Some time in the next few months Islanders will once more be thinking about fish kills. In mid July thousands of dead fish were found in three rivers in Western PEI. It was the most serious fishkill in recent memory and very troubling to many. Traces of pesticide were found in samples taken from the rivers. One farmer Avard Smallman has already pleaded guilty to a buffer zone violation and will be fined. Warren Ellis is the other farmer charged under the Environmental Protection Act. He will go to trial, or possibly reach a plea agreement first, in the next few weeks.
The fact that there were violations of the fifteen meter buffer regulation was a great relief to many in the farming community. If there hadn't been, then the critics of a fifteen meter buffer would have the ammunition to call for even stricter rules.
If there was anything positive to be taken away from this very disturbing incident, it's this: despite many heavy rain days, there were no fishkills in the majority of the province's watersheds. In a handful, there's been a conscious effort not to just follow the law, but do more. Here's a story I wrote a few months ago about an inspiring group of people in Eastern PEI. I think there are good lessons for us all in their experience.
Souris Watershed: A Rare Success or a Model for the Future
It took months of meetings, a lot of trust, and a heavy dollop of government money, but people in a large area of Eastern PEI are part of the most successful effort ever in the province to collectively protect and improve water resources.
It started with a series of public meetings through the Fall and Winter of 2005-2006. The two linchpins of the meetings were to speak honestly about the serious environmental degradation in the watershed, and just as importantly, to not lay blame, but figure out who had to do what to make things better.
The area’s farmers knew they’d be fingered by most as the cause of the problems, so they initially went to these meetings more to protect their interests than anything else. “I think farmers were really scared of having the community tell them what was going to happen.” Bear River farmer Kevin MacIsaac was one of the area’s farmers who was at these community meetings. “I think there was some fear in the room, and that was probably a reason to get more proactive, but that fear went away fairly quickly once everyone was in the room and talking about common goals.”
Retired school teacher Fred Cheverie agreed to be the coordinator for the meetings. “Once farmers understood that we weren’t trying to shut them down, but work with them, then people starting talking. I think the greatest thing to come out of it was the respect people developed for each of the industries.”
The Souris watershed had all the problems common to watersheds around the province: fish kills from pesticide run-off, high bacteria counts from poor manure handling, serious soil erosion, and high nitrate levels caused by excess fertilizer leaching into waterways. The nitrates, along with phosphorus, fertilize choking amounts of algae. That’s bad enough, but as the algae dies, bacteria breaking it down use up precious oxygen reserves in the water, weakening and often killing fish and shellfish stocks. So these meetings were made up of people with vastly competing interests, all seeing their livelihoods at stake. It was Fred Cheverie who insisted that the tone remain civil and respectful. He says it was the only way to move forward. “When farmers get respect, and they in turn respect the organization, things go a lot smoother.”
Respect is not something many Islanders feel towards farmers. The media dwells on the serious financial problems facing agriculture during the fall and winter, and environmental concerns the rest of the year. These same Islanders generally want to see a lot more sticks rather than carrots used to get farmers to take environmental protection seriously.
Without really knowing it, the community used concepts developed for what’s called “conflict resolution”. It essentially states that the default position for most people is to only see the differences between themselves and others, and to argue what these “others” are doing wrong. Conflict resolution theory suggests looking for common “interests” instead, in other words the goals that various groups can agree on. This requires time and trust, and the Souris Wildlife Federation used both.
“Go slow, take your time, make sure everyone understands everything, be up front, never make a promise you can’t keep, simple stuff, common sense” says Fred Cheverie. “You have to remember that the bulk of the land is owned by farmers, so you’re going to have to work with them, you’re going to have to get along with them.”
Farmer Kevin MacIsaac says Fred Cheverie’s stature in the community was critical. ”Everyone has respect for him. He’s seen the farming side, he’s also a fisherman and a hunter, and a wildlife person, so people knew he would be able to recognize both sides. Some of the people from wildlife and the watershed, they were just looking for ways to improve things, and that’s all we were too. It was important to get it all on the table, rather than have people walking behind each other and laying blame.”
This process had one other critical component, money, but that came only after the community had done the heavy lifting of developing a comprehensive watershed plan that almost all stakeholders committed to. (there was some money, available to any community, for coordination and costs for these early meetings).
This was the first time on PEI that governments used public funds to compensate farmers for taking steps beyond what the law requires, to protect water resources. At the time it had the awkward name “ecological goods and services”. Now it’s referred to something a little easier, Alternate Land Use Services, better known as ALUS. Here are some examples of land use practices that get small per hectare payments: retiring sensitive land by expanding buffer zones and grassed headlands, retiring high-sloped land, taking additional steps to prevent soil erosion.
Taxpayers may wonder why farmers need to be paid to do things that should be the law, or their civic duty at least. This is where the farm financial crisis comes in. There are increased demands for food safety and environmental protection, but no mechanism for farmers to recover these higher costs out of the market. In fact over the last decade debt levels on most farms have increased yearly, and are now at record levels. It’s instructive to look at how other jurisdictions view public money going to farmers who protect the environment. This is from the European Commission which spends $53 billion euros a year supporting agriculture. Farms in France for example get more than thirty thousand dollars a year for taking minimal steps to protect the environment. Farms on PEI get a few hundred dollars at best.
