Making Canada Relevant Again- The Economic Super-Thread

[GAP]

They are not going to do anything that threatens votes until after the election

 

[a_majoor]

Canning the protectionism of the dairy board would save Canadians an average of $300/year. This would be especially good for poor families to have their grocery bills reduced; and I am pretty sure there are more people who buy groceries and vote that there are voting dairy farmers....

 

[dapaterson]

Remember, Canada's ridings give disproportionate weight to rural areas (both federally and provincially).

 

[Kirkhill]

And a good chunk of the Canadian dairy industry is centred on La Beauce and Lotbiniere - areas around Quebec city where the Conservatives actually hold support in Quebec.

 

[Edward Campbell]

This, reproduced under the Fair Dealing provisions of the Copyright Act from Bloomberg Business, is a worry report on confidence in Canada:

http://www.bloomberg.com/news/articles/2015-05-13/aboriginal-snub-shakes-asian-confidence-in-canada-s-export-plans

Aboriginal Snub Shakes Asian Confidence in Canada’s Export Plans

Rebecca Penty

May 13, 2015

Asian investors are losing confidence in Canada’s ability to send oil and natural gas across the Pacific as another major export project gets bogged down in aboriginal opposition.

A West Coast aboriginal community rejected almost $1 billion in compensation from Malaysia’s Petroliam Nasional Bhd. Wednesday, imperiling the future of one of Canada’s most advanced gas export ventures.
It’s the latest setback blocking Asian access to Canadian energy as pipelines and terminals needed to ship crude overseas meet resistance from the nation’s indigenous communities.

The rebuff puts into sharp focus the hurdles Canada faces in its efforts to compete with the U.S. Gulf Coast and Australia to capture rising Asian demand for fuel, as 19 proponents try to advance Canadian Pacific Coast gas exports.

“It sends a very bad signal to the world that’s looking at Canada,” said Gord Nettleton, a Calgary-based partner at law firm McCarthy Tetrault. The rejection prompts the question, “How are you going to get your house in order?”

The Lax Kw’alaams Band, whose ancestral lands overlap the site of the gas shipping terminal planned by the Malaysian state-owned company, known as Petronas, voted in overwhelming numbers to reject the project, according to the Lax Kw’alaams mayor. Petronas said it will push ahead to resolve the differences, but the rejection is another scar on Canada’s fledgling efforts to export liquefied natural gas, or LNG.

No Free Pass

Canadian gas projects had been expected to sidestep many of the environmental issues that hit its crude industry as it pushed ahead on projects to export bitumen from the oil sands. Instead, the gas projects are facing some of the same challenges, raising concerns among Asian investors, said Geoffrey Cann, a partner at Deloitte LLP based in Brisbane.

“They have been vocal in their frustration with the very slow pace of environmental approvals,” Cann said. “The Asians do want to diversify their energy security portfolio and seek supplies from a range of countries so they aren’t beholden to any one geography or supplier.”

Japan’s biggest energy trader Mitsui & Co. wants to buy LNG from Canada but isn’t investing in developments because of the risks tied to opposition from minority groups, the head of the company’s energy planning group Kaoru Umehara said in a November interview.

Petronas has a vested interest in making its LNG project a reality, after paying C$5.19 billion ($4.34 billion) to buy a Canadian gas producer in 2012. Canadian gas producers are running out of customers as the U.S. supplies more of its own needs, and are also frustrated by delays in export projects.

Diversifying Customers

“It’s a national priority,” said Darren Gee, the chief executive officer of Peyto Exploration & Development Corp. in Calgary. “We want to be able to access all markets so we’re not beholden to the one buyer that, more and more so, doesn’t want our product.”

In spite of the setback for Petronas, winning support for Canadian gas export projects will still probably be easier than oil, said Steven Paget, an analyst at Calgary-based investment bank FirstEnergy Capital Corp. Some aboriginal groups have agreed to compensation for gas pipelines while they’ve rejected oil lines.

Petronas expects to make a final decision on its project this year. It’s focused on securing a key environmental permit by September and continues to consult with aboriginal groups, some of which already support a project that was redesigned to reduce environmental impact, said Michael Culbert, who heads the company’s Canadian division and LNG project.

Canadian coastal gas export projects need to move forward soon, or they’ll lose out to global competitors, said McCarthy Tetrault’s Nettleton.

“LNG is by far a golden goose in Canada,” Nettleton said. “Time is ticking, investors are impatient and I think it’s fair to say that at least from my meetings, we’re seeing interest waning.”

Since this band can afford to turn down almost $1 Billion it, clearly, doesn't need a penny from Canadian taxpayers, ever again.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from Foreign Affairs is an article, by Richard Katz about the Trans Pacific Partnership trade deal from a US perspective:

https://www.foreignaffairs.com/articles/asia/2015-05-12/trade-trials

Trade Trials
Getting TPP Right Is Better than Getting It Fast

By Richard Katz

May 12, 2015.

The Trans-Pacific Partnership (TPP) trade talks start to look as if they will drag on interminably (an increasingly likely prospect), the United States’ capacity to function as a benign world hegemon will be diminished.

To avoid this, the White House is determined to get the pact signed and ratified this year. Otherwise, campaigning for the 2016 elections will put off a congressional ratification vote until at least 2017, five years after the original target date of 2012. Meeting the 2015 goal will be an uphill climb. That’s because it takes up to six months to translate a trade pact into the legal language of domestic legislation. To get a ratification vote this year, the White House would have to persuade both the U.S. Congress to approve Trade Promotion Authority (TPA) in May or early June and its 11 TPP negotiating partners to sign a deal by June or July. The partners have made it clear that they won’t conclude the negotiations until Congress approves TPA for U.S. President Barack Obama, which would give him the authority to call a yes/no vote on TPP in Congress with no amendments. The TPP nations have no reason to present their best offers if they fear that the U.S. Congress will be able to treat their concessions as a floor, not a ceiling. The May 11 Senate vote against proceeding to an immediate debate on TPA means that the Senate probably will not even vote on TPA until June, and it remains unclear whether TPA can pass the U.S. House of Representatives.

