Peter Brown, the founder of Canaccord Financial, ikon of British Columbia’s business community, recently issued a letter to the BC Conservative Party in which he urges BC’s so-called “free enterprise” coalition to unite in a bid to deny the left-of-centre a victory in the next provincial election.
Mr. Brown’s letter warns that the world faces a dire economic crisis the likes of which we have not seen since the Great Depression – on this point he is correct. However, Mr. Brown’s diagnosis of the causes of the economic crisis is inaccurate – it contains standard Republican & Harper/Flaherty talking points and an austerity meme that is discredited. Mr. Brown’s letter is below (his words are in quotations and in bold), along with my comments (in italics):
“I have been in the investment business for over fifty years and founded Canaccord Financial, Canada’s largest independent investment dealer forty-four years ago. In addition, I serve on the Economic Advisory Council to the Federal Government, Chair the Fraser Institute am Vice Chair of the Investment Industry Association of Canada as well as sit on the Board of Governors for the Business Council of British Columbia. This variety of experiences gives me an exposure to the global, geopolitical and economic forces that are currently at play and they cause me to agree with the Governor of the Bank of England when he said in October, 2011 that “The world is facing the worst financial crisis since at least the 1930’s if not ever.” I believe it is generally true that there are more problems in more places with less leadership than anytime in my lifetime.”
- Mr. Brown has a stellar resume. But let’s understand that he references the lofty titles and positions he holds in order to give more weight to the arguments he’s about to make in the following paragraphs. Also note, three of Mr. Brown’s positions are with lobbying organizations for big business and big finance – the Investment Industry Association represents the 180 or so of Canada’s investment dealers/brokerage firms; the Business Council of BC represents 250 of BC’s largest businesses; the Fraser Institute purports to be a think tank but in reality it’s a neo-liberal lobbying arm for big business and the superwealthy (it’s not met a social program it doesnt want to dismantle, any tax break for big business and the elite are never sufficient). Also note, the Economic Advisory Council to the Federal Government, which was established by Minister Flapperty in 2008, has a rotating membership dominated by big business and right wing interests.
So now we understand who Mr. Brown represents – not small business and the average Joe. I take him at his word that he cares deeply about BC and issued his letter out of concern for the direction of the province.
“The purpose of this letter is to suggest that we are in a very troubled global economic condition that is more serious and likely to be longer in duration than the normal relatively short term post war recessions and that will, in my opinion, impact on global growth, investment and job creation for some time to come. It is a time that responsible British Columbians need to get past their partisan beliefs to hopefully ensure that our politics don’t add another level of uncertainty in an uncertain and economically dangerous world.”
- Mr. Brown sets the tone of the letter by describing the dire global economic situation…fair enough; I agree we are confronting an economic situation more serious than most people realize.
What Mr. Brown is about to do in his letter is follow what known as the right wing’s TINA argument (“there is no alternative”) to austerity. In fact, there are alternatives, ones that are advocated by highly respected economists such as Paul Krugman, Steven Keen, Robert Reich, Joseph Stiglitz, Christina Romer, Brad Delong, Jim Stamford; these economists have made most of the right calls since before the crisis. I’ll talk about those later, ones that do not ask the average Joe to pay for the bailout of the superwealthy.
Those calling for austerity policy keep getting proven wrong about how their policies will work out – they have been wrong about Greece, Spain, Portugal, Italy, Ireland, the UK, the Baltics, which they said were recovering or will recover via austerity, but all of whom are suffering deeply with many still in recession. Each time the austerians are proven wrong, they try to point at some new country where austerity seems about to work. Maybe they will point to Canada next.
Those countries that did not listen to the austerians (Iceland), or where austerity has not yet kicked in as much (Canada, the US) are doing better.
I very much like the clever rhetorical setup “responsible British Columbians will” do something, by which, we will come to understand later in the letter, means fall in line to support the right wing policies Mr. Brown prefers because, you know, this is no time for “irresponsible” left wing policies. Nice framing.
“The media focus is rightly on the European Union which represents more than 25% of world GDP and 30% of consumption – about twice as large as China. Currently about half of the 17 European countries are in recession, the average unemployment rate is 11% and the GDP has fallen 0.4% from 2007 through 2012. Issues include sovereign debt crises, banking crises and a great deal of social instability, but Europe, while significant, is only part of the problem.”
- more clever rhetorical setup; Mr. Brown sets up Europe as bogeyman; the right wing loves to assail “socialist” Europe as failed state – Flapperty and Harper have done this recently and it’s a common refrain of Republicans; it’s easy lumping certain “failed” states into the same bucket, but when the right wing characterizes “socialist” Europe as a failure they ignore the social democratic states that are doing well at the moment (most with higher government spending than us).