“European Union farmers benefit from income support for supplying the kind of public goods which cannot be provided purely by the market – environmental protection, animal welfare, highquality and safe food. European Union standards in these areas are amongst the highest in the world. As a consequence, producing food in Europe is more expensive than in countries where such standards are not obligatory.
As high-cost producers of food, European farmers would find it very difficult to compete
against farmers in other countries without public support. Indeed, as the impact of climate change increases, the cost of sustainable farming is only likely to rise.”
The Souris Watershed has become the poster child of co-operation between farmers and other interest groups. It’s been rewarded with a lot more government support than other watersheds in the province, more than half a million dollars for the initial two year project (most coming from the Federal government), then in June almost a million dollars to conduct research to quantify the impact of changing farming practices. (Government departments and university researchers will get this money, not farmers). This new research will look at the impact of fall versus spring plowing. Many farmers worry that if they don’t plow sod in the Fall, that a rainy Spring might put them weeks behind planting their crops. But there are serious environmental consequences linked to Fall plowing: land is bare through the winter, and that can mean considerable soil erosion. As well, researchers worry that the nitrogen in a sod/hay crop that’s plowed in the Fall will add to the already high nitrate load in this and other watersheds. Some are hoping that if Spring plowing releases enough nutrients from the sod that can then be utilized by the cash crop and cut down on the need for expensive fertilizer, that farmers will be given one more good reason to keep the plow in barn in the Fall.
It’s taken decades for the many environmental problems in the Souris watershed and elsewhere to develop. There have been numerous studies, Royal Commissions, new regulations, government threats and promises, but little tangible evidence that things are getting better. Throw in a lot of defensiveness, even hostility from primary producers that non farmers just don’t understand that fewer and fewer of them are expected to produce huge quantities of cheap food, and the challenges just get bigger.
The Souris watershed experience offers the best example for breaking this logjam. The trouble is there aren’t a lot of Fred Cheveries around the province who command the respect of people in the community, and have the time, patience and inclination to take on months of meetings. And there certainly aren’t the financial resources that Souris enjoyed because it was the first to see this process through.
There is a lot of evidence that public resources should be used to fairly cover the additional costs farmers take on to protect water resources, but this is a public expenditure that’s competing against many others during a time of restraint and cuts.
But there are other lessons from Souris that communities can draw on, that trust and respect are needed to move forward, and at least neither of these cost any money.
Sunday, 27 November 2011
Wednesday, 23 November 2011
Something Else You Can't Count On
Fair trade was always one of those rock solid programs that allowed me to shop and buy with a clear conscience. The idea is simple and powerful: products with the fairtrade logo are produced sustainably by farmers and producers who are paid fairly. In other words a fairer share of my dollar goes to the person who produced the product, not to a long list of middle people who grab most of the cash in a normal marketing chain. Over the years larger processors and retailers have gotten into the fairtrade game. These bigger companies mean more producers will benefit, so it's got to be a good thing. Right??
Now we learn that one fairtrade organization (it won't surprise you which one) wants to change the rules. Big companies like to deal with big suppliers. They feel assured they can get the consistency of supply and quality they're looking for, but it often leaves small producers unable to participate. We're not there yet, but this looks like an unfortunate first step.
http://www.nytimes.com/2011/11/24/business/as-fair-trade-movement-grows-a-dispute-over-its-direction.html?_r=2&hpw
As Fair Trade Movement Grows, a Dispute Over Its Direction
By WILLIAM NEUMAN
A tempest in a coffee pot is bubbling in the world of “fair trade,” the socially responsible food movement that seeks to lift farmers in the developing world out of poverty by offering them a premium for crops like coffee, cocoa and bananas. And the fight will soon reach your local Starbucks, Wal-Mart and Whole Foods.
Fair Trade USA, the movement’s leading advocate in the United States, angered critics by saying it would cut its ties at year’s end with the main international fair trade group and make far-reaching changes in the sorts of products that get its seal of approval.
The changes include giving the fair trade designation to coffee from large plantations, which were previously barred in favor of small farms. The group is also proposing to place its seal on products with as little as 10 percent fair trade ingredients, compared with a minimum of 20 percent required in other countries.
The group says the changes will benefit more poor farmers and farm workers around the world and make it easier for large corporations to sell fair trade products. Sales of fair trade goods in 2010 were $1.3 billion in the United States and $5.8 billion globally. Fair Trade USA said it hoped to double sales in the United States by 2015.
Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.
“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”
Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”
He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said.
As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.
“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”
The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.
The logo overload will include a redesigned Fair Trade USA seal; a Fairtrade International seal, which previously did not appear in this country; and labels from smaller programs, like one run by Catholic Relief Services.
Coffee, which Mr. Rice said accounted for more than 70 percent of the fair trade market in the United States, is at the center of the dispute.
Green Mountain Coffee Roasters, which calls itself the largest buyer of fair trade coffee in the world, said that it would continue to work with Fair Trade USA as it sought to increase the amount of fair trade coffee it used.
The company is participating in a pilot project with Fair Trade USA involving a 500-acre organic coffee plantation in Brazil, a farm that previously would have been too large to get fair trade certification.
“Our ongoing commitment to small-scale farmers remains intact,” Sandy Yusen, a Green Mountain spokeswoman, said. “We also believe that Fair Trade USA’s vision presents new opportunities that allow us to impact even more farmers and workers.”