TPP proponents condemn the partnership’s opponents in Congress or other countries for the delay and argue that holding back TPP until 2017 risks turning the negotiations into another Doha trade round (which began in 2001). However, blame lies not just with other TPP countries and domestic opponents. It also lies with the posture taken by TPP’s proponents in both the U.S. government and the business sector. In that light, a delay could be worth the risk if it results in a better TPP.

THE REAL BENEFITS OF TPP

A major part of the United States’ role as benign hegemon was to support free trade. The lesson of World War II was that the United States is better off if other countries are more prosperous. Although prosperity does not guarantee a more stable, peaceful, and democratic world, it does help the world move in that direction. And expanded trade not only allows countries to become more prosperous faster, it also increases their stake in the well-being of their neighbors.

For its part, the United States is already so open to trade that most of the direct economic gains from any new free trade agreements will go to its partners.
For example, small territorial wars in offshore Asia (such as the Indonesia-Malaysia conflict in the early 1960s) have become a thing of the past as political leaders gained support by making their nations rich via export-led growth. Despite the harsh rhetoric flying between Tokyo and Seoul over tiny islets, they will not go to war. The major exception is, China’s abrasive pursuit of territorial ambitions in the western Pacific, which poses the risk of conflict. Still, the country is far less dangerous internationally than it was under Mao Zedong. Much of that political evolution has occurred because China’s leaders know that the rapid growth undergirding their rule depends on economic interdependence. Over the long run, bringing China into TPP would further the trend, hopefully strengthening those inside China who want to liberalize the economy and make the country a more responsible stakeholder in the world. From this standpoint, Washington’s attempt to dissuade its allies from joining the China-initiated Asian Infrastructure Investment Bank (AIIB) was as unwise as it was futile.

According to the “bible” of TPP proponents, The Trans-Pacific Partnership and Asia-Pacific Integration, which was published by the Peterson Institute for International Economics in 2012, U.S. national income in 2025 would be just 0.4 percent higher with TPP than without it. Meanwhile, for Japan it would be 2.2 percent higher, for Malaysia 6.6 percent, and for Vietnam 14 percent. For example, if Japan further opened its farm sectors, American exporters would gain sales, but Japan’s overall economy would gain far more than that of the United States. That’s because Japanese consumers have to spend 14 percent of their household budget on food, compared with six percent for Americans and nine percent for those in the United Kingdom. Lowering food prices would liberate a lot of consumer purchasing power.

The Trans-Pacific Partnership and Asia-Pacific Integration probably underestimates the benefits to the United States and others because it omits certain hard-to-measure ongoing productivity gains. For example, much of the productivity revolution in the United States that began in the late 1990s came about because heightened international competition impelled firms to finally adopt long-needed improvements in technology and corporate organization. Beyond that, the United States stands to reap geopolitical gains through TPP by fostering a community of nations that requires smaller U.S. military expenditures to maintain regional security and that are more willing to cooperate with Washington because they see the United States, on the whole, as a more benign force than any alternative.

The United States’ political hurdle is that the post­–World War II domestic bipartisan consensus supporting free trade has all but disappeared. That’s because most of the fruits of American growth in the past few decades have gone to a tiny percent of the population; two-thirds of national income gains went to the top one percent of the population between 2000 and 2007, and even more during the post-2009 recovery. Labor unions have blamed international trade, but the reality is that trade explains only ten to 20 percent of worsening inequality. More impactful is a political system that has eroded the minimum wage, walked back progressive taxes, diminished labor unions, cut budgets for public schools and student aid for college, and so on. (But some of the union complaints are understandable: according to a 2005 Organization for Economic Cooperation and Development [OECD] study, when U.S. workers lost their jobs because of imports, their next job paid 20 percent less, the worst performance of any rich country.

In the absence of broad support for free trade, U.S. trade negotiators are often forced to placate narrow corporate interests in order to cobble together the razor-thin majority needed to get congressional ratification. And many shortsighted business groups unintentionally aid the antitrade forces by resisting even such woefully insufficient compensatory measures as Trade Adjustment Assistance (TAA), which offers financial help for some workers directly hurt by imports. Critics thus see negotiators as acting more like lawyers for special interests than champions of the national interest.

BAD POLITICS

The new politics of trade has led the United States toward some self-defeating negotiating tactics. A prime example is its insistence that TPP talks not be guided by the most-favored-nation (MFN) principle that is at the heart of the postwar free trade order. MFN means that any concession that, say, the United States or Japan makes to each other must also be extended to every other participant in the trade agreement. Without MFN, any tariff reductions that Japan grants for U.S. beef or pork exports would not have to be automatically extended to American ranchers’ competitors in Australia or Canada.

This may sound as if it gives U.S. exporters a leg up. In reality, without MFN, no other TPP country has a direct stake in U.S. success with Japan on import liberalization, and that has reduced U.S. leverage with Tokyo. Indeed, the entire TPP negotiation has been held up because the United States and Japan have spent so much time haggling over economically trivial but politically important issues. These include Japanese barriers to imports of beef, pork, and the like (the production of which involves fewer than 100,000 of Japan’s 46 million households). It also includes how long the United States will take to eliminate tariffs on Japanese auto parts that, on average, add six percent to the price of the parts (far less than the yen’s 30 percent depreciation over the past couple of years). The other ten TPP countries have delayed the resolution of myriad issues that hinge on the U.S.-Japanese outcome. For example, a country like New Zealand might give more to Washington on some regulatory issues if it can export more dairy products to Japan.