Whose doing well? According to The Economist, hardly a socialist publication, places like The Netherlands, Sweden, Germany, Finland, Denmark have similar or lower unemployment, debt and deficits as Canada and are growing GDP as fast or faster. They all rank highly in wealth, income, happiness and economic competitiveness, including “socialist” Germany (exceptionally, Germany is a bit of a darling at the moment among some on the right because Germans are “fiscally responsible” as they adhere to the right wing’s fetish for imposing austerity on ClubMed and other countries).
Mr. Brown lumps together three items as if they are all causes of crisis – sovereign debt crises, banking crisis and social instability. But only one of these is the underlying cause. With the exception of Greece, the sovereign debt crisis was caused by irresponsible lending by the private sector banks and their bad business decisions, which led to the banks’ collapse and a bailout by national governments.
The wealthy shareholders, bondholders & failed management teams were bailed out (aside from some pension and other worker money, most of the wealth, 80% or more, is owned by the elite, so this was a bailout of, by and for the elite). This bailout and the deep recession the crisis caused lead to an increas in national government debt burdens. Those higher debt burdens are now being used as an excuse to cut social programs that primarily benefit the average person.
Those protests Mr. Brown lumps in as a cause of crisis are in truth a result of crisis – of unemployment, against austerity, against the notion that the average citizen should suffer so that the wealthy can be saved; Mr. Brown seems to pretend as if protest occurs spontaneously; no, protest occurs for a reason; it’s clear Mr. Brown wishes the protests would go away, and his way of framing the protests as cause of crisis is a clever way of suggesting to Canadians that they ought to quietly accept the policies he’s about to propose, like good little worker bees or, you know, we may end up like Europe or something.
This is not capitalism. It’s cronyism. When bankers lend money they are supposed to be taking a risk; if they make bad loans they are supposed to suffer the consequences. That hasn’t happened. Nor have the elite mandarins who manage these banks been fired or prosecuted for misdeads (as week doens’t seem to go by without revelation of new fraud, cronyism or corruption in the financial services industry – the LIBOR scandal, misappropriation of custody accounts, fraud on clients, manipulation of commodity prices (latest, from this week), and on it goes.
We should note that setting up Europe as bogeyman is disingenuous for another reason: the global financial crisis emanated out of the Unites States of GWB (with a helping hand from Democrats, including Bill Clinton). The US has lead the decades long neo-liberal push for deregulation of big business and finance; the housing bubble grew out of irresponsible sub-prime and other lending and shenanigans by the private banks; it’s not “socialist” Europe that failed, but neo-liberal economic policies that flowed from the US and infected regulatory systems in Europe, Canada and beyond (the set of neo-liberal policies is called the “Washington Consensus” for a reason).
“Developed world growth forecast for 2012 is 1.4% down from 3.2% in 2010 and the emerging economies will grow at a rate of 5.7% down from 7.5% in 2010. The US GDP is projected to grow less than 2% which will be the worst recovery of all post World War II recessions. The Canadian government has projected a 2.1% GDP growth which is weakening. Japan in the same 2007 – 2011 period suffered a decline in GDP of 3.5% aggravated by a natural disaster and now China is experiencing weaker growth as its manufacturing activity is slipping along with that of the U.S.”
- not many bones to pick here; slow or negative growth is a problem for all, but it scares the crap out of the finance and banking industries – with negative growth they will be left with more bad loans, and there will not likely be support for endless bailouts
“Many parts of the developed world have been on a borrowing binge to maintain unsustainable entitlements that now require the pain of deleveraging and austerity.”
- And, here we have it!, in which Mr. Brown deftly and gently transitions to putting the cause of crisis squarely on government spending. First, we already noted that the sovereign debt crisis began with a bailout of the banks, but let’s expand on that:
The truth about government spending is that it’s been relatively flat in the range of 32% of GDP for the G7 countries since the 1970s according to the IMF.
Second, what government debt crisis? Currently the Government of Canada, the US federal government and the UK can all borrow money for 1%-2% for the long term; subtracting inflation means they can borrow money for free or negative real interest rates. Shouldn’t interest rates be much higher if their is a real sovereign debt crisis? When you can borrow money for negative real interest, that’s a good time to spend and put people back to work. That’s what the all-important “free market” is signally you to do.
It’s true, some Euro member governments currently have high interest rates on their debt, but the reason for that is because the European Central Bank refuses to act as a lender of last resort as the central banks of Canada, the US and UK are doing. The key difference between the Euro area governments who have high rates and Canada, the US and the UK is that the former are currency users and the latter are currency issuers; the latter control their own currency and so long as they issue the currency in which they borrow they can never go bankrupt.