Ms. Yusen said that Green Mountain bought 26 million pounds of fair trade coffee in 2010; in that year, it paid $1.6 million in licensing fees to Fair Trade USA, making it the largest source of revenue for the nonprofit group, according to federal tax filings. The fees are meant to pay the cost of auditing a company’s production to make sure its fair trade claims are accurate.
Starbucks, which has about 11,000 coffee shops in the United States, also said that it planned to continue using Fair Trade USA to certify coffee it sells in this country. However, the company said that it had not decided whether to place a fair trade label on coffee grown on large plantations. Starbucks said that about 8 percent of the coffee used in its global operations came from fair trade farms in 2010, or about 21 million pounds.
Wal-Mart and Whole Foods also sell fair trade coffee and use fair trade ingredients in store-brand products; both companies said they were evaluating the situation.
About two dozen countries have fair trade labeling organizations that license companies to market fair trade products. Fairtrade International provides a uniform logo for use on packaging in most countries.
Most fair trade programs around the world already allow bananas, tea and flowers to be grown on large farms. But traditionally, fair trade coffee and cocoa had to come from small farms organized into cooperatives. The farmers receive a premium for use in community projects, like paying for schools or medical care.
Those poor farmers were once isolated from markets in the developed world and had to sell at a low price. Fair trade organizations help them improve product quality and, most important, give them access to a world market.
Mr. Rice said bringing large plantations into the fair trade sphere would mean that workers on those plantations, whom he called “the poorest of the poor,” could also begin to receive benefits. “We’ve developed a vision for that bigger, better model of fair trade,” he said.
But critics say that large plantations do not need help getting access to major markets, and the small coffee farmers who have been at the heart of fair trade could be squeezed out.
“Starbucks, Green Mountain and other coffee companies will be able to become 100 percent fair trade not because they’ve changed their business practices one iota but because Fair Trade USA has changed the rules of the game,” said Dean Cycon, founder of Dean’s Beans Organic Coffee Company, in Orange, Mass.
Seth Goldman, the co-founder of Honest Tea, said the rift had prompted his company, now owned by Coca-Cola, to take a closer look at the workings of fair trade. He said that in the first 10 months of this year, Honest Tea paid about $51,000 in premiums destined to help farmers or farm workers. At the same time, it paid $37,000 in licensing fees to Fair Trade USA.
Mr. Goldman said he would like to see more money go to help farmers and less to pay administrative and auditing costs.
He said the company would decide in the next few weeks whether it would continue to work with Fair Trade USA or arrange to use the Fairtrade International logo on its products instead.
He called the dispute a mess, but added, “Opening up a can of worms gives us a chance to understand what’s in the can.”
Fair Trade USA, the movement’s leading advocate in the United States, angered critics by saying it would cut its ties at year’s end with the main international fair trade group and make far-reaching changes in the sorts of products that get its seal of approval.
The changes include giving the fair trade designation to coffee from large plantations, which were previously barred in favor of small farms. The group is also proposing to place its seal on products with as little as 10 percent fair trade ingredients, compared with a minimum of 20 percent required in other countries.
The group says the changes will benefit more poor farmers and farm workers around the world and make it easier for large corporations to sell fair trade products. Sales of fair trade goods in 2010 were $1.3 billion in the United States and $5.8 billion globally. Fair Trade USA said it hoped to double sales in the United States by 2015.
Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.
“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”
Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”
He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said.
As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.
“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”
The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.
The logo overload will include a redesigned Fair Trade USA seal; a Fairtrade International seal, which previously did not appear in this country; and labels from smaller programs, like one run by Catholic Relief Services.
Coffee, which Mr. Rice said accounted for more than 70 percent of the fair trade market in the United States, is at the center of the dispute.
Green Mountain Coffee Roasters, which calls itself the largest buyer of fair trade coffee in the world, said that it would continue to work with Fair Trade USA as it sought to increase the amount of fair trade coffee it used.
The company is participating in a pilot project with Fair Trade USA involving a 500-acre organic coffee plantation in Brazil, a farm that previously would have been too large to get fair trade certification.
“Our ongoing commitment to small-scale farmers remains intact,” Sandy Yusen, a Green Mountain spokeswoman, said. “We also believe that Fair Trade USA’s vision presents new opportunities that allow us to impact even more farmers and workers.”
Ms. Yusen said that Green Mountain bought 26 million pounds of fair trade coffee in 2010; in that year, it paid $1.6 million in licensing fees to Fair Trade USA, making it the largest source of revenue for the nonprofit group, according to federal tax filings. The fees are meant to pay the cost of auditing a company’s production to make sure its fair trade claims are accurate.
Starbucks, which has about 11,000 coffee shops in the United States, also said that it planned to continue using Fair Trade USA to certify coffee it sells in this country. However, the company said that it had not decided whether to place a fair trade label on coffee grown on large plantations. Starbucks said that about 8 percent of the coffee used in its global operations came from fair trade farms in 2010, or about 21 million pounds.
Wal-Mart and Whole Foods also sell fair trade coffee and use fair trade ingredients in store-brand products; both companies said they were evaluating the situation.
About two dozen countries have fair trade labeling organizations that license companies to market fair trade products. Fairtrade International provides a uniform logo for use on packaging in most countries.
Most fair trade programs around the world already allow bananas, tea and flowers to be grown on large farms. But traditionally, fair trade coffee and cocoa had to come from small farms organized into cooperatives. The farmers receive a premium for use in community projects, like paying for schools or medical care.