Another egregious example is the investor-state dispute settlement (ISDS) system, which is contained in a number of trade treaties, including the draft TPP. Under ISDS, corporations can sue governments for “loss of anticipated profits” due to new regulations. The dispute is settled neither in domestic courts nor by the World Trade Organization (WTO), but in special arbitration panels from which there is no appeal. According to a 2012 OECD study entitled Investor-State Dispute Settlement, half of all ISDS arbitrators serve as lawyers for corporations in other ISDS cases, whereas only ten percent have represented governments being sued. With companies paying an average of $8 million per case, an ISDS arbitrator, unlike a court judge or a WTO panelist, has a direct financial incentive to see more merit in the corporations’ arguments.
Originally, ISDS was put in place to make sure that firms got properly compensated when their property was expropriated by some dictator who could manipulate his country’s courts. Today, it’s very different. R.J. Reynolds, for example, threatened to use ISDS to sue Canada on the grounds that a regulation compelling the firm to use plain wrapping on cigarettes was akin to expropriation. Canada backed down on the regulation. Philip Morris has a similar case against Australia. Eighty-five percent of the cases launched by American firms against foreign governments have involved regulatory, environmental, and natural resource issues. Senate Majority Leader Mitch McConnell (R-Ky.) has since threatened to block the entire TPP if the White House accedes to requests from some other TPP countries to exempt tobacco from ISDS procedures. And now, reports the OECD, hedge funds, banks, and other entities are fostering a new wave of ISDS cases by financing suits in return for getting 20–50 percent of corporate winnings, a practice that is illegal in most domestic courts of OECD countries.

Some TPP and EU countries (in separate U.S.-EU trade talks) want to modify or eliminate the entire ISDS provision because of its chilling effect on a country’s ability to regulate. The simplest remedy would be to replace ISDS with WTO dispute settlement mechanisms. But, presumably at the behest of U.S. firms the White House needs to lobby for TPP, the administration is adamant about keeping ISDS as is.

GRAND BARGAIN

It is the thinness of the pro-trade majority in Congress that gives each narrow group the power to tip the balance. That, in turn, lessens Washington’s ability to serve the national interest and increases the perception among the United States’ trading allies that the country is less a benign hegemon than a selfish one. 

To restore bipartisan support for free trade, and thus lessen special interest leverage, it is necessary to turn to the proposal of nineteenth-century classical economist John Stuart Mill for “free trade plus compensation.” Although free trade is a win-win proposition for each nation as a whole, within each nation, trade makes some citizens richer and others poorer. Fortunately, the gains for the winners are so big that some of them can be redistributed so that every citizen is better off. Unfortunately, these days almost all of the twentieth-century measures used in the United States to promote income equality and security—from a progressive income tax, to a minimum wage that keeps up with inflation, to Social Security, to the very existence of labor unions, to publicly funded education—are under attack. Trade is unjustifiably scapegoated for the consequences of this whole ecosystem of policies.

Some countries, such as France, the Netherlands, and Sweden, make sure that trade, technological progress, and wages all rise in tandem by spending as much as one to two percent of GDP on “active labor measures.” These include retraining services and active efforts to help find new jobs for those displaced by trade or domestic changes in technology. The United States, by contrast, spends the least among rich countries, just 0.1 percent of GDP. This is penny wise and pound foolish for U.S. growth, living standards, and the politics of trade.

Of course, U.S. politics is not the only reason TPP is in danger. Japan has prolonged the entire TPP process by being incredibly stubborn on farm liberalization, to the detriment of its own economy. While it is reducing many barriers, it also looks as though it will succeed in exempting more products from complete tariff elimination than has occurred in all other American free trade pacts since the North American Free Trade Agreement (NAFTA)—combined. Some developing nations have sought to protect state-owned enterprises. It’s much harder to persuade other governments to challenge their own domestic special interests, though, when the United States’ negotiators seem unwilling to do the same.

Business and its political allies that want free trade must recognize the need for a grand bargain—free trade plus compensation—along a whole range of axes. Until the United States restores bipartisan support for free trade, the White House will not only have trouble getting Congress to approve new free trade agreements, it will have trouble getting increasing numbers of would-be partners to agree as well. At the same time, labor unions and their Democratic Party allies need to recognize that TPP or no TPP, globalization is going to continue. Rather than fight the inevitable, they, too, should focus on the grand bargain.
Security experts who want other countries to support U.S. leadership have to ensure that, when it comes to trade pacts, American hegemony remains benign. The more that U.S. negotiators are compelled to coddle special interests at home, the fewer friends and allies the country will have on all sorts of issues, including the very complex one of how to integrate a rising China.

Finally, the White House should reconsider its stance that TPP must be ratified this year at all costs. Given that TPP will be the template for trade rules for years and years to come; that members hope to expand it to dozens of nations, including China; and that Washington needs to restore bipartisan support for free trade, getting TPP right is better than getting it fast. Delay does pose a risk, but both NAFTA and the U.S.-Korea (KORUS) pact were ratified by the successors to the presidents who negotiated them. Obama knows this; he was the one who got Congress to ratify George W. Bush’s KORUS pact.

Japan is not the only country that is "being incredibly stubborn on farm liberalization:" Canada is just as bad with its desire to keep protecting a few dairy farmers.

Canada stands to gain some more than the USA ... especially if we have to learn to compete with (against?) Asians in a free trade area.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from Project Syndicate, is a bit of a rant by Niall Ferguson about the follies of the some Keynesians when commenting on the UK election. It's here because it's filled with graphs ~ and you know I love my economic data arranged in nice graphs ~ that show how Canada is doing vis-à-vis our G-7 compatriots:

http://www.project-syndicate.org/commentary/the-economic-consequences-of-mr-osborne-by-niall-ferguson-2015-05

The Economic Consequences of Mr. Osborne

Niall Ferguson

May 19, 2015

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a senior fellow at the Hoover Institution, Stanford.

CAMBRIDGE – “If the facts change,” John Maynard Keynes is supposed to have said, “I change my opinion. What do you do, sir?” It is a question his latter-day disciples should be asking themselves now.
Long before the United Kingdom’s recent general election, which the Conservatives won by a margin that stunned their critics, the facts about the country’s economic performance had indeed changed. Yet there is no sign of today’s Keynesians changing their minds.

Because I admire him as an historian, not least for his Keynes biography, I omitted Lord Robert Skidelsky’s name from my post-election commentary critiquing the contemporary Keynesian take on the UK economy. Opprobrium was best heaped, I believed, on Paul Krugman, as he makes such a virtue of heaping it on others. Unwisely, Skidelsky has leapt to Krugman’s defense.

Let me restate why the Keynesians were wrong. In the wake of the 2010 British election, Skidelsky, like Krugman, predicted that Chancellor of the Exchequer George Osborne was gravely wrong in seeking to reduce the budget deficit. In November 2010, he described Osborne as “a menace to the future of the economy” whose policies “doomed [the UK] to years of interminable recession.” In July 2011, he told the Financial Times that Osborne was “making a wasteland,” warning that financial markets might soon lose confidence in his policies.