The ECB could buy Italian, Spanish, Portuguese and Greek bonds and bring their rates down; instead it supports austerity; even without the ECB acting as a true central bank, Germany and some other Euro members are able to borrow at low rates that contradict the sovereign debt crisis meme.
I will give Mr. Brown this – Canadian provinces are in a position similar to the Euro area member states; Canadian provinces are currency users, so they must operate under that constraint while the federal government does not. But all this argues for is fiscal federalism (which Harper and Flapperty are dismantling; in Europe the austerians are demanding European fiscal federalism; it all goes to show it’s not about principle for these folks; it’s about whatever will benefit them in any given time and place).
Let’s consider British Columbia for a moment. What’s happened over the past few years of government spending and debt? Well, spending as a percentage of GDP is down and on the books debt as a percentage of GDP has also been decreasing (with the exception of the deficits since the financial crisis began) – I dont think I need to cite any sources; dont the BC Liberals brag about this?. So it does not appear BC has runaway social spending; it’s just a permanent refrain of the right wing and a throw-away statement.
Where BC’s debt has increased, significantly, as noted by many great BC based bloggers (Tsakumis, Northern Insights, David Schreck, and others) is in the kind of debt that’s off-books, like PPP (public private partnerships) debt and private power purchase agreements. Yes, we have our own crony capitalists feeding at the government trough even as they demand austerity for everybody else.
Let’s also note that Canada’s federal government debt as a percentage of GDP was decreasing up until the financial crisis (to below 30%); so there does not appear to be any irresponsibility there either until the bailouts of the private financial sector, Mr. Brown’s sector, started.
Finally, let’s note that while Greece’s government had been acting fiscally irresponsible even before the crisis, Italy’s debt was decreasing and Spain was running a budget surplus and its debt was lower than Germany. Even as it stands today, the consolidated “socialist” EU has about the same overall debt levels as Harper’s fiscally “responsible” Canada and the “Obama socialist” US whose surpluses were busted by GWB unpaid for wars and tax cuts benefiting primarily the wealthy inherited by and continued by Obama.
“This is accompanied with the unfortunate demographics of aging populations who tend to consume more government services as they live longer and, out of necessity, hold on to their jobs. The receding economies will cause relatively high unemployment over the intermediate term and unfair and unsustainable youth unemployment.”
- this is a hodge podge of confused statements. True, developed economies have aging demographic profiles, which the right wing uses as an excuse for cutting “unaffordable” social programs; it’s here where the right wing conjures up big scary non-inflation adjusted numbers to frighten voters into supporting austerity. We saw this with the fake OAS crisis, where Flapperty and his gang threw out a $100 billion figure as the 20 or 30 yrs hence cost of OAS.
The truth of the matter is that OAS costs as a percentage of GDP will increase by about 0.75% by approx 2030, at which point they peak and thereafter decline, all this according to Kevin Page, the Parliamentary Budget Officer, and the government’s own actuarial report – the government pays a lot of money to a really smart math nerd to figure this stuff out, put it in a report, then let other math nerds check his work; but oh well, let’s goes with what Flapperty thinks.
We should also note that government expenditures are actually more driven not by the relative number of old folks, but by the dependency ratio, which measures the relative number of children and retired seniors relative to the working age population; the dependency ratio is projected to rise not nearly as much the number of seniors – so we will save a little on spending directed at children while spending a little more on seniors.
I find it curious that Mr. Brown laments that seniors consume more government services in the same breath as noting seniors will tend to work longer. If seniors do on average end up increasing their working lives that will be a net benefit to the government’s fiscal position. Beyond this, I cannot understand how the second sentence logically follows from the first, especially if, as Mr. Brown laments, more senior’s will be working. More labour = more GDP, no? Or is it that these terrible seniors will be taking McDonald’s jobs away from youth? I cant make the link.
- Mr. Brown appears to be focused on supply side economic factors, mainly that the shrinking supply of labour due to an ageing work force will lead to slower growth (although that’s not clear from his seniors working more worry, as we just noted). This is rather typical for neo-liberals, who brought you “trickle down” supply side economics, which a hack economist thought up on the back of a paper napkin that he handed to Dick Cheney in 1974 or so. Yes, that Cheney. Did you get a golden shower?
