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Erik Scanlon

Keynesians & Arithmetic – Not a love song

Listening to Daniel Alpert – the author of The Age of Oversupply and founding Managing Partner of Westwood Capital LLC – on Bloomberg View columnist Barry Ritholtz’s podcast, one might be tempted to think that Republican’s in Congress and Angela Merkel in Germany are colluding to derail the world economy. Throw in a few Mediterranean finance ministers (Greece’s Varoufakis), a Nobel laureate turned political pundit (NY Times’ Paul Krugman) and a myriad of academics and analysts and it really seems as though Boener & Co. and Schaeuble & gang are out to gut world growth prospects, and don’t give a s*** either. The tenor of their argument rests on uber-cheap public credit not being tapped to stimulate aggregate demand in a world of over abundant supply. Their claim of free money isn’t entirely inexact. German 5 year bunds are yielding -0.2285%. In other words, investors the world over are ready to pay the government more than they will be paid back to lend to the German federal government. Even real estate busted Spain and profligate France and Italy are borrowing at historical lows. No matter how you calculate the return on infrastructure spending like roads and bridges, when your costs are lower than long-term inflation or even negative, every investment pays off. The world’s largest investors are desperately searching for a place to park their money and governments in Berlin, Washington, Ottawa and the like refuse to open up their wallets and create demand. Every central bank is turning on the quantitative easing or lowering rates (except in America and the UK) in a bid to lower (albeit unofficially) their currencies so they can export. A lot of nations have the ability to produce more than they are doing today, but with consumers still reeling from jobless recoveries and businesses… Read More

CPP expansion: thanks, but no thanks

So Canadian Premiers are up in arms about federal Finance Minister Flaherty’s refusal to expand the size and benefits of the Canadian Pension Plan (CPP). Apparently, Canadians refuse to save enough for retirement. So Canada’s provincial Finance Ministers — in a rare bout of unanimity — want the federal government to increase the premiums Canadians pay to the CPP fund so that retirees can receive higher payouts once retired. Indignant at the Conservative minister’s obstruction, some provinces even spoke of creating their own government financed retirement funds to top up federal retirement income for seniors. There happens to be a little bit of debate on the whole question as it stands. Insiders of the whole retirement debate know that only certain segments of the Canadian population aren’t saving enough to replace working income with retirement income. It’s not even the poor or lower middle class. It’s the upper middle class who isn’t saving enough and for whom CPP payouts are too low. This is all typical of paternalistic governments: trying to fix issues that aren’t wholly problems in the first place, and creating a fix that produces problems worse than the initial problem they intended to solve. Right off the bat let’s get a few things straight. This is one of the most paternalistic policy proposals our Premiers have come up with in some time. The federal government does not have a paternalistic electoral mandate. They didn’t get elected on a promise to tax citizens and manage their retirements for them. They are not, and have never been, proponents of cradle-to-grave nanny-statism and are hence legitimate in their refusal to do so. Second, why should the feds bite the political bullet for Canadians’ inability so save enough? If the issue is Canadians not saving enough, any Province can increase or… Read More

The people’s new opium

Have you noticed? A lot of ink has been recently spilt on the subject of inequality in Canada. The Globe and Mail has been plastering such discussion all over its pages as of late, while the NDP has been doubling its efforts to bring such discussion to the forefront of the public’s discourse. Even the Liberals have been decrying the hollowing out of the Canadian middle class. All in all, much talk has been drivelled on the fact that decades of National Income growth have been accruing to privileged “one-percenters” and their ilk as opposed to ordinary Canadians. At this juncture I feel obliged to respond. The whole discussion is a sophism, largely based on modern elitist guilt. A few arguments are in order. It can’t be denied that Canada’s Gini coefficient is at or near its 50 year high. It also can’t be denied that growth has overwhelmingly benefited the richest Canadians. Statistics Canada numbers show that the upper class has seen its share of after-tax income in constant 2011 dollars increase by 5.6% from 1981 to 2011. That roughly works out to a whopping $24,000 in real terms. The rich are getting richer. Enough to put a down payment on an average house every three years! These factoids are regularly cited in the screeching cries against economic inequality. The rich are eating the nation’s cake! Such assertions, however, belittle some important truths about the incomes of other Canadians. The lowest quintile has seen its share of after-tax income grow by 23.36% since 1981. Much of that growth actually happened recently, between 1997 and 2011 where income rose by a whopping 33 per cent. As it happens, individuals in all income groups have seen their incomes grow in real terms by at least 20 per cent over 30 odd… Read More

In defence of the ‘Wacko Birds’

This week the US government was forced to partially shutdown. Republicans and Democrats failed to agree on renewing budgetary funding for many parts of government subject to periodic congressional votes. Over 800,000 federal government employees were thus asked to stay at home unpaid, and countless other workers indirectly related to government and government procurement were asked to do the same. The shutdown is in its early days but economists are already fretting about the impact to the overall economy. Financial markets are also wobbling because Republicans of the Tea-Party persuasion are saying that refusing funding for government was only the first arrow in their quiver, the debt ceiling is next. How the fight over funding for non-essential government services will be resolved is anyone’s guess. The Republicans first asked to defund Obamacare entirely, now ask for its individual mandate (the requirement for Americans to purchase private insurance) to be postponed by a year. This is completely unpalatable for Democrats, as the individual mandate is the pillar upon which the Affordable Care Act (Obamacare’s official name) rests. Without it the healthcare scheme collapses entirely and it would cost previously insured Americans more. Herein lies the objective of the Washingtonian Auspicium Insanus Avis Republicanas “Wacko Bird”. This particular species of Republican congressman flew into Washington D.C. thanks to favourable electoral map drawing (a.k.a. gerrymandering) and a primary process (the selection of electoral candidates by their parties) skewed towards über-partisanship. For economist, lobbyists, financiers and workers sitting in the backseat of this game of chicken between the crazies and the Democrats, this kind of brinksmanship is indeed scary stuff. An anecdotal survey of the mainstream media and of recent polls suggests that Republicans are chiefly to blame for having given into the demands of Ted Cruz, Paul Ryan, Rand Paul et al. representing… Read More

North American energy galore

Oil sands development, American shale deposits revolution and Mexican oil state monopoly overhaul; what does it all mean? North America is on its way to dramatically increase its fossil fuel production. A quick survey of the BP Statistical Review of World Energy reveals that North American fossil fuel production in barrels of oil equivalent (boe) had been largely stagnant from 1995 – 2008. Declines in Mexican oil production from 2005 onwards, the downward trend in coal production since peak production in 1998, softness in Canadian natural gas production starting in 1996 and the general slide in oil production in the US all contributed to that period of soft fossil fuel energy production. That production slide coincided with rising energy cost on the continent. Rising energy costs coupled with relatively cheap labour abroad are the main causes for manufacturing offshoring. Since 2008 however those trends have started reversing. The rise in oil prices over the 2000’s with the price spike of 2007 served to ignited interest in the development of alternative fossil fuel sources such as shale and bitumen sands. Since 2008 these alternative sources pushed production above and beyond their flat trends. With interest in Alberta Oil Sands still relatively unhampered by the looming shortage in pipeline capacity and the news this week of Mexican president Peña Nieto’s intention to liberalize the country’s oil sector from PEMEX (the state owned oil production monopoly), these trends are set to accelerate within the next decade. Leaving asides all talk of environmentalism and political interferences with energy and energy distribution markets, what can North American workers, consumers and investors expect from this tectonic shift in energy production? For consumers the equation is fairly easy to comprehend. More supply stagnant or modest growth in demand means lower price at the pump. This is already… Read More
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