Raise the Hammer

Up until recently, I've tried to give America the benefit of the doubt. Many of my American friends say they stay because they can't change anything from outside the US borders. However, the recent developments of the Judiciary Review of SOPA (Stop Online Piracy Act), and the new defense bill that will allow the American military to arrest and detain American citizens indefinitely, without trial, has finally convinced me that it's too late for America - she's slid too far down the slope to fascism.

Personally, this is a lesson to me - to engage Canadians who are apathetic about voting now, and to get our leaders to consider electoral reform, before this happens to us (and it will). The electoral systems in North America are practically designed to end up with two party systems, which is not truly democratic. To me, the Democrats and the Republicans are the same party, for all intents and purposes. Someone said to me that America looks to be devolving into a feudal system. At first it sounded preposterous. But spine-tingling nonetheless.

IMHO, so are the Liberals & Conservatives, if not in theory, certainly in practice.

Canada's rosy state at the moment has a lot to do with our geography. We're a very large country with a lot of resources and fairly few people. With First-World technology, that makes us a leading exporter of things like oil, gas, lumber, fish, minerals, etc. America has less land and more people to split it between, in many ways we're far more akin to Brazil or Russia. Make no mistake, when the global economy truly goes, we're going with it, though perhaps in better shape than some.

I agree Undustrial. I think it's the opposite of "a rising tide lifts all boats"...something like "a tsunami swamps all ships." Sure our ship might be fancier than some others, but it will get swamped nevertheless.

a rising tide lifts all boats

Ugh... I hate that saying. It assumes we all have boats.

The one I hate is "trickle down economics". It accurately describes what the wealthy do with their money, and that's not a good thing as I don't know many people who can survive on a trickle of water.

Waterfall economics is a saying I could get behind.

Comment edited by -Hammer- on 2011-12-17 09:52:34

My favourite aspect about Reaganomic arguments like "trickle down economics" is that they manage to turn a question of how to give more money to poor people into a rationalization for giving more money to rich people.

My only concern is that those we've elected into power are doing their damnedest to undue many of the safe-guards that have helped us weather the storm. And our continued cozy-ing up to American foreign and environmental policy leaves me rather skeptical.

Say what you want about the Kyoto Protocol, but our new found alliance with the pollution-happy U.S.A hasn't made us many friends. We used to be the innovative leaders when it came to progressive thinking. Now we're simply part of the problem. But, the mining industry is doing well!

For these reasons, I worry that apathy will only get worse, not better.

^The mining industry has left 10 000 abandoned mines across the country. What is disturbing is our inability to collect royalties to pay for the damage left behind. Between '66 and '02, Canadian authorities collected $150 million in royalties, while taxpayers paid 4 billion to clean up a portion of the toxic soup that was left over (Andrew Nikiforuk). Interestingly, 233 000 tons of arsenic remains at Giant Mine (NWT) and seepage of acid and heavy metals continues at Brittania Mine (BC) Reminds me of an old '80s Housemartins song... "A drop of arsenic in their wine, sulphuric acid in their beer"

At some point in the future, we will experience first-hand the cost of reclaiming land used by the major steel companies in Hamilton... probably the not-too-distant future for one of them. What will be our ability to collect funding for remediation from the corporations that were responsible? We all know the answer to that.

Rhetorical questions aside, the emphasis on jobs, jobs, jobs has clouded the issues of accounting for the full costs of industrial production as a regular business practice, not that we have ever done that. Doing so may mean making some shorter term sacrifices, but at the benefit of avoiding longer term costs which may be much larger. There is really no excuse today, especially since we understand ecological impacts (and social ones) much more clearly than in the past when ignorance could at least be acknowledged if not excused.

Ontario has well over a hundred million tonnes of unremediated uranium tailings near Elliot Lake alone. This has been publicly acknowledged for decades (many of these mines closed in the 1960s), and very little has been done about it. The cost of this site alone will undoubtedly reach well into the billions. And that's one site from one stage of one industry.