- The fact of the matter is the economy is suffering from a lack of demand. We have plenty of supply; corporations are sitting on decades long record levels of cash, corporate profits are at all time highs and we have surplus labour to boot. What we lack is sufficient demand for our productive capacity – not enough buyers of stuff. Consumers, who are currency users by the way, are strapped, especially in the UK, US and Canada, having runup debt during the last three decades to make up for a lack of wage growth. Consumers are deleveraging, they are no longer buying stuff like they used to and so companies have excess capacity – they are laying workers off and/or not using their cash to expand because they can barely sell what they are making now. In surveys of business only about 3% say its regulations holding up expansion plans; instead, they say there’s not enough sales to justify expansion.
-More tax cuts for corporations and the wealthy will not result in more growth. Since Keynes and the Great Depression we have understood that when their is insufficient private sector demand, governments need to step in to temporarily spend money and create demand. In today’s context, more government spending, not austerity, is needed to restore economies, and over the medium term we need to rebalance GDP to provide workers wage increases, to restore the labour share of GDP back to the levels prior to the start of neo-liberal policies in the 1970s; if we dont do this, demand will be lacking for a very long time.
- what should be clear is that there is no such thing as a “job-creator”, non in the sense of an individual. Demand creates jobs. Then there are entrepreneurs, who bring great ideas to market. My income is your sales; your expenses are my income.
“It would appear that a substantial issue going forward will be intergenerational fairness where we could pass to the next generation an economic opportunity that is substantially diminished from the one we inherited. I could develop the case that the next generation will have lower incomes, higher taxes, less services, higher rates of youth unemployment, significantly larger amounts of per capita government debt, higher cost of secondary education and lower pensions. The signs are there for the potential of higher levels of social unrest among the connected youth that rightly feel disadvantaged by their predecessors.”
- as I’ve noted, whether we have lower incomes is a matter of choice; governments can choose austerity and continue to favor business over labor, and that will continue the wage stagnation the average developed world worker has experienced for 30 yrs; it’s a matter of public policy, and we can change those policies to encourage unionization, to place workers on company boards as they do in Germany.
-We can have higher taxes, but what of it? Northern European “socialist” economies are currently doing rather well and operating with higher tax levels than Canada, or the US or the UK.
- Higher taxes could easily be placed on the wealthy, with little negative impact on investment – optimal tax rates on the 1% are estimated to be as high as 70%-80%. During the 1950s and 1960s we operated with significantly higher tax rates on the wealthy and GDP per capita grew faster than it has during the last 30 yrs or so of neo-liberal policies favoring the elite. Nobody got rich on his won; pay it forward.
- So we have ways and means to pay for what is important to average citizens, whether it’s education or pensions; it’s a matter of choice of public policy. What the elite would prefer is to financialize everything – most every dollar of an average person’s paycheck going towards the financial sector in the form of big mortgages, car loans, credit card debt, student loans. If Mr. Brown wishes to avoid unrest, it’s doubtful that austerity will get us there; youth unrest is about the crony capitalism many of the elite have set up for themselves.
“There are so many other problems in so many parts of the world, with the potential to generate other crises and a steady stream of negative news going forward – for example: the instability of the Middle East, several important elections in the developed world, including the unfortunate socialist electoral results in France, the behavior of the casinos on Wall Street that have lost sight of the purpose of capital markets and risk management and the potential expiry of the Bush tax cuts which could impact the US economy by over 30% of the GDP. There are already forty-eight million Americans now collecting food stamps while social security and healthcare programs are massively underfunded and therefore uncertain.”
- ah yes, a moment of criticism directed at Mr. Brown’s and mine industry: Wall Street finance. One would be lead to believe that casino/crony capitalism is a US Wall Street phenomenon. It exists in Canada too, but our press is even worse at rooting it out than in the US.
We should note that Canadian banks required a direct bailout to the tune of about $100 billion during the financial crisis; in addition, Flapperty got CMHC to goose the housing bubble to keep the economy moving, to the tune of racking up CMHC guarantees of private banks to more than $500 billion, which is about 33% of GDP; in all CMHC’s operating history until the financial crisis it had racked up guarantees of $150 billion, so Flapperty and Harper tripled the exposure of taxpayers in the blink of an eye. For those who are unfamiliar with CMHC, it is a federally owned crown corporation that guarantees mortgages; you the taxpayer are on the hook for any losses on that $500 billion in guarantees issued to Canadian banks; one might ask, if taxpayers are guaranteeing these mortgages, why are banks making any profit? Under real capitalism, you make money when you take risk.
- according to Mr. Brown the election of a “socialist” president by France, is equivalent to decades of repression in the Middle East and Wall Street’s Casino capitalism. Last week the LIBOR scandal blew up, in which it was revealed that the big international banks have been for years rigging LIBOR interest rates, which are benchmark interest rates for trillions of dollars in borrowings, from mortgages, to municipal borrowings to borrowing by industrial companies that produce real stuff (as opposed to financial companies, which produce electrons on screens).
