Tag Archives: Jim Flaherty

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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Apr 11 2014
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Economy, Government, Politics

No need to gild the finance minister’s good record

 

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They came not to bury Caesar, but to praise him. Boy, did they ever. 

Former federal Finance Minister Jim Flaherty’s passing on Thursday – at 64, reportedly from a heart attack – dominated the front page of the Globe and Mail’s Friday edition. In fact, “dominated” might not be the right word; utterly blanketed would be a more accurate description. 

Apart from an ad announcing Toyota’s “red tag” days, nothing else appeared Page-One-worthy for “Canada’s National Newspaper”. 

Our “guiding force” was gone; the man who “shaped the Conservative Party, the nation and the world’s response to the Great Recession” was no more, tragically cut down in the late-middle-age of his life. It took eight reporters and editorialists to say so.

Political Affairs Correspondent John Ibbitson’s walk down memory lane was almost affecting: “In politics, you do what you gotta do. . .At the end he (Flaherty) was pretty happy with his record. . .But then, he was a pretty happy guy. Back when we were  both at Queen’s Park, he’d drop by the press lounge every now and then late on a Friday afternoon to mooch a beer and find out what the boys and girls were saying. He always greeted you with that impish grin, trolling for gossip, though he seldom offered up any of his own.”

At the back of the paper’s front section, the lead editorial continued the eulogy: “Goodbye to the little giant. . .Mr. Flaherty was a giant in the Harper cabinet, and not just because he ran the department whose control of the purse strings makes it, to some extent, the ministry of everything. He was one of the few Harper ministers who acted with considerable independent authority.”

Indeed, it’s difficult, even impossible, to recall another Canadian public official of Flaherty’s metier accorded such a fulsome tribute as this. Pierre Trudeau, Tommy Douglas, Jack Layton, perhaps; still, they were all leaders of national parties and political movements. They weren’t finance ministers.

But, of course, therein lies the answer. 

One of the great foundational assumptions of the post-recession era – especially by the Ontario-centric national press gallery – is that Mr. Flaherty’s foresight and steady hand prevented the country’s Toronto-based financial institutions from circling the drain along with all the others in the wild, wild west during the financial collapse of ’08. For many media mavens, that “fact”, alone, makes the former finance minister’s track record a far more compelling story to tell than even the prime minister’s.   

Another key supposition of the modern age is that Mr. Flaherty’s fiscal stimulus program (Economic Action Plan) – all tallied, about $150 billion – was singularly responsible for preventing the economy from crashing and burning, given the private lending community’s terror of bad debt during the recession. Again, this “fact” has served the frequent press portrayals of the “little giant’s” rock-star status both at home and abroad.

There’s truth in both claims: Mr. Flaherty was a competent steward of the economy in tough times; had he been an inflexible ideologue with a fetish for balancing the nation’s accounts in a zero-growth environment, the road to recovery would have been much rockier than it was. 

But the real secret behind Canada’s relatively robust financial performance during the era of diminishing expectations – at least compared with those of the United Sates, and much of continental Europe – was, and is, its responsible and well-regulated banking system and monetary traditions. 

Mr. Flaherty deserves plaudits for not messing with these (the way former U.S. President Bill Clinton disastrously did with his nation’s laws when he repealed the 1933 Glass-Steagall Act that had, for 66 years, successfully separated commercial from investment banking). But he doesn’t deserve credit for engineering a recovery with a system he merely inherited. 

Neither does he warrant much praise for using the Economic Action Plan creatively and to truly productive effect by making strategic investments in crucial infrastructure, higher education and training, advanced technology commercialization, and work-based poverty reduction programs. To have done so would have invited internecine warfare in his own party. 

Mr. Flaherty should be remembered in public circles as a bright, decent, effective, and tough cabinet minister. He was also that rarest of birds in the Harper government: he could both tell and take a joke. 

But he was not Caesar, and he never sought that company. 

Perhaps, that’s one reason he left Parliament a month ago: Too many little emperors running about, taking credit where credit is, most certainly, not due.

 

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Mar 20 2014
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Politics

Farewell, Jim, and don’t let failure smack you on the way out

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First, the excellent National Oceanic and Atmospheric Administration announces that the North Atlantic’s ice pack is (just barely) showing signs of (gasp, can it be true?) breaking up.

Then, intrepid scientists at NASA announce that they have identified, for all time, the point at which. . .well, time began.

And if that isn’t enough to tickle a polar witch’s fanny, Canada’s official trustee in bankruptcy, Finance Minister Jim Flaherty, announces that he’s had it with politics and so shall, several dozen months before the next federal election, take his leave of Prime Minister Stephen Harper’s cabinet and try to land himself a real job in the private sector.

Which is another way of saying that, in Canada, time can and does stand still, just when you least expect it.

“Yesterday, I informed the prime minister that I am resigning from cabinet,”Pal Jimmy (we can call him this, since he is, now, one of us again) wrote in in his official statement. “This was a decision I made with my family earlier this year, as I will be returning to the private sector.”