We cast a very large shadow. Far beyond our city's borders, our lifestyles involve enormous tracts of land, colossal workforces and massive costs. Cement, drywall, metals, minerals, lumber, energy, plastics, food...all of these and more come to us in ways which are totally unsustainable and render vast areas unable to produce them (and anything else) in the future. We haven't just hit peak oil, we've hit peak everything and all these costs are rising as a result, and have been for most of a decade now. Our financial markets certainly haven't helped this, but even under the wisest technocratic management, does anybody really think this kind of resource use could continue in the long run?

My favourite aspect about Reaganomic arguments like "trickle down economics" is that they manage to turn a question of how to give more money to poor people into a rationalization for giving more money to rich people.

That is perfect, Undustrial. Succinct, and eloquent.

My literal image of 'Trickle Down Economics" is a little more nasty, & graphic. (& probably correct.)

(Is it raining in here?)

"Inside every cynical person, there is a disappointed idealist." -George Carlin

In 2010-11, the GST took $28.38B out of consumers pockets ($842/person).

If consumers were given this money back, what would happen?

Is it possible that people would use some of that money to buy additional goods and services? And if sales did improve, would employers be able to get by with the current amount of workers, or would they be forced to hire more workers to meet the higher sales volume?

Moreover, if more people are working and producing real goods and services, is that a good thing for the economy, or a bad thing?

But can we afford to pay for these tax cuts?

Well, the current interest rate on the Canadian 10 year bond is 1.87%, while federal debt charges/GDP have fallen from 4.239% in 2000, to 1.793% today. In other words, there is plenty of fiscal room to cut taxes.

The real economy is not about money, it's about production. Money is like oil that greases the wheel of production. If there is not enough oil, the wheel spins slower than optimal (low capacity utilization, unemployment over 5%). In contrast, if the government throws too much money into the economy, too quickly, there is a good chance that it will be wasted (wage inflation, price inflation).

Government debt is a non-issue in a nation that prints its own currency, which Canada does. The ONLY issue that we could have is inflation. However, given the fact that investors are lending at record low rates, it would appear that they are signalling lower inflation going forward.

Hopefully the government figures this out and starts giving consumers more spending power and workers more hope in putting their skills to work.

I agree with you about money being "like oil" and that keeping more of it in the economy is a good thing, assuming there is the right balance of taxes to provide the public services and infrastructure required by that economy.

However:

Government debt is a non-issue in a nation that prints its own currency, which Canada does. The ONLY issue that we could have is inflation. However, given the fact that investors are lending at record low rates, it would appear that they are signalling lower inflation going forward.

A non-issue? What about when most of that debt is held by foreign hands? And a situation where many, many countries are facing debt problems? (particularly our large partner to the south)

I think the inflation risk is a bigger deal than you let on, especially considering the global debt problem. It can get out of hand quite quickly, and Canada's fiscal policies are only going to be able to do so much to help.

Comment edited by ScreamingViking on 2011-12-18 15:40:13

>> What about when most of that debt is held by foreign hands? And a situation where many, many countries are facing debt problems?

U.S. debt charges in 2000 were 3.64% of GDP. Today, they are down to 2.79%.

Today, more debt is held by foreigners than in 2000.

So, if the trend continues, then more foreign held debt will likely be a good thing.

>> It (inflation) can get out of hand quite quickly, and Canada's fiscal policies are only going to be able to do so much to help.

Inflation tends to track median wage growth. For example, in the seventies, U.S. median wages rose about 9%/year and as a result, inflation was very high (8.05%). In contrast, since 2007, U.S. median wages have risen at around 1.5%/year and CPI has averaged 1.85% in the same time frame (Nov 07-11).

That's the real value of money (pieces of paper), to encourage buying and selling, work and investment. If unemployment is at 7.4%, then either Canadians (corporations) are hoarding these pieces of paper, or it has flowed overseas and is not coming back in the form of export demand.