Those poor farmers were once isolated from markets in the developed world and had to sell at a low price. Fair trade organizations help them improve product quality and, most important, give them access to a world market.
Mr. Rice said bringing large plantations into the fair trade sphere would mean that workers on those plantations, whom he called “the poorest of the poor,” could also begin to receive benefits. “We’ve developed a vision for that bigger, better model of fair trade,” he said.
But critics say that large plantations do not need help getting access to major markets, and the small coffee farmers who have been at the heart of fair trade could be squeezed out.
“Starbucks, Green Mountain and other coffee companies will be able to become 100 percent fair trade not because they’ve changed their business practices one iota but because Fair Trade USA has changed the rules of the game,” said Dean Cycon, founder of Dean’s Beans Organic Coffee Company, in Orange, Mass.
Seth Goldman, the co-founder of Honest Tea, said the rift had prompted his company, now owned by Coca-Cola, to take a closer look at the workings of fair trade. He said that in the first 10 months of this year, Honest Tea paid about $51,000 in premiums destined to help farmers or farm workers. At the same time, it paid $37,000 in licensing fees to Fair Trade USA.
Mr. Goldman said he would like to see more money go to help farmers and less to pay administrative and auditing costs.
He said the company would decide in the next few weeks whether it would continue to work with Fair Trade USA or arrange to use the Fairtrade International logo on its products instead.
He called the dispute a mess, but added, “Opening up a can of worms gives us a chance to understand what’s in the can.”
Friday, 18 November 2011
Lots of Cliches, Less Common Sense
Business commentators have been salivating for years at the prospect of putting the final nail into the coffin of supply management. It's really because of the public disclosure rules in these national marketing schemes that they have large numbers to throw around to make their case. I suspect if the total "goodwill" value of any profession (doctor,lawyer,accountant) were added up, the number would be pretty big too. And on the matter of income note below the fact that because dairy farmers make a middle class wage, and even worse, much more than other farmers, it follows that they're making too much. Back in March I wrote about supply management and the fight that was brewing. First a very smart (normally) National Post commentator who hammered supply management all week, and I re-posted the March piece.
John Ivison
National Post
Don't bet the farm on dairy quotas
Ed Fast was in typical ministerial doublespeak mode. Yes, supply management will be on the table in any forthcoming talks into a potential AsiaPacific free trade deal, the Trade Minister told reporters in the foyer of the House of Commons.
Yes, the Harper government will vigorously defend the protected dairy and poultry sectors.
No, he would not speculate on the outcome of any negotiations.
So if you are a dairy farmer who has borrowed $1-million to buy the quota that gives you the right to send milk to market, you are reassured, right?
There's no way the Conservatives are going to negotiate away the value of your asset, in order to win trade concessions from other countries at the Trans-Pacific Partnership (TPP) talks, right?
Don't bet the farm on it. Personally speaking, knowing the issue is "on the table" would certainly make me less inclined to pay $28,000 for every cow (or at least the right to sell milk from that cow).
The total value of milk quotas in Canada now is a staggering $30-billion, with many farmers deeply in debt, having borrowed the money to enter the industry from banks. That $30-billion would be the cost of compensating all farmers at current values and creating a free market in dairy and poultry products overnight.
That is unlikely to happen. For one thing, the knowledge that the issue is "on the table" is likely to send quota prices south.
For another, were the government to decide it wants an orderly phaseout of supply management, it is far more likely to start issuing new quotas that would lower prices gradually.
In all trade negotiations there are winners and losers - and the losers in this case appear to be the farmers who have racked up debt to buy quotas that may end up being as worthless as Nortel stock.
One farmer told me that for $1-million in quotas, he would typically gross $230,000. With expenses running at about 70%, he is left with $70,000 on which to live and pay down debt.
Those are pretty generous profit margins, compared to the all-farm average, but it will still create a political firestorm if quota values of dairy farmers in Ontario and Quebec are slashed so Western beef farmers can gain access to overseas markets.
One potential solution could be for governments to use the proceeds from new quota sales to help compensate farmers who want to leave the business.
What's increasingly clear is that the writing is on the wall and it was inscribed by Prime Minister Stephen Harper when he accepted President Barack Obama's offer to explore membership of the Trans-Pacific Partnership.
The Dairy Farmers of Canada are one of the country's most powerful lobby groups and will likely fight a noisy and ugly rearguard action. If the government decides to use up its political capital, we can expect to see herds of Holsteins grazing on the lawn of Parliament Hill and ministers being egged by irate farmers.
But trade liberalization appears inexorable, as countries seek to kick-start their economies. Mr. Harper said in the House of Commons he intends to protect supply management at the TPP negotiating table, but the road to most successful free-trade deals is paved with similarly good intentions.
TPP participants such as New Zealand are determined Canada's protected dairy industry is going to be opened up, by dropping tariff levels to zero over 10 to 15 years.
This should be welcomed by Canadian consumers. More imports mean cheaper prices and relief from rates that are more than double those paid in the U.S. for liquid milk, eggs, butter and cheese. It could even prove a boon for efficient dairy farmers, who would be free to export to expanding markets, rather than eking out a living in a shrinking Canadian market.
The time is right for liberalization in the dairy industry. The Conservatives have just fought - and apparently won - a battle with the monopoly Wheat Board to allow farmers to sell on the open market.
