetual state of denial, expecting to make no hard choices, to undertake no risky business (can you spell s-h-a-l-e gas?) that might replenish our collective coffers, and yet always expecting fine, fat, grass-fed chickens in our pots at the end of the day.

The New Brunswick Business Council – a collection of demonstrably successful heavy-hitters, whose membership roster includes names like Oland, McCain and Ganong – made headlines this week by challenging the province’s political parties to drop their usual talking points and talk plainly to citizens. What, it demanded, are these political hopefuls going to do to clean up the mess that is New Brunswick’s financial condition?

The Council suggests a temporary hike in the HST and radical surgery on the spending side of the ledger. To be sure, the measures it prescribes aren’t nice, comfortable or easy. But the alternative is obviously far worse.

At least these folks remember Argentina.

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Jul 29 2014
1 Comment
Business, Economy, Government

Ducking the dreaded ‘B-word’ in New Brunswick

DSC_0053

Those who maintain that in the absence of a global depression governments and the jurisdictions they administer do not go bankrupt – not, at least, in the barrel-wearing, down-and- out sort of way – do not remember Argentina.

In a 2008 edition of Der Spiegel, the magazine reported, “The signs of looming national bankruptcy are plentiful, and bankers in the Uruguayan capital of Montevideo know them well. In late 2001, they were the first to see the coming crash in Argentina. Men traveled across the Rio de la Plata, from Buenos Aires to Montevideo, carrying suitcases filled with US dollars. They stood in long lines at the city’s banks, depositing the contents of their suitcases into accounts and safe deposit boxes there. Uruguay is South America’s Switzerland, a safe haven for money in times of crisis. No one asks about where the millions come from.”

The article continued: “Once the Argentine businessmen had transferred their dollars abroad, the second phase of the collapse began. The Argentine government froze all bank accounts, capping the maximum amount an accountholder could withdraw at only $250 (€198) a week. Small investors, those who had left their money in the banks, were the hardest hit. Tens of thousands of desperate citizens stormed the banks, and many spent nights sleeping in front of the automated teller machines.”

Finally came the denouement of that country’s humiliation: “The last phase of the downturn began in the Buenos Aires suburbs. After consumption had dropped by 60 per cent, young men began looting supermarkets. In December 2001, 40,000 people gathered on Plaza de Mayo in front of the Casa Rosada, the presidential palace. There, they banged pots and pans together day and night, until an unnerved President Fernando de la Rúa fled by helicopter.”

Reach back even farther into history, if closer to home (at least culturally), and we may recall the economic wreckage of post-World War II Britain, which had to borrow the equivalent in today’s dollars of $150 billion from the United States just to keep the lights on, cops on the payroll and hospitals open. The Brits have only just paid back the Yanks the final installment of the loan.

In fact, national bankruptcies are a far more common occurrence in the modern world than many suspect – made all the more chilling by the thorough devastation they wreak on the afflicted economies.

Money’s not worth a plug nickel for anyone (except, perhaps, for those who had the foresight to move their cash to offshore, safe havens before the collapse). Schools and emergency rooms shut down with alarming speed. As for public pensions, you can forget about them altogether.

And because societies are vastly more complex and intra-dependent than are individuals, a jurisdiction can take years, even decades, to crawl back to some semblance of solvency.

Anyone who has endured a personal bankruptcy knows what it’s like to have a trustee like Price Waterhouse tethered to his ankle. But these guys are guardian angels compared to the dark minions who ply their trade at the International Monetary Fund.

It’s lamentable (though not surprising) that, in this run-up to the September 22 New Brunswick election, almost no one has uttered the ‘B-word’ in relation to the province’s dreadful fiscal shape.

It appears we live in a perpetual state of denial, expecting to make no hard choices, to undertake no risky business (can you spell s-h-a-l-e gas?) that might replenish our collective coffers, and yet always expecting fine, fat, grass-fed chickens in our pots at the end of the day.