In our monetary system, the government can offset this higher demand for savings (indicated by the demand for our debt) by cutting taxes.

In reality, Canada has the ability to "print" as much money as it wants. The trick, however, is to print just enough money so as to encourage job growth and higher living standards and this is best done by cutting taxes and leaving more money in people's pockets.

Consumer spending accounts for 63.2% of Ontario's economy. As it goes, so does job creation. From the end of 2008 to mid 2011, consumer spending has averaged only 2.16%/year. From 1997-2000, it averaged 4.45%/year.

With record household debt, how are consumers going to find the cash to power 4-4.5% consumer spending? And yet, McGuinty keeps raising taxes like the HST, which sucks money out of shoppers pockets.

In 2002-03, provincial debt charges amounted to 2.03% of Ontario's GDP. In the latest quarter, they were only 1.50%. That means McGuinty has at least $80 billion to add to the debt before the actual debt burden approaches 2002-03 levels (based on current debt of $240B).

The HST is projected to raise $19B this year. That means that if McGuinty wanted to, he could scrap the HST (8%) for 4 years.

I wonder if that would help the economy?

U.S. debt charges in 2000 were 3.64% of GDP. Today, they are down to 2.79%.

Today, more debt is held by foreigners than in 2000.

So, if the trend continues, then more foreign held debt will likely be a good thing.

If the correlation actually means something. Debt charges have been down because interest rates have been so low, not because foreign debt holdings are higher.

I guess I'm just recalling the inflationary issues of the early-80s - I was too young to understand what was going on, but the battle to keep inflation in check was fought with high interest rates (very high) which did a lot of damage to the economy and caused much grief to consumers, especially mortgage holders. Central banks are afraid to raise rates now because of weak economic growth, but they may have no choice if inflation becomes stronger. Things are different today no doubt, but old lessons seem easily forgotten.

I do not believe you can "mint" your way out of fiscal straightjackets. Debt does matter. Surely there is a balance to aim for, but I think our government is far from achieving it, even if we're closer than many other countries.

>> Debt charges have been down because interest rates have been so low, not because foreign debt holdings are higher.

I was just being a smart ass, I don't actually believe that there is a correlation between interest rates and where a debt holder resides. Both Canadians and foreigners expect to be paid.

>> I guess I'm just recalling the inflationary issues of the early-80s

Government spending in the eighties averaged 10.48%/year. That's what caused inflation. Fast growing salaries, transfer payments, all made people rich on paper, but most of that "wealth" just fed to higher prices, without really creating more stuff.

In contrast, the nineties saw government spending rise at only 3.48%/year. In that decade, the average price of a Canadian house actually remained at about $150k the whole decade (no inflation). In the eighties, they increased by 8.72%/year.

>> I do not believe you can "mint" your way out of fiscal straightjackets. Debt does matter.

There is no fiscal constraints on a nation that issues its own currency, which Canada does. The only issue is debasement of the currency.

However, if you look at Japan, their debt/GDP has grown from 68%, to over 200% since 1990. In contrast, Canada's has gone from 75% to 84% (includes provinces). Yet, in this time, the value of the yen has increased from 123 Yen/1 CDN dollar, to 81 Yen/CDN dollar. Rising deficits/debt have not hurt the value of the yen at all.

>> Surely there is a balance to aim for, but I think our government is far from achieving it

The balance should be a job for every Canadian that is healthy enough to work.

Material wealth does not come from money, it comes from work and productivity. Therefore, with unemployment at 7.4% nationally and 7.9% provincially, our focus on a non-issue (running out of paper money) is forcing many people unnecessarily into poverty.

I hear people talking about wanting to find a job, but can't. That is maddening. These people want to help themselves and their families, do not want to collect welfare, but because there is not enough buying and selling in the economy, their efforts are simply not needed by businesses.

Businesses don't hire because they want to be nice, they only hire workers if they are forced to increase their output (explains Fed Ex temporary hires around X-Mas).