If free trade really is a linchpin of the Conservative growth strategy, as Mr. Fast claimed Tuesday, this relic of 1970s command economics will have to go the way of Soviet-style pre-fabricated concrete architecture and rusty tractors.
Petrie
March 5
Supply management in a handful of agricultural commodities in Canada (dairy, eggs and poultry) has the same allure as the designated hitter in baseball. Those that care, care a lot. The rest, not so much.
It's a highly regulated marketing system designed initially to tackle a decades long struggle to stabilize the dairy industry. The first scheme was set-up in 1974 by the godfather of supply management, Eugene Whelan, Minister of Agriculture under Pierre Trudeau. The government had been offering price subsidies to dairy farmers throughout most of the last century, but like the Americans and Europeans now, found that a subsidy, on its own, generally leads to huge surpluses. (see http://www.jstor.org/pss/20001616 if you want to know more.)
Whelan was determined to try something very different: limit the production of milk to what the market demands through the use of quotas , and in return guarantee farmers a fair return. Hence the term supply management. By law the cost of production formula must use the most efficient farmers. Table milk we use on our cereal is given the highest price, milk used for butter the lowest. The government would no longer be involved in propping up the price, it would flow through the dairies to the supermarket, and be paid by consumers. .
To make the system work, Canada had to bring in strict import controls. If say New Zealand butter, or American yogurt was selling for 10% less than Canadian dairy products, the system would quickly break down. Canada uses high tariffs, and other restrictions to keep most, but not all, imported dairy products out.
Many, many dairy farmers hated the idea at the time, sold their herds and went into pork production. Even Trudeau (so the story goes) had to tell the Liberal Cabinet, you may not like what Whelan's going to propose, but we're going to do it anyway.
Whelan later introduced supply management into egg and poultry production. All three benefit from being able to control production through management practices, unlike many other crops which are weather dependent, and production fluctuates year by year.
The business press hated it then, and hates it now. Columnists in the National Post, Globe and Mail, etc. repeatedly argue that Canadians pay too much at the checkout, that supply management only survives because of its importance to the huge Quebec dairy industry, and that it should have disappeared during past trade negotiations like the Americans wanted, but federal politicians didn't have the guts to kill it.
To an economist's eye, supply management is far from perfect. Whelan initially insisted that the quotas would belong to the people of Canada, and be free. Now the piece of paper with the quota contract is the most valuable thing on the farm. Banks allow farmers to use the quota as collateral to borrow money. More on what's wrong with supply management here: http://www.iedm.org/files/fev05_en.pdf
Other people, including myself, think that supply management is similar to what Churchill famously said about democracy: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."
Yes consumers pay more than what an American does for cheese and chicken, but unlike Americans, as taxpayers, Canadians don't pay again with a subsidy check sent to the farmer in the mail.
There are a couple of other overlooked benefits. A PEI dairy farmer can manage a herd of seventy to a hundred cows and make a reasonable living. A dairy farmer in Maine would need two to three times that number of cows to make the same living. Supply management also leads to a much more even split of the consumer dollar between the farmer, the food processor, and the food retailer. Farmers usually get what's left over from the consumer dollar after everyone else has been paid.
Supply Management has most recently been vilified in the news because Canada has been refused a seat at on-going trade negotiations called the Trans-Pacific Partnership. It's an ambitious trade deal that includes important growing Asian economies. The hangup, those import restrictions on dairy products, but don't forget that Japan too is insisting it has to protect some parts of it farming community as well.
See: http://www.embassymag.ca/page/view/transpacific-01-06-2010
Now maybe there's a small reason that Canadians can get behind supply management. Throughout this week (March 1-5, 2011) there have been many alarming stories about rising food prices. Climate catastrophes in Russia, Australia, Western Canada, are driving up the price of wheat, cooking oil, sugar, and, wait for it, dairy products.
http://www.bloomberg.com/news/2011-03-01/milk-powder-prices-jump-15-4-to-record-amid-asian-demand-fonterra-says.html
But here's the thing. Supply management means dairy prices are established here by domestic rules and regulations, not by international trading forces.
So when you hear (as you will, even on CBC) or read, that dairy prices are going up because of global climate and insecurity issues, you can think, that's not true. When the dust settles it will be interesting to see where Canadian dairy prices are in relation to those on the world market. It might not look so bad. Remember that when you read Terence Corcoran in the National Post, or Jeffery Simpson in the Globe and Mail, and a host of other business writers lecturing about the evils of supply management. They probably stopped thinking about this issue twenty years ago. You can bring them up to date.
It's a highly regulated marketing system designed initially to tackle a decades long struggle to stabilize the dairy industry. The first scheme was set-up in 1974 by the godfather of supply management, Eugene Whelan, Minister of Agriculture under Pierre Trudeau. The government had been offering price subsidies to dairy farmers throughout most of the last century, but like the Americans and Europeans now, found that a subsidy, on its own, generally leads to huge surpluses. (see http://www.jstor.org/pss/20001616 if you want to know more.)
Whelan was determined to try something very different: limit the production of milk to what the market demands through the use of quotas , and in return guarantee farmers a fair return. Hence the term supply management. By law the cost of production formula must use the most efficient farmers. Table milk we use on our cereal is given the highest price, milk used for butter the lowest. The government would no longer be involved in propping up the price, it would flow through the dairies to the supermarket, and be paid by consumers. .