In June 2012, Skidelsky argued that “since May 2010, when US and British fiscal policy diverged, the US economy has grown – albeit slowly. The British economy is currently contracting. … For Keynesians, this is not surprising: By cutting its spending, the government is also cutting its income. Austerity policies have plunged most European economies (including Britain’s) into double-dip recessions.” And, in May 2013, he reported that “The results of austerity had been “what any Keynesian would have expected: hardly any growth in the UK … in the last two and a half years … little reduction in public deficits, despite large spending cuts;…higher national debts… [and] prolonged unemployment.”

By this time, groupthink had taken hold. Skidelsky approvingly quoted Krugman’s claim that Britain was “doing worse this time than it did during the Great Depression.” More than once he echoed Krugman’s assertion that Osborne had been motivated by an erroneous belief that if he did not reduce the deficit, he might forfeit investor confidence (the “confidence fairy”).

Just a week before the UK voted this month, Skidelsky speculated that voters, “still wobbly from Osborne’s medicine,” might “decide that they should have stayed in bed.” Instead, the Tories won an outright majority, confounding pollsters and Keynesians alike. What could possibly have gone wrong – or, rather, right?

The last-ditch argument now put forward by Krugman is that the UK electorate was fooled into voting Conservative by a one-year pre-election boom, cynically generated by a covert Keynesian stimulus. It cannot have been easy for him to abandon his cherished macroeconomic model in favor of a conspiracy theory, especially one that two decades ago lost whatever explanatory power it ever had for UK elections.

But there is an alternative explanation: the Keynesians were wrong. “Austerity” was not nearly as harmful as they predicted. Fiscal stabilization may have contributed to a revival of confidence. In any case, nothing in modern British economic history told Osborne that he could risk running larger deficits with impunity.

There has been some sleight of hand in assessing Britain’s recent economic performance. For example, Dean Baker took International Monetary Fund data for the G-7 countries’ GDPs and made 2007 his base year. But a more appropriate benchmark is 2010, in the middle of which Cameron and Osborne took office. It is also worth including the latest IMF projections. And per capita GDP must surely be preferable to aggregate GDP.

No doubt, recovery in the UK began more slowly than in other G7 economies, except Italy. But there is also no doubt that the UK recovery picked up speed after 2012. Last year, its growth rate was the highest in the G-7. According to the IMF, only the US economy will grow faster over the next four years, with the UK then regaining the lead.

It is wrong to assume that the UK could somehow have replicated the German or American recovery, if only Keynesian policies had been followed. The UK’s position in 2010 was exceptionally bad in at least four respects, and certainly much worse than that of the US.

First, public finances were extremely weak, as a 2010 Bank for International Settlements study of trends in debt-to-GDP ratios clearly showed. The baseline scenario for the UK at that time was that, in the absence of fiscal reform, public debt would rise from 50% of GDP to above 500% by 2040. Only Japan was forecast to have a higher debt ratio by 2040 in the absence of reform.

Second, including financial-sector debt, non-financial business debt, and household debt the pre-crisis UK had become, under Labour governments, one of the world’s most leveraged economies. In 1997, Labour’s first year in power, aggregate UK debt stood at around 250% of GDP. By 2007, the figure exceeded 450%, compared with 290% for the United States and 274% for Germany. Government debt was in fact the smallest component; banks, businesses, and households each had twice as much.

Third, inflation was above the Bank of England’s target. From 2000 until 2008, the inflation rate had crept upward, from below 1% to 3.6%. Among G-7 countries, only the US rate was higher in 2008; but, whereas US inflation cratered when the crisis erupted, the UK rate remained stubbornly elevated, peaking at 4.5% in 2011.

Finally, the UK was much more exposed than the US to the eurozone crisis of 2012-2013, as its principal trading partner suffered two years of negative growth.

So the real question is this: Did Osborne successfully stabilize the UK’s public finances? If the Keynesians had been correct, he would undoubtedly have failed; growth would have turned negative and the fiscal/debt position would have worsened.

That is not what happened. Net government debt as a percentage of GDP had soared from 38% to 69% from 2007 to 2010. It rose under Osborne, too, but at a far slower pace, and is forecast to peak at 83% this year, after which it will decline. By 2020, according to the IMF, only Canada and Germany will be in better fiscal health.

Stabilization of the public debt has been achieved by a drastic reduction of the government’s deficit from a peak of just under 11% of GDP in 2009 to 6% last year. By 2018, according to the IMF, the deficit will have all but vanished. The same story can be told of the government’s structural balance, which fell from 10% of GDP in 2009 to 4% in 2014 and should be just 0.5% in 2018.

This is an impressive performance in comparative terms. The US, for example, will still have a 4%-of-GDP deficit by 2020 on either of the above measures.

To be sure, the UK did not “deleverage”; but, under Osborne, the debt explosion was contained. Among advanced economies, only Germany, Norway, and the US achieved smaller increases in aggregate public and private debt/GDP ratios from 2007 to 2014.

UK inflation was also brought under control, without the overshoot into deflation experienced by some developed countries. Osborne cannot claim direct credit for this, of course; but the choice of Mark Carney to serve as Governor of the Bank of England was unquestionably his.

Most important, no prolonged or double-dip depression occurred. Far from being worse than in the Great Depression, the economy’s performance after 2010 was better than it had been in the recessions of the early 1980s and early 1990s. Indeed, the UK outstripped the other G-7 economies in terms of growth last year, and its unemployment rate, which never rose as high as the rates in the US and Canada in the teeth of the crisis, currently stands at roughly half those of Italy and France.

Measured by job creation, too, UK performance was as good as the best, with employment increasing by roughly 5% between 2010 and 2014. As Jeffrey Sachs has noted, the UK employment rate, now at a record-high 73%, exceeds by far the US rate of 59%.