That being said, the only way to increase buying and selling is to make consumers more confident. If consumers think they will lose their job, odds are they will slow their spending, thus businesses will not hire more workers.

In contrast, if the HST were cut sharply, people would be able to buy more stuff and create more activity in stores. Because of this, businesses would be forced to hire, paying salaries to people that would have otherwise sat at home collecting welfare.

Inflation comes from incomes that rise too quickly, not from public deficits. Wealth comes from production. Production comes from jobs. Jobs come from unit sales.

The real goal of the economy should be stimulating consumers to buy things they want/need, not the deficit. The deficit is a complete non-issue for Canada, regardless of what the "so-called" experts say.

There is no fiscal constraints on a nation that issues its own currency, which Canada does. The only issue is debasement of the currency.

Pretty big issue though, is it not? Particularly for a nation that imports so much of its consumer goods? And whose manufacturing industry is reliant on purchases of foreign equipment necessary to improve production?

A devalued Canadian dollar makes those things much more expensive, ceteris paribus.

>> (Canada's) manufacturing industry is reliant on purchases of foreign equipment necessary to improve production?

Productivity from 2000-08 was 1.004%/year, basically flat. During this time period, the Canadian dollar went from $0.69US to over a dollar, only falling when people bought U.S. dollars during the financial crisis.

In contrast, from 1990-2000, when the Canadian dollar fell from $0.86US to $0.69 Canada's productivity averaged 1.88%/year.

It seems logical that a stronger dollar should help productivity, but the data does not show that to be the case, it actually shows the opposite.

Doubt there's a causative relationship there despite the apparent correlation, but the fact businesses have not invested more in technological improvements as the dollar strengthened has been a conundrum (even acknowledged as such by our financial leaders).

You'd also think that during the ongoing restructuring of many of our manufacturing subsectors the more productive firms would survive, pushing up the average rate of productivity growth. Perhaps they have, and it would otherwise be a lot worse.

Since the end of 2007 I don't doubt firms have been reluctant to invest, given the economic climate. But they weren't doing so in the years leading up to that as the dollar rose, during a period of relative prosperity.

The Conference Board did a report not too long ago about Canada lagging behind the US in productivity growth. Been meaning to read it but haven't had the chance.

Anyway, with so many other production inputs being foreign sourced - not just machinery and equipment - I think a very weak dollar would still hurt. There's a sweet-spot where a lower valued dollar helps make our exports more attractive, but at some point the import costs must erode that benefit.

Comment edited by ScreamingViking on 2011-12-30 18:56:03

So your suggestion is that we increase debt, in the face of a credit downgrade, which will likely result in further downgrades and raise our interest rates, increasing the percentage of GDP that provincial debt charges amount to?

As for the idea sales taxes are wrong...you have to get the money somewhere, and the altneratives to sales taxes for the provincial government are increased income taxes. Are you advocating increased income taxes?

I'd prefer sales taxes to income taxes any day, they're much more efficient. In fact, I wouldn't mind getting rid of provincial (and federal) income tax altogether, and replacing it with a larger GST/HST, built into the pricing of goods at stores, and increased relief in the form of GST/HST credits for the lower income households.

It would be easier to administer, fewer collection problems, and the compliance rates with large retail organizations (walmart, dollarama) is stellar. You'd essentially be outsourcing tax collection to the private sector. Don't you support outsourcing?

If you study taxes the trend in the OECD countries and elsewhere is to lower income taxes and increase Value-Added Taxes (VAT). Most experts are behind this. I'm wondering why you aren't.

>> So your suggestion is that we increase debt, in the face of a credit downgrade, which will likely result in further downgrades and raise our interest rates,

This is from the Bank of Canada Act (http://laws.justice.gc.ca/eng/acts/B-2/page-6.html)

18. The Bank may

(c) buy and sell securities issued or guaranteed by Canada or any province;

In effect, Ontario and Canada could run up as much debt as they wanted, knowing full well they would always have a buyer for their debt.