We can’t seem to go a week without another revelation of massive fraud, scandal, corruption or cronyism emanating from Wall Street. Be assured that if similar news isnt emanating from Toronto’s Bay Street or Howe Street it’s because the Canadian media is even more thoroughly in the tank for the elite, drunk, lazy or plain just doesn’t give a rat’s ass. Fyi, we should note that France’s socialist president only wants to do a little less austerity. Some socialist.
- the Bush tax cuts are responsible for the single largest deficit hole, or near, in the US federal budget. As we’ve noted, taxes on so-called “job creators” can increase significantly from current levels without impacting investment (taxes on the superwealthy were raised at the beginning of Bill Clinton’s presidency, which set the table for a decade of growth and balanced the budget). As Mr. Brown later corrected, the GDP impact of the GWB taxes is 3%, not 30%. Regardless, we dont have a tax problem or an investment/supply problem, we have a demand problem.
- Mr. Brown trots out an old right wing refrain that social security and health care are unfunded. In fact, US social security has a fairly massive trust fund – it’s been collecting taxes from workers in excess of current payouts for many years; this means workers have prefunded their retirement; social security is well funded for a couple of decades, as US actuarial reports show same as OAS actuarial reports demonstrate the program’s soundness; the unfunding of health care argument is very misleading; we pay health care on a pay as you go basis; are we supposed to put away $200k when someone is born?; this right wing argument is the same as saying a company has not prefunded its future operating expenses – absurd.
- it’s true that lots of people in the US are on foodstamps, but this would not have to be the case if the US, and others, strived for policy that ensured workers received a fair share of GDP; in the three decades up until the 1970s average worker incomes increased in proportion to producitivity; since then, wages have not kept up with productivity, and according to several studies the median US worker is no better off, or worse off, than his equivalent from 40 yrs ago. It’s neo-liberal policies that have directed an increasing share of GDP to business and a near all time low to workers. That was a choice based on policy – policies against worker and for corporations. It can be reversed.
“There is a current smugness amongst Canadians who have come to believe that our banks and economic management are somehow superior – but the truth is, while we may be the tallest of the pygmies, we are in the process of building our own debt and fiscal crises in spite of more responsible federal fiscal management.”
- Canadians have indeed felt somewhat superior in the management of our financial sector and government compared to the US and Europe. There are indeed ways that our regulatory system is better, but on balance we have not that many differences compared to the US.
We also have too big too fail banks who have direct and implied government guarantees. It’s doubtful the federal government would let a major Canadian bank fail, so we are in the same situation as the US – we have banks and bank management earning big money, backed by taxpayers. It’s not really capitalism, is it? Think about it, our banks same as US banks, run massive proprietary trading operations, under the implicit guarantee of the taxpayer that if shit hits the fan we will be there to bail them out. About half of Canadian mortgages are guaranteed by taxpayers: zero risk.
Mr. Brown does not run a bank, but indeed he does benefit from the system. It’s quite obvious the vast majority of what banks do is a utility type service – it should be heavily regulated, boring, standard work of lending that earns a meagre profit, with management teams paid like bureaucrats not mandarins. The part of banking that is prop trading, investment banking, gambling, should have no place in financial institutions with implicit taxpayer guarantees.
- Mr. Brown again references our so-called “debt and fiscal” crises. But as we’ve already noted, federal and BC provincial debt was decreasing prior to the fiscal crisis (excluding the crony debt arising from BC Liberal privatization schemes).
I wonder whether Mr. Brown would really have supported the Canadian federal government not engaging in Keynsian fiscal stimulus as response to crisis? I doubt it. Mr. Brown knows as well as anyone that had governments not engaged in stimulus GDP would have contracted a hell of a lot more. That’s what happened during the Great Depression and we learned from that experience. In a moment of naked clarity, even Mitt Romney admitted so; he was promptly trashed by the arch right wing for not adhering to the standard GOP talking points.
Notice that Mr. Brown doesn’t like the deficits arising from the economic crisis, but he also wants the GWB tax cuts for the wealthy to continue, so he in fact likes stimulus as long as its for rich folks; spending on regular folks is however bad. That in a nutshell sums up today’s “free-enterprise” folks; just look at Romney, who has pledged support to the Paul Ryan budget proposal which will significantly lower income taxes on the wealthy, cut spending on unspecified programs for workers and blow a bigger whole in the deficit (this is what the independent Congressional Budget Office concludes); it’s hardly responsible, or as Paul Krugman puts it bluntly the Ryan plan is a complete con job. B ut todays Cons only want the illusion of being responsible. Any debt we are building now is the result of the crisis, not of “entitlement” programs. This is pure bait and switch.