The fact is that the more Keynesians like Skidelsky and Krugman talked about the “confidence fairy,” the more confidence returned to UK business. One can argue about why that was, but it seems unlikely that Osborne’s successful fiscal consolidation was irrelevant. There is certainly no evidence to support Krugman’s repeated assertion that a country in the UK’s situation – with its own currency and with debt denominated in that currency – could borrow without constraint in the aftermath of a major banking crisis. (Perhaps the Keynesians prefer to efface from their memories the mid-1970s, when Labour politicians, encouraged by Keynesian advisers, attempted to do just that.)

And the Keynesians’ comparisons with the Great Depression were plainly risible from the outset. In terms of unemployment, even the recessions of the 1980s and 1990s were twice as painful.

Without question, the UK has endured some real pain. From 2010 to 2015, average inflation-adjusted weekly earnings fell more than under any postwar government. But the electorate has decided that the right time to draw a conclusion about the performance of Cameron’s team (now only at its likely half-way point) will be in 2020, not 2015. The good news is that since September 2014, earnings have been growing in real terms. The plunge that began under Labour took time to stop, but it is finally over.

Like Krugman (though his tone has been much less obnoxious), Lord Skidelsky has made the un-Keynesian mistake of sticking to an erroneous view in the face of changing facts. I look forward to the time when both have the intellectual honesty to admit that they were wrong – horribly wrong – about the economic consequences of Osborne’s strategy.

I was tempted to put this in the Election 2015 thread because it shows that Prime Minister Harper's record is pretty good ... not the best, but better than the countries favoured by the Liberals and NDP.

 

[a_majoor]

Although this is an election issue, it has the potential for debilitating long term effects on the economy and Canadians (as Ontarians will soon discover), so I placed it here:

http://business.financialpost.com/fp-comment/jack-m-mintz-cpp-expansion-hurts-poor-and-middle-income-canadians

Jack M. Mintz: CPP expansion hurts poor and middle-income Canadians
 
Jack M. Mintz | June 4, 2015 7:28 PM ET
More from Jack M. Mintz

FotoliaI am sure Tom Mulcair and Justin Trudeau don’t want to attack many poor or middle class workers but that is exactly what would happen with a mandatory expansion of the CPP, writes Jack Mintz..

In anticipation of the Fall election, parties are scrambling with proposals to address concerns over income adequacy in retirement. The Liberals are pushing for an Ontario-type retirement income plan that would be mandatory for those without an employer-provided defined benefit plan. After dismissing the need for CPP expansion, the Conservatives are now proposing a voluntary CPP supplementary plan. The NDP supports major CPP expansion.

It is far from clear as to what problem is trying to be addressed. As well documented by the best studies with large sampling – Statistics Canada and McKinsey reports – almost four-fifths of Canadians have sufficient income at retirement. Any mandatory expansion of CPP would therefore force many people to hold CPP assets, thereby making less money available for stretched families to invest in their home or Tax Free Saving Accounts.

Yet, with all the current discussion over CPP reform, a little dirty secret has failed to be pointed out by those supporting CPP expansion. CPP is not a very good investment for many Canadians on an after-tax basis.

While CPP has had an admirable return on its portfolio, its interaction with the personal income tax and income-test benefits makes it a surprisingly poor investment for many low-income and middle-class Canadians. Let me explain this by taking Ontario as an example.

Under the existing personal income tax, Ontarians contributing a $100 to CPP receive a tax credit that reduces the cost by $20.50 to $79.50. With personal credit, aged credit and pension credit, a low-income senior with $15000 in income, would pay no personal income tax on any additional CPP benefits. However, the low-income senior would lose 50 cents in Guaranteed Income Supplement payments for each additional dollar of CPP benefit. At the age of 65, benefits accruing at a riskless return of 5 per cent, would be about $130 dollars. Once accounting for the GIS clawback, the benefits paid would be worth $65, less than the after-tax cost of the initial investment of $79.50.

Related
National Post View: A bigger CPP isn’t about ‘fairness’
Terence Corcoran: They’re off on the great CPP pension balloon
.
It doesn’t take rocket science to figure out that CPP is a poor investment for very low-income Canadians. Even if the return on the CPP portfolio is better than the riskless return of alternative investments, the tax consequences would turn the investment into a money-loser. Several years ago, it was correctly pointed out that RRSPs were a bad deal for low-income Canadians since the tax on withdrawals from the plan was extraordinarily high, leading to a negative return on RRSP savings. The same is true for CPP investments.

What about middle income Canadians? An Ontario worker with $50,000 in income at the time of retirement pays federal and provincial tax at 33 per cent. Taking the same example, the after tax cost of $79.50 for a CPP contribution, would provide a CPP benefit at retirement five years later of $87.10. This paltry benefit barely covers inflation at 2 per cent per year with a return less than typical government bonds.

Other examples abound. OAS payments are clawed back 15 cents for each dollar above $71,592. Therefore, a worker with $80,000 in retirement income would lose 48 per cent of additional CPP benefits due to personal income taxation and the OAS clawback. With this excessive tax on benefits, these Canadians could earn a poor return on CPP investment similar to the lowest income Canadians.

Unlike contributions to private pension plans and RRSPs, which are deductible from income, governments have been penny pinching by giving Canadians a CPP tax credit at the low income tax rate. If the CPP contribution were deductible for the $50,000 Ontario worker, the after tax cost would $67, yielding the market return of 5 per cent for CPP investments.

I remember once speaking at a conference pointing out this anomaly. I wondered why union members support the expansion of the CPP since many employer-provided pension plans are integrated with the CPP. For each extra dollar of CPP contributions, an Ontario union member with income ranging from $50,000 to $80,000 loses 12 cents in personal tax savings as pension deductions are turned into CPP credits. The result is almost $300 in extra personal income tax payments for 2015.

The push to expand CPP for many Canadians is therefore a raw deal. I am sure Tom Mulcair and Justin Trudeau don’t want to attack many poor or middle class workers but that is exactly what would happen with a mandatory expansion of the CPP.

The Conservative proposal for a voluntary CPP is no better as an idea. The tax credit for CPP contributions is insufficient given much higher taxes to be paid on benefits once received.