To make the system work, Canada had to bring in strict import controls. If say New Zealand butter, or American yogurt was selling for 10% less than Canadian dairy products, the system would quickly break down. Canada uses high tariffs, and other restrictions to keep most, but not all, imported dairy products out.
Many, many dairy farmers hated the idea at the time, sold their herds and went into pork production. Even Trudeau (so the story goes) had to tell the Liberal Cabinet, you may not like what Whelan's going to propose, but we're going to do it anyway.
Whelan later introduced supply management into egg and poultry production. All three benefit from being able to control production through management practices, unlike many other crops which are weather dependent, and production fluctuates year by year.
The business press hated it then, and hates it now. Columnists in the National Post, Globe and Mail, etc. repeatedly argue that Canadians pay too much at the checkout, that supply management only survives because of its importance to the huge Quebec dairy industry, and that it should have disappeared during past trade negotiations like the Americans wanted, but federal politicians didn't have the guts to kill it.
To an economist's eye, supply management is far from perfect. Whelan initially insisted that the quotas would belong to the people of Canada, and be free. Now the piece of paper with the quota contract is the most valuable thing on the farm. Banks allow farmers to use the quota as collateral to borrow money. More on what's wrong with supply management here: http://www.iedm.org/files/fev05_en.pdf
Other people, including myself, think that supply management is similar to what Churchill famously said about democracy: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."
Yes consumers pay more than what an American does for cheese and chicken, but unlike Americans, as taxpayers, Canadians don't pay again with a subsidy check sent to the farmer in the mail.
There are a couple of other overlooked benefits. A PEI dairy farmer can manage a herd of seventy to a hundred cows and make a reasonable living. A dairy farmer in Maine would need two to three times that number of cows to make the same living. Supply management also leads to a much more even split of the consumer dollar between the farmer, the food processor, and the food retailer. Farmers usually get what's left over from the consumer dollar after everyone else has been paid.
Supply Management has most recently been vilified in the news because Canada has been refused a seat at on-going trade negotiations called the Trans-Pacific Partnership. It's an ambitious trade deal that includes important growing Asian economies. The hangup, those import restrictions on dairy products, but don't forget that Japan too is insisting it has to protect some parts of it farming community as well.
See: http://www.embassymag.ca/page/view/transpacific-01-06-2010
Now maybe there's a small reason that Canadians can get behind supply management. Throughout this week (March 1-5, 2011) there have been many alarming stories about rising food prices. Climate catastrophes in Russia, Australia, Western Canada, are driving up the price of wheat, cooking oil, sugar, and, wait for it, dairy products.
http://www.bloomberg.com/news/2011-03-01/milk-powder-prices-jump-15-4-to-record-amid-asian-demand-fonterra-says.html
But here's the thing. Supply management means dairy prices are established here by domestic rules and regulations, not by international trading forces.
So when you hear (as you will, even on CBC) or read, that dairy prices are going up because of global climate and insecurity issues, you can think, that's not true. When the dust settles it will be interesting to see where Canadian dairy prices are in relation to those on the world market. It might not look so bad. Remember that when you read Terence Corcoran in the National Post, or Jeffery Simpson in the Globe and Mail, and a host of other business writers lecturing about the evils of supply management. They probably stopped thinking about this issue twenty years ago. You can bring them up to date.
Tuesday, 15 November 2011
And It Continues (See Last Post)
John Ivison
National Post
Pacific trade talks could bring end of supply management in Canada
Nov. 14, 2011 •
Chris Wattie/Reuters
“Look, Barack, I'm serious. Canada is way bigger than Turks and Caicos.”
OTTAWA — Stephen Harper’s foreign policy has been governed by the desire to remain as friendly as possible with the United States, while still maintaining a fig leaf of self-respect.
In recent weeks, that policy has been called into question, as U.S. lawmakers have made a series of policy decisions – Buy America, the new entry fee for travellers, and the Keystone pipeline delay – that have left the impression that Canada’s clout in Washington is somewhere on a par with Turks and Caicos.
Yet, in Honolulu on the weekend, a remarkable shift in Canadian trade policy took place that may, in part, have been an attempt by U.S. President Barack Obama to mend fences with the Harper government.
At the APEC summit in Hawaii on Saturday, Ed Fast, Canada’s Trade Minister, made some lukewarm noises about this country’s participation in the new Asia-Pacific free trade group that includes the U.S., Australia, New Zealand and six other countries. The resistance to the Trans-Pacific Partnership was blamed on the insistence by some participants, principally the U.S. and New Zealand, that Canada first agree to dismantle the supply management system that puts tariffs on imports of milk, butter and cheese. “We have made it clear that Canada will not pre-negotiate, we believe all of those issues should be discussed at the negotiating table,” said Mr. Fast.
But less than 24 hours later, Mr. Harper was telling reporters that Canada had given a formal indication of interest in joining the TPP “demonstrating our commitment to further deepen trade links in the Asia-Pacific region.” While he defended supply management as “valuable” in fostering a healthy dairy and poultry sector, he said everything is on the table during negotiations.
So what happened to shift opinion? People close to the negotiations said Japan’s decision to explore participation made the difference. While Japanese business is keen to increase its range of free trade deals, the new Prime Minister Yoshihiko Noda is conscious of the opposition that would be created if he granted access to subsidized U.S. and cheap Vietnamese rice.