“• The truth is the federal debt will grow from $457 billion in 2007 to $671 billion by 2016 as federal debt, as a percentage of GDP, has risen from 29% to close to 35%.”
- an increase of 6% of GDP appears fairly inconsequential in the face of the biggest economic crisis since the Great Depression.
“• Provincial debt will rise from $319 billion in 2007 to approximately $600 billion in 2016 with Ontario’s provincial debt, in the same period, increasing by over $150 billion as it doubles from $156 billion to $310 billion. Tragically Ontario’s financial condition impacts on the rest of Canada as it represents 46% of the Canadian economy.”
- yes, scary big numbers. Not really. The federal government could maintain stimulus or temporarily increase transfers to provinces at negative interest rates (bondholders are willing to pay the federal government to lend it money); this would put people back to work, grow the economy and decrease fiscal pressure on the provinces at virtually no cost to the federal debt ratio; we could fix our roads, bridges, water and sewer systems, and invest in public transit infra.
“• Program spending is up 60% in a decade from $130 billion and will reach $268 billion by 2016.”
- context fail. Im not gonna do Mr. Brown’s work for him. Over what period did spending increase from this to that? Again, our federal government can never go bankrupt as long as we issue our own currency. The biggest lie the right wing pushes is that government should operate like households. Well, households dont issue their own currency, so anyone that begins an argument by comparing govt to households, well, you are about to be econned.
“And that is not all . . . in the current year the combined federal and provincial deficits will be $41 billion which is shared equally between them but the provinces are faced with a greater problem as healthcare costs on average are going through 50% of the provincial budgets with the baby boomers not yet at their peak healthcare spending. In addition, our personal debt levels average at 150% of annual income, higher than both the U.S. and U.K., with B.C. being the highest in Canada.”
- more scary big numbers; but it should be noted that that the combined $41 billion in deficits are about 2.7% of GDP; so with even low GDP growth of 2% plus inflation of 2%, debt to GDP is decreasing. It’s amazing when denominators grow faster than numerators. Now just think about that for a moment, if the denominator (GDP) is growing faster than the numerator (the deficit), debt as a percentage of GDP is decreasing, which means a government can actually run a certain size deficit forever; government borrowing doesnt seem all that scary.
Now consider the counterfactual idea…what if government ran sustained budget surplus for a really long time? A government budget surplus means the government would be buying financial assets out of the economy; if it did that for a long long time it would end up owning the entire private sector; if our governments ran a budget surplus of just $50 billion for 10 years they could own one tenth of the Canadian private sector; this is an accounting identity, not theory. So it seems government budget surpluses are also not great things, and in fact government budgeting is a rather more complex thing than household or company budgets and the refrains you here about how governments should run their budgets like you run your household or that governments need to operate like businesses are big fat canards. It makes for nice sloganeering, though.
- personal debt levels are indeed high; yet the solution to that is not government austerity. Canadian government policy needs to change so that average workers again share in the gains from productivity growth; also we need to stop creating housing bubbles (Flapperty, the guy decreased amortization period in recent weeks was the same genius that goosed the CMHC and increased amortization periods during the financial crisis so that the economy would recover and Con re-election chances would be strong).
- we indeed have a housing bubble, created by government policy; what else would happen with government pushing banks and banks having to take no risk on mortgages?
- I would further note that the federal and provincial governments have absolutely failed at reforming our healthcare systems; most European health systems that are universal have significantly lower costs than do we yet they get the same or better health care outcomes; it’s rather easy for provinces to engage in their usual nurse and doctor bashing, but instead why can’t we adopt best practices from other countries? It’s pathetically lazy for the feds to have unilaterally stated they will limit the growth of healthcare transfers to provinces at GDP growth plus inflation; they could have taken a pro-active role coordinating all governments to seek savings; if we sought out best practices we could save billions.
“Clearly Canada’s fiscal regime is unsustainable and needs to be addressed particularly at the provincial level which will require diligent fiscal management. Scott Baker of Stanford University recently commented on the U.S. economy. “Current levels of economic policy uncertainty are at extremely elevated levels compared to recent history.” “We find that an increase in economic policy uncertainty… foreshadows a decline in economic growth and employment.”
- and here the lie comes out. Our fiscal sustainbility is clearly a matter of policy choice, as discussed above. Does anyone understand what the last sentence has to do with the first? Regardless, the last sentence is absurd; it’s not policy uncertainty preventing corps from hiring; it’s lack of demand, which is from a lack of sufficient worker incomes.