Besides, a voluntary CPP that provides a defined benefit after retirement is a hard sale due to the so-called adverse selection problem. Those individuals who expect to live shorter than the average plan member would not want to invest in CPP since they would prefer higher benefits. The plan would be left with those living a long time, thereby requiring higher contribution rates to cover actuarially fair benefits.

For this reason, most observers would suggest that a voluntary supplementary CPP would need to be like the RRSP or Pooled Registered Pension Plan, which are defined contribution plans, whereby retirement income depends on the investment experience of the plan. However, CPP has never been organized that way since accounts would need to be kept for individuals who would want to monitor them. Besides, a government providing a voluntary pension plan better not mess up. With bad investment experiences such as in the fall of 2008, demonstrations at Parliament Hill would surely result.

Before federal and provincial governments even consider expanding CPP, they should at least convert contributions from tax credits into deductions for personal income tax purposes. This would improve the implicit returns making CPP a better investment. It would also be a welcome tax break for many Canadians.

Jack M. Mintz is the Palmer Chair, School of Public Policy, University of Calgary.

 

[a_majoor]

Looking longer term, the future is coming and it will be strange. This article from NBF is about the United States, but the figures for Canada will be similar on a percentage basis (indeed, because Canada is urbanized to an even greater extent than the United States, the proportional costs and benefits might be even greater):

http://nextbigfuture.com/2015/06/teamsters-versus-aarp-and-rest-of.html

Teamsters versus the AARP and the rest of society for Robotic cars

Suncor is getting self driving trucks for the Oilsands. By 2020, they plan to convert to robotic trucks

Ken Smith, president of Unifor Local 707A, which represents 3,300 Suncor employees. Smith said Suncor has signed agreements to purchase 175 driverless trucks.

Truck, bus, delivery, and taxi drivers account for nearly 6 million professional driving jobs in the United States.

Too bad for the drivers over the next few decades but I want my commute time automated and I want grandma to be independent and mobile and I want to save lives and reduce injury from accidents

So millions of driving jobs would be lost but
* I and others could have a productive commute. I have 2 hours per day commuting. I could theoretically boost productivity by 20%
* Many elderly people can no longer drive safely. Robotic cars will help them to be more mobile and independent
* costs saved throughout the supply chain have the potential to lower costs and provide big economic gains
* a trillion to the US economy from lower accident costs, lower insurance and boosted productivity
* over 30,000 lives saved and 240,000 reduced car accident hospitalizations in the US alone every year

According to an AARP spokeswoman, by 2030 over 78 million boomers will be 65+, and research shows that men will outlive their driving abilities by six years and women by 10.

The Transport Workers Union is pushing to exempt bus drivers from prosecution for killing pedestrians in crosswalks is an unfortunate example of "union power" ignoring the interest of the public. The TWU bill in the City Council is supported by 16 council members, many of whom are recipients of political contributions from the TWU. Councilman I. Daneek Miller, in an op-ed in the Daily News, cited the traumatization of the bus driver who was recently arrested for hitting a 15-year-old girl in Williamsburg. There was no mention of the trauma of the young victim, who may lose a leg and be maimed by the crash.

Automation of driving has the potential to save over a million lives per year globally from reducing fatal car accidents.

Google has claimed the robotic car could :

We can reduce traffic accidents by 90%.
We can reduce wasted commute time and energy by 90%.
We can reduce the number of cars by 90%.

About 5.5 million motor vehicle accidents occurred in 2009 in the U.S., involving 9.5 million vehicles. These accidents killed 33,808 people and injured more than 2.2 million others, 240,000 of whom had to be hospitalized.

Adding up all costs related to accidents—including medical costs, property damage, loss of productivity, legal costs, travel delays and pain and lost quality of life—the American Automobile Association studied crash data in the 99 largest U.S. urban areas and estimated the total costs to be $299.5 billion.

Traffic congestion wasted 4.8 billion hours and 1.9 billion gallons of fuel a year for urban Americans. That translates to $101 billion in lost productivity and added fuel costs.

Shared Robotic cars could reduce the costs for taxis and transportation by five times

A senior who cannot drive might easily pay $4000 per year for transportation. This is usually on a fixed income. Lowering the costs by five times would be $800 per year for transportation.

Young people (under 16) who cannot drive would have mobility options other than being driven by their parents.

Society will have a lot more net benefits from robotic cars.

The dramatic reduction in individual costs also includes the reduction or elimination of car loans and payments. It should also be considered that the reduction of the car fleet also means the demand for raw materials and energy to build cars will decrease, the numbers of automobile workers will decline radically and so on. This also means the political clout of these industries and labour unions will decrease accordingly, and cities like Hamilton, Windsor and Oshawa will see a severe decline in employment, and possibly population.

There will be lots of other second and third order effects as well, which I don't think anyone in the political class is thinking about this in any serious way.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, are some useful thinking points from Gwyn Morgan:

http://www.theglobeandmail.com/report-on-business/rob-commentary/executive-insight/a-decline-in-albertas-fortunes-means-a-decline-in-quebecs/article25309327/

A decline in Alberta’s fortunes means a decline in Quebec’s

SUBSCRIBERS ONLY

Gwyn Morgan
Special to The Globe and Mail

Published Sunday, Jul. 05, 2015

TransCanada Corp.’s 4,600-kilometre Energy East pipeline would carry Alberta crude oil to refineries in Quebec and New Brunswick that are dependent on Middle East imports. Last November, the Quebec government declared that, for the pipeline to cross the province, it must generate economic benefits. Then on June 23, Quebec Premier Philippe Couillard told reporters that he didn’t see much economic value for his province in being a “transit place” for the pipeline.

New Brunswick Premier Brian Gallant was quick to respond: “The province of Quebec is … estimated to receive … about 4,000 jobs … an increase of about $3-billion in the GDP and, on top of that, about $700-million in extra tax revenue.” Given the size of those economic benefits and that they are roughly twice those that would accrue to Premier Gallant’s own province, Mr. Couillard’s statement is indeed baffling. Perhaps it’s simply a matter of the anti-oil bias he illustrated later in the interview: “I prefer a world without fossil fuel, only electric, you know.”