Since the Americans are keen to bind the Japanese in a trade deal, it seems likely that Japan’s heavily subsidized rice sector will be sheltered, in the same way the U.S. intends to continue to protect its dairy, sugar and peanut producers by introducing a special “liberalization” schedule.
Having carved out an exemption for the Japanese, it looks as though Mr. Obama decided he was in Mr. Harper’s debt and made a similar arrangement for Canadian poultry and dairy, reversing the position of U.S. trade negotiators, who were keen to keep Canada out of the talks.
Peter Clark, one of Canada’s leading trade strategists, said the prospect of Canada joining the talks came up in the discussion between Mr. Obama and Mr. Harper, when the President said he’d like Canada and Mexico to participate. “It was totally unexpected – you’ve got two politicians here trying to make each other look good,” he said. Mr. Harper reciprocated at his press conference in Honolulu when he was asked to comment on the U.S. decision to delay the Keystone pipeline. While he made clear his government’s intention to attempt to diversify the market for Canadian energy exports into Asia, he resisted the urge to take Mr. Obama into the boards. “I think Canadians would be wrong to interpret any of these decisions as against Canada. This is simply political season in the United States and decisions are being made for domestic political reasons that often have little or nothing to do with what other countries may think,” he said.
With the Beyond Borders trade and security agreement likely to be signed by the President and the Prime Minister in early December, this weekend’s development is an affirmation of the Harper government’s prudent policy of reasonable accommodation of the U.S. – progress over the approach of successive Liberal governments, who, in the words of former diplomat Colin Robertson, delighted in “tweaking the beak of the American eagle to underline Canadian independence.”
It’s a good result for the Prime Minister but he is still left with the prospect of dismantling supply management – a system that inflates prices for Canadian consumers and flies in the face of everything else he believes in. Pre-negotiated reform may be off the table but concerted opposition remains among the other nine or so participating countries.
There will be pressure on Canada to phase out protection of the dairy and poultry industries over time and Mr. Harper’s decision to participate in the TPP talks may signal the slow death of supply management, regardless of the assurances to the contrary given in the House of Commons.
A free trade deal that includes the NAFTA countries and Japan is a glittering prize worth potentially billions of dollars, not least for Canada’s beef producers. The country’s economy cannot be held to ransom by 12,000 dairy farmers.
In recent weeks, that policy has been called into question, as U.S. lawmakers have made a series of policy decisions – Buy America, the new entry fee for travellers, and the Keystone pipeline delay – that have left the impression that Canada’s clout in Washington is somewhere on a par with Turks and Caicos.
Yet, in Honolulu on the weekend, a remarkable shift in Canadian trade policy took place that may, in part, have been an attempt by U.S. President Barack Obama to mend fences with the Harper government.
At the APEC summit in Hawaii on Saturday, Ed Fast, Canada’s Trade Minister, made some lukewarm noises about this country’s participation in the new Asia-Pacific free trade group that includes the U.S., Australia, New Zealand and six other countries. The resistance to the Trans-Pacific Partnership was blamed on the insistence by some participants, principally the U.S. and New Zealand, that Canada first agree to dismantle the supply management system that puts tariffs on imports of milk, butter and cheese. “We have made it clear that Canada will not pre-negotiate, we believe all of those issues should be discussed at the negotiating table,” said Mr. Fast.
But less than 24 hours later, Mr. Harper was telling reporters that Canada had given a formal indication of interest in joining the TPP “demonstrating our commitment to further deepen trade links in the Asia-Pacific region.” While he defended supply management as “valuable” in fostering a healthy dairy and poultry sector, he said everything is on the table during negotiations.
So what happened to shift opinion? People close to the negotiations said Japan’s decision to explore participation made the difference. While Japanese business is keen to increase its range of free trade deals, the new Prime Minister Yoshihiko Noda is conscious of the opposition that would be created if he granted access to subsidized U.S. and cheap Vietnamese rice.
Since the Americans are keen to bind the Japanese in a trade deal, it seems likely that Japan’s heavily subsidized rice sector will be sheltered, in the same way the U.S. intends to continue to protect its dairy, sugar and peanut producers by introducing a special “liberalization” schedule.
Having carved out an exemption for the Japanese, it looks as though Mr. Obama decided he was in Mr. Harper’s debt and made a similar arrangement for Canadian poultry and dairy, reversing the position of U.S. trade negotiators, who were keen to keep Canada out of the talks.
Peter Clark, one of Canada’s leading trade strategists, said the prospect of Canada joining the talks came up in the discussion between Mr. Obama and Mr. Harper, when the President said he’d like Canada and Mexico to participate. “It was totally unexpected – you’ve got two politicians here trying to make each other look good,” he said. Mr. Harper reciprocated at his press conference in Honolulu when he was asked to comment on the U.S. decision to delay the Keystone pipeline. While he made clear his government’s intention to attempt to diversify the market for Canadian energy exports into Asia, he resisted the urge to take Mr. Obama into the boards. “I think Canadians would be wrong to interpret any of these decisions as against Canada. This is simply political season in the United States and decisions are being made for domestic political reasons that often have little or nothing to do with what other countries may think,” he said.
With the Beyond Borders trade and security agreement likely to be signed by the President and the Prime Minister in early December, this weekend’s development is an affirmation of the Harper government’s prudent policy of reasonable accommodation of the U.S. – progress over the approach of successive Liberal governments, who, in the words of former diplomat Colin Robertson, delighted in “tweaking the beak of the American eagle to underline Canadian independence.”