The New Brunswick Business Council – a collection of demonstrably successful heavy-hitters, whose membership roster includes names like Oland, McCain and Ganong – made headlines this week by challenging the province’s political parties to drop their usual talking points and talk plainly to citizens. What, it demanded, are these political hopefuls going to do to clean up the mess that is New Brunswick’s financial condition?

The Council suggests a temporary hike in the HST and radical surgery on the spending side of the ledger. To be sure, the measures it prescribes aren’t nice, comfortable or easy. But the alternative is obviously far worse.

At least these folks remember Argentina.

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Jul 29 2014
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Economy, Politics

George Orwell would be proud to call this tax man Big Brother

When the rock is a hard place, it's usually government thinking it's a friggin' balloon

When the rock is a hard place, it’s usually government thinking it’s a friggin’ balloon

Big Brother arrived in Canada last week – late by 30 years, if we are inclined to set our time pieces according to the schedule predicted in George Orwell’s dystopian novel, 1984– and finally started unpacking his bags.

Ho do we know? It’s not by the creepy rise of the surveillance state as manifested by Communications Security Establishment Canada (this country’s version of the U.S. National Security Agency). It’s not by the uptick of moral priggishness and the desire of mostly conservative politicians to throw just about everyone who ever smoked a joint into jail.

Nope, confused citizen, it’s by the Canada Revenue Agency’s (CRA) full, official embrace of “doublethink”, thanks greatly to the federal government’s determination to root out and defund political activities among national charities – especially those that have been critical of Prime Minister Stephen Harper’s social agenda or, more accurately, lack of one.

You may understand “doublethink” as the “act of ordinary people simultaneously accepting two mutually contradictory beliefs as correct, often in distinct social contexts.” That Wikipedia definition is as almost good as any. The only one better was unwittingly expressed in a Canadian Press (CP) story late last week. To wit:

“The Canada Revenue Agency has told a charity that it can no longer try to prevent poverty around the world, it can only alleviate poverty – because preventing poverty might benefit people who are already not poor.”

The CP item also characterized the spat between CRA and Oxfam Canada as a “bizarre bureaucratic brawl”, which it most certainly is.

Obviously, the best way to alleviate poverty is to prevent it from happening in the first place. The same logic applies to every other deleterious eventuality in life.

The best way of alleviating mental anguish or physical suffering is to prevent disease. The best way of alleviating the effects of bankruptcy is to prevent the accumulation of unsustainable debt. The best way of alleviating social inequality is to prevent the proliferation of sub-standard public education.

Still, prevention is oftentimes an overtly political act. Conversely, alleviation amounts in most cases to a hand out – and, generally, too little too late. That, it seems, is perfectly fine with certain office-holders in Ottawa.

It’s okay to throw a man a fish when he’s starving, but not to teach him how to secure his own catch of the day (all of which, incidentally, runs counter to Christ’s own teachings – a rather ironic twist given the overt religiosity of this government’s cherished voting base).

The doublethink in this case is, itself, a unique twist of the standard model. It does not force you to hold as equally valid two diametrically opposite conclusions; it demands that you consider two obviously joined concepts as inextricably separate.

“Relieving poverty is charitable, but preventing it is not,” the CRA finds in one of the most ludicrous. anti-humanitarian pronouncements any branch of government in this country has ever issued. “Preventing poverty could mean providing for a class of beneficiaries that are (sic) not poor.”

Huh? How exactly would that work? Please, pray tell.

Would Oxfam or any other tax-exempt charity in the poverty-reduction biz conduct an audit of millionaires who are in danger of suddenly losing their shirts, watch them shed said garments and then, and only then, swoop in with bags of basmati and powdered skim milk to “alleviate” their now straightened condition?

The whole thing is, as Oxfam Canada’s executive director told the CP, absurd. “Our mission statement still indicates we’re committed to ending poverty, but our charitable (purposes) do not use the word ‘end’ or ‘prevent’,” he said. “They use the word ‘alleviate.’”

Okay. . .New plan. Oxfam can effectively clean up the language of its mission statement to reflect the new sensitivities. But what prevents it from conducting its real business in precisely the same way as it always has?