Alberta is of course, Canada’s biggest fossil fuel producer, and most dependent on the success of the Energy East project. But what Mr. Couillard fails to recognize is that a decline in Alberta’s economic fortunes also poses an indirect threat to his province’s own financial sustainability. Why? The answer lies in the structure of the federal Equalization Program.

A province’s equalization entitlement is based on the amount by which its “fiscal capacity” is above or below the average of all 10 provinces (known as the “10 Province Standard”). Those falling below that average are commonly referred to as “have-not” provinces. Quebec has received an equalization grant every year since the program was established in 1957. And since Ontario became a have-not province in 2009, B.C., Alberta, Saskatchewan and Newfoundland/Labrador have been the only net contributors to federal equalization funding.

Alberta has long been the province with the highest fiscal capacity and, indirectly through Ottawa, the largest supporter of equalization. But now, Alberta is in serious economic trouble. A Conference Board of Canada report released in January concluded that 2015 will see the province experience the largest drop in gross domestic product, together with a reduction of some $12-billion in business investment. Events in the six months since the report was released make that outlook decidedly optimistic.

TransCanada has been forced to defer the planned startup date for Energy East to early 2020.

The world oil price outlook has become even more unclear. And the surprise victory of Rachel Notley’s NDP, elected on a platform of higher income and carbon taxes together with a “review” of royalty rates, has fostered further waves of layoffs and deeper investment cuts.

The Conference Board report estimates that oil producers in Alberta, Saskatchewan, and Newfoundland and Labrador will see a combined $10-billion reduction to their revenues this year. It will almost certainly be worse than that. So what if the fiscal capacity of these three “have” provinces were to drop? Simple arithmetic would result in a reduction in the 10 Province Standard, thereby drastically reducing equalization payments to the have-not provinces. What if this happens to “fossil fuel”-shunning Quebec?

That province’s deficit for the fiscal year ended March 31 was $2.35-billion after receiving a $9.29-billion federal equalization grant. Without that grant, Quebec’s deficit would have ballooned to $11.64-billion. Given that Quebec’s debt-to-GDP ratio is already the highest of any Canadian province and 2.5 times that of the most indebted American state, the Couillard government would have no choice but to implement drastic spending cuts. The “Quiet Revolution” that brought in the so-called “Quebec Model” welfare state so revered by the provinces’ political, union and intellectual elite would turn into a raucous and wrenching upheaval.

The impact of reduced equalization grants would also be wrenching for the other Maritime provinces. The difference is that Mr. Gallant understands the vital importance of the oil and gas industry to Canada’s economic and social fabric, and is wisely doing what he can to help sustain it.

Gwyn Morgan is a retired Canadian business leader who has been a director of five global corporations.

I believe that there is a green economy and I think there is money to be made, jobs to be had and important social goods to be advanced by better focusing our use of non-renewable resources, like petroleum, on mobility while we use greener forms of energy ~ which, I think, must include nuclear ~ for static applications. But: we have oil and we can and should extract, refine and use it here (and sell it abroad) for our collective benefit: the "greatest good for the greatest number" and all that.

 

[Edward Campbell]

How to make Canada (more) relevant, again?

Correct our position ~ move it to the left, towards Israel, Korea, Japan, Finland and Sweden ~ on this chart:

         

It will not happen because:

    1. R&D requires a long term commitment for both business and politics ~ and both are driven by short term imperatives; and

    2. We, usually, get R and D wrong ~

          Research should be done in laboratories, public (mostly but not all in universities) and private, and the public (governments using your money) should be the major payer, but

          Development should be done, primarily (but, again, not exclusively) in the private sector, in privately funded labs and centres ~ but it may be supported, in part, by public money, through the tax system.

 

[Edward Campbell]

Here is a useful infographic shoing Canada's share (Just above Rest of the World) of the global economy:

         

 

[Infanteer]

I'm still concerned with the preponderance of the service industry.  Productivity is key and I feel we need to make more than triple sized coffees and new credit products.  I think a cultural shift is required - after the Second World War, the university degree was the key to the middle class, so universities ramped up their production lines.  Now finding skilled workers seems to be difficult.  The comment by Dyson is telling:

In fact, Mr. Dyson, Britain's most famous manufacturer, doesn't actually manufacture anything in Britain. He hasn't done so for 10 years, since he was refused local permission to expand his Wiltshire factory and came to the realization, as thousands of other manufacturers have, that hardly any of the components of his machines were made in Britain any more. So why not move everything to Asia, where it's simply easier to build things?

“There ought to be huge advantages to manufacturing in England,” he says with an indignation that hasn't dulled over the decade. “This is where our headquarters are, it's where our managers are, our engineers. We've got two bigger offices in Singapore and Malaysia, and we don't want to do that – it's a logistical nightmare – but we're forced to do it.”

It's not the labour, he says. Few companies shift their manufacturing overseas because of lower wages; in fact, many of the factory jobs for companies like his require some postsecondary education.

“Wages are a tiny percentage of our manufacturing cost,” he says. “We'd happily pay British labour costs rather than Southeast Asian labour costs and not have to manufacture 8,000 miles away. The reason we went there is that we weren't allowed to expand, and all of our suppliers were in the Far East. Why buy a British plug cable made in Taiwan, ship that all the way back to England to install it, then ship that all over the world? The problem we face now is that China and the Far East are manufacturing economies, and shortly probably India and South America. And we can't compete with that. … It's the cost of our whole infrastructure, our employment laws and our skills … the management skills in particular. And we're a very expensive place to make things.”

Before 2008, this was simply the complaint of one businessman, railing against an economic system that was designed around services, software and real estate, and seemed to be running very smoothly indeed. But the global economic downturn has given his message a new universality. After all, it was the financial-services and property sectors that collapsed; industry-driven economies such as Germany and Singapore experienced record-breaking export booms and avoided the crisis.