“The American economy is receding as the rules are unclear and investors are facing too many uncertainties such as future tax policy, the cost of Obamacare, the impact of deficits and entitlements and unfunded programs and liabilities with many states and municipalities near bankruptcy. These uncertainties are compounding the unstable economic conditions with the result that the American economy is again drifting towards recession following an extremely weak recovery in spite of their unprecedented massive stimulus and many other governments in the developed world as well as China.”
- more strawman arguments. On the day SCOTUS upheld Obamacare, the US stock market reacted with a shrug. If indeed Obamacare was holding back investment, then on that day US stocks should have plunged. They didnt. Or were the traders sleeping on the job that day too?
- it’s true many states and municipalities are struggling to pay their expenses, but this is the result of giving out tax breaks to big business, deferring expenses for fairly run of the mill government programs, crap like police, firefighting and education.
- please read the last sentence. Does it flow? Hodge podge of throwaways.
“In B.C. investment decisions are starting to be deferred for fear that the change to a left of centre government would create similar uncertainties in respect to a very similar list of issues that is proving to be so detrimental to the U.S. economy. If the NDP were elected it would most likely be a two term government and the investors remember all too well the lost decade of the 90’s when our province was ranked 9th in Canada for economic growth. We all know that there is a direct link between investment and employment, particularly employment for our youth and we also need to consider the fact that all or part of the $35 billion of capital projects that are in various stages of planning in Northern B.C. could well be jeopardized.”
- I’m not sure what US policies Mr. Brown is referring to in the US which might be so detrimental to follow. What issues facing the US federal government are similar to the BC government? This business uncertainty and confidence meme put out by the right is getting very stretched. One would think that if business is making all time high profits as a percent of GDP they should be very confident about investing; so, obviously, the business confidence thing has nothing to do with why business is not hiring or expanding fast enough to bring unemployment down to reasonable levels; as we stated already, business is not hiring due to lack of demand, period.
- Obama as socialist is another meme the right wing froths over. It is far from having any truth to it; the fact of the matter is that even in the wake of the biggest economic crisis since the Great Depression the US private sector has added more jobs than at this point in GWB’s term. US job growth does remain sluggish and much of that is because during Obama’s Presidency state and municipal governments have shrunk their payrolls (the US fedgov is about flat I believe); in contrast, under GWB their was a massive expansion of government workers.
- we should also the US federal budget deficit is primarily caused by the GWB tax cuts for the wealthy and a collapse of federal revenues due to the economic crisis, plus unpaid for wars. In fact, US federal tax collections are at their lowest level in about 60 years. That hardly makes Obama a socialist. FYI, under Obama taxes for the superwealthy are at the lowest point in 80 years.
- Lost BC decade?: ah yes, the BC right wing has gone on about this for quite some time, but how true is it? Not very much.
- the apparent $35 billion in capital projects assumed by Mr. Brown are a bit of a chimera. These investments very much depend on expectations of future oil, gas and mineral prices.
As anyone who has paid attention to the North American natural gas market knows, Henry Hub prices have collapsed due to a supply gut arising from rapid expansion of US shale gas reserves; prices will soon go up because the shale gas boom is ephemeral, but that also means large-scale development of BC shale gas is mighty problematic; it’s by no means assured.
You should also know that if natural gas or oil is exported to Asia, there will be a closing of the gap between Asia energy prices and prices producers currently receive in North America; we will pay higher prices to the tune of billions of dollars per year; for eg., Asia natural gas prices are in the range of $15-$20 compared to about $2 in North America currently; even allowing for netback adjustments, comparable price at our export points for LNG would be in the range of $7-$8, about four times the price we currently pay for natural gas. So BC, Canadian natural gas prices will face upward pressure (indeed….my BC Liberal MLA answered back and said the government`s internal estimates say BC natural gas prices will increase 10% with LNG exports, so they know, but I dont have much confidence in their math).
Clearly the producers will do well by receiving high prices for energy sales to Asia and higher prices for domestic sales than they otherwise would receive; the benefits to British Columbians and Canadians are less clear.
- actually, there is no link between investment and employment; to be correct, there is a link between demand, investment and employment; nobody produces stuff they cant sell
- if the northern BC projects can only be profitable by the government giving them away, they probably shouldnt be produced; ie. if you cant pay fair resource royalties, why should we let you develop the resource?
“It is clear to me that in this uncertain world and with these economic conditions, we all ought to put petty partisan issues behind us to ensure we elect a stable free enterprise government. It is not the time for B.C. to take the risk of another failed experiment with the left by letting them back into power by way of a split of the centre right vote.”