As a result, Ontario/Canada could in theory scrap the HST altogether and still fund spending at whatever level they wanted to. The extra funds would come from the Bank of Canada, not through taxation.

Unfortunately, Minister Flaherty is currently expecting the impossible. Have consumers pay down our household debt, yet keep spending high to create jobs.

How are we supposed to do both when we have a current account deficit (more money leaving Canada than coming back).

If he would scrap the HST, that would put $28.38 billion back into our pockets. We could use half for debt repayment and half for new purchases, thus creating the need for more workers.

Well, it just seems surprising for you to take this stance...but you have surprised me before.

So Bank of Canada buys Ontario (or Canadian) debt, and the country repays it by printing more money down the road, when necessary? I seem to remember you making this point previously.

This would slowly devaluing the currency to something more "acceptable" than its presently high level? Is that also my correct recollection of your previous posts? I wouldn't want to put words in your mouth.

>> So Bank of Canada buys Ontario (or Canadian) debt, and the country repays it by printing more money down the road, when necessary?

Pretty much, plus the interest we pay the Bank of Canada on the debt gets returned to the Department of Finance. This way we can keep our interest charges as low as we want.

>> This would slowly devaluing the currency to something more "acceptable" than its presently high level?

Sure, if we cut taxes to zero and let private savings accumulate to crazy levels, then our dollar would fall. But that would not be the goal. The goal would be to cut taxes just as much as to make up for people's demand for savings.

In a recession, people slow spending and increase savings. This could be because of fear, or just because bank debt is too high. The net result is that businesses respond by laying off workers.

In order to counteract this fear and keep people working, the government needs to cut taxes for consumers. By doing this, people are then able to increase spending and/or pay down debt. With healthy spending, businesses are forced to keep workers on the payroll, or even expand their workforce.

In this sense, taxes act as a fuel injector, putting just enough money into the economy so as to keep the economic engine functioning at healthy levels.

I have to agree with David Harvey (internet's most famous Marxist) that an end of public debt would be totally cataclysmic to capitalism. Perhaps it would be more clear if rephrased: what do you think would happen if the government paid off all its current treasury bonds and didn't ever offer any more, even to banks? What would the financial markets look like without these GICs?

I'm not much for monetarism (or the economy,for that matter) but Mr Smith is correct about what happens when these kind of debt-reduction fantasies get tried on a national scale. Debt is capital, and that's kinda necessary for capitalism.

this might not be the best place to ask this question, but do any of you smarties out there wanna tell me the difference between "capitalism" and "corporatism"?

Corporatism is a pretty broad set of ideas. It doesn't specifically refer to "corporations" in the modern sense (Nike, Wal Mart etc), but something more like the legal definition, spanning anything from the Hudson's Bay Company to many worker co-operatives. As Borrelli states, it's primarily about organization, though the adherents have often been all over the map - from Fascists to syndicalists.

Capitalism is an economic system based on the private ownership of capital, and particularly where that ownership is commodified and bought/sold on markets. Capital is any property (land, stuff, money, information etc) which can be used to earn more. Capitalists maintain power by charging workers and consumers for access to this capital, granting themselves a surplus (profits) to re-invest in future capital.

Corporations don't have to be capitalist, and you can have capitalism without corporations, but the two tent to work well together. You could have a socialist economy of collectively owned corporations, or a simple capitalist economy where everything is owned by individuals.

Corporatism is a very interesting set of relations, usually associated w/ Germany, where people organize in groups or organizations with common or shared interests, i.e. labour, finance, government. One of the reasons why its believed Germany has been so successful economically in the Euro market is because of the relatively cooperative relations between the state, labour, and capital/business in developing economic policy.

Everyone is still empowered to fight for their own interests, however the three parties realize they are in many ways dependent on one another, and having the state as a third party also tends to mediate the adversarial, zero-sum relationship that usually prevails in labour-capital negotiations.