Countries such as Canada and Britain have a weakness: Having abandoned manufacturing almost completely, they are vulnerable to the uncontrollable destinies of natural resources and the financial industry. But Mr. Dyson describes it as only one symptom of a larger problem: a Western world, especially the former branches of the British Empire such as Britain and Canada, that has lost its will to invent and make things.

http://www.theglobeandmail.com/news/world/james-dyson-reinvented-the-vacuum-now-he-wants-to-remake-the-economy/article533746/?page=all

http://www.economist.com/news/britain/21648003-lack-skilled-workers-and-managers-drags-country-down-mind-gap

 

[Edward Campbell]

I'm still concerned with the preponderance of the service industry.  Productivity is key and I feel we need to make more than triple sized coffees and new credit products.  I think a cultural shift is required - after the Second World War, the university degree was the key to the middle class, so universities ramped up their production lines.  Now finding skilled workers seems to be difficult.  The comment by Dyson is telling:

http://www.theglobeandmail.com/news/world/james-dyson-reinvented-the-vacuum-now-he-wants-to-remake-the-economy/article533746/?page=all

http://www.economist.com/news/britain/21648003-lack-skilled-workers-and-managers-drags-country-down-mind-gap

I mentioned this elsewhere, in these fora; it's a problem that some of our military leaders and senior government officials knew about and commented on back in the mid 1980s, 30 years ago.

There's an economic dilemma: countries want low-skill/high wage jobs ~ the sorts of jobs that were characteristic of our metal bending industrial economy in the 1950s ~ because they allow the normal, moderately intelligent young man to earn the kind of money that supports a middle class family. But low skills cannot, for any length of time, command high wages, so the low skill work migrates to low cost economies ~ just as, for example, Japanese jobs migrated to China and, now, those Chinese jobs are migrating to Indonesia and the Philippines. (I'm sorry, boys and girls, but the "laws" of economics are just about as immutable as the laws of physics ~ and just as unforgiving.) So, back in the 1970s, we saw the job migration begin (it began even earlier in some places - coal mining in the Netherlands, for example, moved out in the 1960s: good quality coal could be mined much more cheaply in other parts of Europe) and our response was partially correct: we saw that high wages demanded high skills, but we equated high skills with higher education ... not true. A good education is a "good" (a valuable thing) on its own merits, but it may not pay much of a return. There's a reason that actuaries, for example, earn much, Much, MUCH more than sociologists or art historians; there's a reason that engineers with BCSEEs earn much more than "women's studies" grads with PhDs. The market pays for what it needs, the education system has its own mini-marketplace, for teachers, but it does not "set" the wages anywhere else. Part of our (the great big, society-at-large, our) response, community colleges, was right, but even then we, society at large, "valued" white collar work higher than blue collar work and, at the same time, we (society again) wanted to elevate pink collar work to "professional" status. The end result was that we produced too many people for the service sector and we allowed really valuable, high skill/high wage work (tool and die makers, machinists, electricians, draughtsmen, and, and, and ...) to migrate, too, with the low skill jobs.

Public policy can only do so much ... public attitudes matter a lot. If parents raise their kids to believe that selling insurance is, somehow, "better" than making precision parts on an automated lathe then we are buggered as a productive country.

 

[dimsum]

The things you learn reading these forums - I had no idea there was such a thing as "pink collar work".

 

[Old Sweat]

The things you learn reading these forums - I had no idea there was such a thing as "pink collar work".

In the bad, old days it referred to jobs like secretaries, typists and receptionists. I recall as a teenager in high school wondering along with the rest of our group why the girls in our class couldn't take shop and draughting, etc, but were streamed into home economics, typing and the like.

 

[Jed]

I mentioned this elsewhere, in these fora; it's a problem that some of our military leaders and senior government officials knew about and commented on back in the mid 1980s, 30 years ago.

There's an economic dilemma: countries want low-skill/high wage jobs ~ the sorts of jobs that were characteristic of our metal bending industrial economy in the 1950s ~ because they allow the normal, moderately intelligent young man to earn the kind of money that supports a middle class family. But low skills cannot, for any length of time, command high wages, so the low skill work migrates to low cost economies ~ just as, for example, Japanese jobs migrated to China and, now, those Chinese jobs are migrating to Indonesia and the Philippines. (I'm sorry, boys and girls, but the "laws" of economics are just about as immutable as the laws of physics ~ and just as unforgiving.) So, back in the 1970s, we saw the job migration begin (it began even earlier in some places - coal mining in the Netherlands, for example, moved out in the 1960s: good quality coal could be mined much more cheaply in other parts of Europe) and our response was partially correct: we saw that high wages demanded high skills, but we equated high skills with higher education ... not true. A good education is a "good" (a valuable thing) on its own merits, but it may not pay much of a return. There's a reason that actuaries, for example, earn much, Much, MUCH more than sociologists or art historians; there's a reason that engineers with BCSEEs earn much more than "women's studies" grads with PhDs. The market pays for what it needs, the education system has its own mini-marketplace, for teachers, but it does not "set" the wages anywhere else. Part of our (the great big, society-at-large, our) response, community colleges, was right, but even then we, society at large, "valued" white collar work higher than blue collar work and, at the same time, we (society again) wanted to elevate pink collar work to "professional" status. The end result was that we produced too many people for the service sector and we allowed really valuable, high skill/high wage work (tool and die makers, machinists, electricians, draughtsmen, and, and, and ...) to migrate, too, with the low skill jobs.

Public policy can only do so much ... public attitudes matter a lot. If parents raise their kids to believe that selling insurance is, somehow, "better" than making precision parts on an automated lathe then we are buggered as a productive country.

Let's get our country going in a productive direction.

 

[Oldgateboatdriver]

The things you learn reading these forums - I had no idea there was such a thing as "pink collar work".

Not only was there such a thing, but the old naval administration building at the Halifax dockyard, which employed mostly female personnel and (by sheer coincidence?) was painted salmon pink was nicknamed the Pink Pagoda.  ;D

 

[dimsum]

Not only was there such a thing, but the old naval administration building at the Halifax dockyard, which employed mostly female personnel and (by sheer coincidence?) was painted salmon pink was nicknamed the Pink Pagoda.  ;D

[Monty Python]

Pacific or Atlantic? 

Aaaaaaaaaaaaaagh!!!!!

[/Monty Python]

 

[dapaterson]

[Monty Python]

Pacific or Atlantic? 

Aaaaaaaaaaaaaagh!!!!!

[/Monty Python]

Hmm... Halifax... which coast would that be?

At least you've demonstrated why your trade dropped the "Nav" from their name  >