Does the charities directorate of the Canada Revenues Agency have the budget in these artificially engineered austere times to track every “political activity” of every charity in Canada to ascertain the degrees of their compliance to Big Brother’s edicts?

Under the ridiculous circumstances, it’s best not to over-think these things.

Keep calm and carry on, good ladies and gentlemen.

Jul 27 2014
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Demographics, Economy, Politics

A tale of two debt loads

Mountain of debt...maybe we grow accustomed to its face...

Mountain of debt…maybe we grow accustomed to its face…

Implementing prudent fiscal policy is, for finance ministers, like threading a needle with a tightrope. Just ask Ottawa’s Joe Oliver or Fredericton’s Blaine Higgs who are, for very different reasons, attempting to execute that particular circus trick.

In the wake of a C.D. Howe Institute report that calls for the federal government to loosen up on its avowed purpose to balance the national budget by 2015 come what may, Mr. Oliver thunders like a Calvinist preacher: “Our government will not open the taps on reckless spending. We will not go down that well-trod and irresponsible path to economic decline.”

Still, economist William Scarth is adamant. “The federal government should delay its final stage of deficit reduction by three years,” he writes in his report for C.D. Howe. “If its deficit-to-GDP ratio is held at one-half of one percentage point for three years before reducing it to zero, it is estimated that the nation’s unemployment rate would be four-tenths of one percentage point lower during this three-year period (the equivalent of 75,000 new jobs).”

He’s not alone in this thinking.

A recent Canadian Press piece quotes several noted experts – some of whom are not partisan word warriors – who point out that the Canadian economy is not, in fact, in especially good shape. Over the past 12 months, only Alberta has created any jobs –  and even there, 72,000 new positions are not enough to boost the flagging fortunes of Ontario, Quebec or, for that matter, New Brunswick.

“Balancing the budget is a political imperative not an economic one,” NDP finance critic Nathan Cullen says. “It’s like balancing the family budget and not feeding the kids.”

Meanwhile, Liberal deputy leader Ralph Goodale writes in a recent editorial, “For months on end, (the Harper government) dismiss weak employment numbers – like the ones recently reported by Statistics Canada for the month of June – as just ‘monthly volatility’.  But it keeps recurring, month after month. One might ask, at what point does that so-called ‘volatility’ become an undeniable trend in the wrong direction. Or to put it another way, when will Mr. Harper pull his head out of the sand?”

Then, there’s David Dodge, a former Bank of Canada Governor whose Spring 2014 Economic Outlook for the law firm Bennett Jones observes: “It is. . .important to realize that in the current environment of low long-term interest rates, fiscal prudence does not require bringing the annual budget balance to zero almost immediately. Small increases in borrowing requirements to finance infrastructure investment would still lead to declines in the debt-to-GDP ratio. Moreover, with low interest rates, it is the right time for governments and the private sector to invest in infrastructure.”

Finally, the CP taps Bank of Montreal chief economist Doug Porter for his views. Says he: “The market is not crying out for a tighter fiscal policy at the federal level. If the government wheeled out a significant medium-term infrastructure program, I don’t think I’d have a big problem with it – they can borrow very cheaply and there’s a pretty good case to be made that there’s lots of demand for infrastructure.”

Move eastward to New Brunswick and witness a whole different tale of woe. Here, Finance Minister Higgs would give his left pinky to own Mr. Oliver’s set of problems, i.e., to spend or not to spend.

According to the latest audited financial statements, the province finished fiscal 2013-14 with a deficit of $500 million (about $20 million more that anticipated) on a long-tern debt of $11.6 billion.

Meanwhile, New Brunswick’s population of 755,464 people continues to age, making a quick return to fiscal health about as likely as a late-July nor’easter.

Still, plucky Premier David Alward enthuses, “We are turning the corner and we see revenue projections on target or actually a bit ahead of target from what we are projecting.”

Of course, to do that, Telegraph-Journal reporter Chris Morris notes “additional revenues of $1.129 billion, a 14 per cent increase over 2014-2015, must be achieved.”

Not even on his very best day would Mr. Oliver walk that tightrope for Mr. Higgs.

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