- “it is clear to me that” we should further enoble BC’s kleptocracy? While the NDP may not be much better…and we had better hold their feet to the fire…..it’s a bit of a stretch to assert that what we’ve had is a free enterprise government. We in fact have had crony capitalism.
“It should be obvious that it is very important to keep the free enterprise forces in B.C. aligned under one political umbrella going into the next election as political fragmentation, in my view, will serve to aggravate the negative business community and investor reaction to a possible NDP win in 2013. Fragmentation of the centre-right will cause many people in the business world to attach a higher likelihood to the prospect that the NDP can last for more than a single term. It is critical that those on the centre-right remain committed, coherent and robust and that those who contribute to fragmentation of the centre right vote come to realize that they are an unintended political ally of the left. In the world we live in today fragmentation on the right could be a disastrous scenario for our province and its economic opportunities.”
- let’s be honest and admit there are few real free enterprise forces in BC politics. The forces that claim this are actually crony capitalists that would like to continue to suck at the government teet. There’s little doubt that many of them will manage to do so under an NDP government too.
“The studies of the Fraser Institute show there is a measurable, positive correlation between free market approaches to public policy and certain outcomes that are economically and socially desirable. We owe the next generation the opportunities and jobs that can only be developed in a free enterprise environment.”
- the “studies” of the Fraser Institute show exactly jack squat. The Fraser Institute is a libertarian lobby organization that never misses a chance to denigrate a government program or function; it claims to be a think tank, but a real think tank would not start from conclusions then work backwards to fill in the crib notes of analysis.
The Fraser Institute has a has a long history of issueing shoddy, idealogically driven drivel. It`s often quoted in BC`s mainstream press, which just goes to show how utterly lazy or dazed and confused our media is.
The Fraser Institute should really not be quoted as an authority on anything but if the media is to do so it should preface the story with the following words in reference to Fraser: “this is what big business and really rich folks want you worker bees to do“.
What the evidence actually shows is that those governments that have a healthy respect for average workers, the common person, do better. What the last few years have shown us is that markets fail, a lot, and, as economists, that is just where we advocate the state getting involved; markets fail in the provision of public goods, in monopoly, in externalities and more; governments screw up regulation, sometimes because regulatory agencies are captured by the industries they’re supposed to regulate; and this is far more common than reactionaries like the Fraser Insitute will acknowledge.
- On the whole, Mr. Brown’s missive is not accurate and is a-factual, ahistorical. While he is a smart successful businessman there is little reason why any British Columbian ought listen to his suggestions.
The bogeyman of taxes, debt and deficits is forever alive. The truth is, the right wing together with the pretend left wing has been successful in, during the last 30 yrs, shifting tax burdens onto the middle and lower classes. Overall taxes may not have changed much, but because the burden on the average person hasnt changed, or has increased, the average person experiences government as a big burden, and rightly so. Just in terms of tax regulations, it’s become so complex and time-consuming to deal with the administrative costs that it’s a constant irritant to small business, who have fewer lawyers and accountants on hand than big business.
The burden on the average person and small business can be decreased by having the rich and big business pay a fair share. Look, as Elizabeth Warren said, nobody got rich on his own: if you started a business and made a billion dollars you used our roads, employed workers educated at the taxpayer’s expense, a legal system funded by government. If you think otherwise, try making a buck in the ghettos of Somalia, or some other marauder state. Taxes dont steal wealth from the elite. It’s paying it forward.
You shouldn’t take my word for all this either. There are lots of great BC bloggers out there and financial-economic bloggers. I don’t nearly have as much experience as Mr. Brown. But I am an accountant, worked on Wall Street for one of the largest hedge funds in the world for many years, started my own hedge fund that ended up closing at the height of the financial crisis (we didn’t get bailed out!) and now incubate early stage companies.
People should understand that a business executive does not by default have any special expertise in running an economy, the two are rather very different animals. Still, Mr. Brown is entitled to his opinion. And it’s a significant opinion, but only one among many who have valuable insight into the current economic situation. I take exception to how Mr. Brown has framed the debate. Sure I would like centre left forces to take power in the next BC election, yet I remain worried that they will let their own cronies run rampant, which is unfortunate because BC has for too long been in a state where thieves have had easy access to plunder our public assets.
Filed under: Canada, Economy, Featured Posts, Financial Crisis, Political Economy | Tagged: british columbia, Canaccord Financial, Canada, flaherty, Fraser Institute, harper, neo-liberalism, peter brown, united states | Leave a comment »