But not before issuing a few well chosen, nicely crafted words on his own behalf:

“I am grateful to Prime Minister Stephen Harper for providing me with the opportunity and responsibility to serve Canadians as their Minister of Finance since 2006, one of the longest serving Finance Ministers in Canadian history.

“As I reflect on my almost two decades in politics, I am proud of the accomplishments of the governments I was part of, provincial and federal. In my time as Finance Minister, I am proud of the work I have done to help manage the deepest economic challenge to face Canada since the depression of the 1930s and ensure Canada emerged stronger and as a recognized economic leader on the international stage.

“Along with managing Canada’s performance during the global economic crisis, I am pleased our government brought forward positive measures to make Canada one of the world’s best places to do business. . .I also made it a priority to help improve the well-being of people with disabilities.

“My goal was always to get Canada back on track to a balanced budget after the large deficit we agreed was necessary in Budget 2009 to combat the Great Recession and protect Canadian jobs. As outlined in Budget 2014, I followed through on that commitment. There is no doubt that Canada’s budget will be balanced in 2015.  Canada’s fiscal position is the envy of the developed world. All Canadians can be proud of the country’s performance.

“Now, I will focus on life beyond politics as I return to the private sector. I believe that I have served my country, province and constituents of Whitby-Oshawa to the best of my abilities and thank them for their continued trust and support for almost two decades. . .Thank you, Jim Flaherty.”

No, Jim, thank you.

Thanks to your determination to get the country “back on track” from whichever imaginary hell more powerful cabineteers than you spectrally raised to frighten the pajamas off taxpayers, Canada has become a mewling, paranoid simulacrum of its former self.

We no longer care about employment insurance recipients. We dismiss young people and educators as easily as we do environmental scientists. We can’t even care properly for our veterans of foreign wars.

Thanks to your fiscal leadership, Diamond Jim, Canada has become a meaner, tighter nation. Your policies may have saved the country from going down the road with Greece, but was that ever really the danger?

Wasn’t the real danger the encroaching degree of incivility and mistrust your buddies on the Hill did nothing to mitigate in the villages, towns and cities of a once-tolerant, open-minded, open-handed nation?

Forget the fact that Canada’s GDP has been handed over to natural resources industries. Forget the fact that public investments in science and technology serve only the status quo and, so, produce, no material or intellectual gain.

Forget all of it, Jim.

YER outta here!

Can’t say I blame you.

Can’t say I’ll miss you either, as the weather warms and the secrets of the big, wide universe are revealed just in time for your first Big-Bank interview in the corner office where black holes go to thrive.

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Feb 05 2014
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Government

Countdown to ‘debt-a-geddon’ in New Brunswick

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New Brunswick’s debt clock counts down, by the millisecond, to eternity, tallying a number so vast it beggars comprehension.

Still, there it is on one of the Canadian Taxpayer Federation’s (CTF) websites. Now $11,551,675,188.79; then $11,551,675, 204.44. In a few minutes, it’ll roll over at $11,551,676,000.00 and the nauseating cycle will begin again.

Granted, the CTF is not what you might call a fun bunch. In fact, among all the deeply earnest interest groups and think tanks in Canada (and there are a lot of these taking up office space in charming cold-war-era, cinder-block edifices along the Ottawa-Gatineau corridor), it has always seemed, to me at least, the one most likely to suffer whatever passes in the institutional world for a nervous breakdown.

But sometimes Chicken Little is right; the sky really is falling. Certainly, the CTF’s online presence is the stuff of waking nightmares for the fiscally prudent.

According to the press release that accompanied the organization’s debt-clock launch this week, “In December 2013, the Department of Finance predicted the net debt of the Province would grow by $587.2 million. That means the debt is growing by $1.6 million every day, $67,031 per hour, $1,117 per minute or $18.62 every second.”

In fact, the amount the provincial government allocates annually to service the the debt (interest payments) exceeds the budgets of all but three ministerial departments. That’s a whopping $660 million down the drain each and every year till deadbeat-a-geddon arrives with its four court-appointed officers of the apocalypse: accountant, lawyer, trustee, and bailiff.

Of course, New Brunswick isn’t the only province of Canada that sets the CTF’s tongue clucking.

“The (CTF) released new documents obtained through the Freedom of Information and Protection of Privacy Act that reveal some materials purchased for the Bluenose were sold to the (Nova Scotia) government at a whopping 43 per cent mark-up,” the organization announced last month. “These big mark-ups are just the latest in a series of questionable uses of taxpayers’ money.”

Meanwhile, in Ontario, the CTF wants the provincial government to give serious thought to its myriad recommendations for producing “new revenues and savings of over $13 billion, more than enough to balance the budget in 2014. The recommendations also include a legislated debt-repayment schedule to force the government to pay down Ontario’s $272.8 billion provincial debt.”

Yet, of all the provinces, New Brunswick always seems to earn the CTF’s sharpest opprobrium. Is that because, of all the provinces, New Brunswick has, for the moment, the least going for it, economically and industrially, and the most difficulty bridling its public spending? “You can only borrow so much before you go broke,” the Federation’s Atlantic director Kevin Lacey is fond of saying.

That’s certainly correct. But it is government’s enormous borrowing powers – the ones they grant to themselves and redeem in markets all over the world – that is precisely the problem. Unlike people, private enterprises and institutions, they don’t easily go broke, a structural protection that, paradoxically, deepens the injury and prolongs the misery until, hey presto, one day you wake up and it’s Greece. Gee, now how’d that happen?

New Brunswick road back to fiscal health is hard, but clear.

On the expense side of the ledger, cut program spending wherever costly duplications and redundancies are found; consolidate essential services wherever possible; and shrink the size of the civil service and of government, itself.

On the revenue side, the options are far more limited. Still, robust commercial activity is the only durable source of legal swag for public coffers. To thrive, the private sector needs reliable infrastructure, a skilled and educated labour force, a comprehensible regulatory environment, and, naturally, a reasonable tax climate.

Oddly, enough, as New Brunswick Finance Minister Blaine Higgs struggles with his debt burden, his federal counterpart Jim Flaherty is merrily on his way to balancing the nation’s books, and then some.

In fact, he’s so confident he’s politely ignoring the International Monetary Fund’s advice to loosen up the purse strings and start investing in strategic initiatives that might make the Canadian economy more competitive for the good times that surely follow.

Thanks, but no thanks, fellas. In a year or two, we’ll be sitting on a surplus of two or three billion bucks.

And you know how vast, incomprehensible numbers blind us, here in Canada, to everything else, especially practical common sense.

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Dec 29 2013
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Economy, Society

Sweetening the CPP is long overdue

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It’s always disheartening, though lamentably predictable, when politicians, who ought to know better, adopt the talking points of a vested interest to justify the clearly unjustifiable.

So, when Canada’s Finance Minister Jim Flaherty says that “now is not the time for CPP payroll tax increases”, as he did earlier this month following a meeting with his provincial counterparts in Meech Lake, P.Q., he is merely lifting a line from the Canadian Federation of Independent Business (CFIB) playbook, to wit:

“CPP/QPP increases would mean a significant premium hike for working Canadians and even more serious impacts for the economy. . .Higher labour costs, with no increase in productivity, would lead to job losses or reduced hours for many workers over the first ten years of a CPP increase, and wages would go down by 1.5 per cent. Many Canadians would go without work for years. Some might escape unscathed, but everyone would be at risk.”

This dire warning appears on the organization’s web site, where “research” clearly indicates that most Canadians don’t want to pay higher premiums because, simply, they can’t afford the ones they are facing right now.

Instead, an Angus Reid Global survey says “they believe that government should control spending and reduce taxes to allow more savings. Moreover, many feel that new incentives and voluntary measures to save through existing and new retirement savings tools including the CPP/QPP are the next most effective solutions. Immediate CPP/QPP mandatory increases impose adverse effects: about half of working Canadians express that such increases would reduce their ability to spend on essential goods and services such as food and housing while close to three in four business owners would face increased pressure to freeze or cut workers’ salaries.”

I am not prepared to concede that “most Canadians” actually feel this way, but even if they do, this doesn’t mean that they are right.

As a Globe and Mail editorial, entitled “Flaherty to savers: You’re on your own with CPP as it stands”, admirably pointed out a couple of weeks ago, “The CPP is not a welfare program, or an income-redistribution program. It’s not paid for by taxes. It’s a defined-benefit pension plan, and how much you get out of the program is based on how much you put in. It’s actuarially sound, independently run and low-cost. It’s one of the world’s best-run retirement safety nets. But the maximum pension for a lifetime of contributions is just $12,000.”

Clearly, that is not enough for most working Canadians. By “most”, I am not referring to the rich or lucky few who stand to pull one of those gilded public pensions that assorted bargaining units have been loathe to see watered down.

Nor am I talking about the impoverished, who must subsist on various forms state-supplied handouts and subsidies.

I am looking straight into the worried eyes of those who populate the once sturdy middle class in this country.

The sad fact is Canadians with steady incomes don’t save enough for their retirements. They haven’t in some time. Pundits of quasi-Libertarian bent and their right-wing fellow travelers in political office adoring placing the blame for this conditions squarely at the feet of the non-savers. They’re spendthrifts or layabouts or, simply, poorly advised about their options .

The truth, however, is complex, involving many factors that are out of an individual’s control, not the least of which was the disastrous implosion of financial markets a few years back – a calamity that destroyed trillions of dollars in personal assets, including those held in retirement portfolios, all over the world.

Nothing, of course, will rebuild these funds. But even a small expansion of the CPP – which is a far less risky savings instrument than just about every other option –  will buffer the financial shock of a lower living standard in retirement.

What’s more, it will cost far less now to sweeten the CPP than it will to prop up droves of aging Canadians who will fall into poverty and endure all of its associated evils: ill health, hunger homelessness.

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