It’s a good result for the Prime Minister but he is still left with the prospect of dismantling supply management – a system that inflates prices for Canadian consumers and flies in the face of everything else he believes in. Pre-negotiated reform may be off the table but concerted opposition remains among the other nine or so participating countries.
There will be pressure on Canada to phase out protection of the dairy and poultry industries over time and Mr. Harper’s decision to participate in the TPP talks may signal the slow death of supply management, regardless of the assurances to the contrary given in the House of Commons.
A free trade deal that includes the NAFTA countries and Japan is a glittering prize worth potentially billions of dollars, not least for Canada’s beef producers. The country’s economy cannot be held to ransom by 12,000 dairy farmers.
Monday, 14 November 2011
Now It Begins
I've written a lot about supply management (there's a search box at the bottom of the page). It's given egg, poultry and dairy farmers considerable stability. Prices are slightly higher than the U.S., but taxpayers/consumers only pay once, unlike what happens in the U.S. and Europe where government support is required. Dairy exporters like New Zealand and the EEC would love to crack open the import controls necessary to make supply management work, and want to use negotiations for a new trade deal to accomplish this. This is from a business publication:
"The Trans-Pacific Strategic Economic Partnership Agreement, or TPP, began as a four-country Pacific free trade agreement that came into force in 2006. Initially it encompassed only New Zealand, Chile, Brunei and Singapore. However, those countries want to expand to more markets. Canada could have joined years ago, but has so far remained on the sidelines while its major competitors jump on board."
The hang-up for Canada joining these talks: Canada's defense of supply management. Over the weekend that changed.
http://news.nationalpost.com/2011/11/13/canada-wants-to-join-u-s-and-asia-pacific-region-free-trade-deal-harper/
Canada to strike new U.S. and Asia-Pacific region free trade deal: Harper
Nov. 13, 2011 •
By Jason Fekete
HONOLULU — Prime Minister Stephen Harper announced Sunday Canada will apply to join a new free trade agreement with the United States and the Asia-Pacific region, and suggested that Canada’s farm supply management systems could be on the table for negotiation.
Mr. Harper also said Canada will look further into selling its oil and gas to Asian countries due to U.S. delays in approving the Keystone XL pipeline.
Mr. Harper, who met U.S. President Barack Obama over lunch on the fringes of the Asia-Pacific Economic Cooperation summit in Honolulu, said Canada will formally ask to join the emerging Trans-Pacific Partnership trade group of nine Asia-Pacific countries.
A handful of countries in the TPP negotiations — including possibly New Zealand and the United States — have been resisting Canada’s entry into the group because of the Canadian supply management system that protects fewer than 20,000 dairy and poultry farmers behind a tariff wall and hands them production quotas.
The Conservative government has repeatedly said it will strongly defend Canada’s supply management system and that it wasn’t yet in the country’s interest to join the trade group — something reaffirmed Saturday by International Trade Minister Ed Fast.
But Sunday, Mr. Harper stressed his government now wants into the TPP, currently being negotiated among the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. He said he was informed that Mr. Obama has asked for Canada to join the trade agreement.
The Prime Minister said Canada can “easily meet” the broad strokes of the agreement unveiled Saturday by Mr. Obama, even if it means throwing into the mix a supply management system that forces Canadians to pay higher prices for products like milk, cheese, chicken and eggs.
“It has been told to me that President Obama, in fact, was very strong indicating that he would like to see Canada join the Trans-Pacific Partnership. We are indicating today our formal intention, we’re expressing formally our willingness to join the Trans-Pacific Partnership,” Mr. Harper said.
“We will make an application and I am optimistic we will participate in the future,” he added. “Whenever we enter negotiations, as we’ve done in the past with other countries, as we’re doing right now with Europe, we always say that all matters are on the table. But of course Canada will seek to defend and promote our specific interests in every single sector of the economy.”
Japan announced Friday it was entering negotiations into the TPP and appears willing to dismantle some of its tariff walls for rice and grain farmers.
The prime minister met Mr. Obama later amid a growing number of cross-border irritants, including the Keystone XL, Buy American provisions, the Beyond the Border initiative and new $5.50 travel surcharge to the United States.
Mr. Harper said he’s disappointed with the Obama administration’s decision to delay a ruling on the TransCanada Corp.’s Keystone XL pipeline and consider rerouting it, but believes the project will proceed because it’s critical for both the Canadian and American economies.
“We are disappointed. Nonetheless, I remain optimistic that the project will eventually go ahead because it makes eminent sense, and I would also point out, I think it’s important to note that there has been extremely negative reaction to this decision in the United States because this pipeline and this project is obviously what’s in the best interests of not just the Canadian economy but also the American economy,” Harper said.
“I do think as well though — and I think this is important to say — this does underscore the necessity of Canada making sure that we’re able to access Asian markets for our energy products and that will be an important priority of this government going forward and I indicated that (Saturday) to President Hu of China.”
The Obama administration announced Thursday it is delaying a final ruling on Keystone XL oil sands pipeline until after the November 2012 presidential election while the government looks to reroute it. The $7-billion Keystone XL would carry up to 830,000 barrels of oil per day from northern Alberta to refineries on the Gulf Coast of Texas.
The U.S. State Department said it’s ordering a new review of the project aimed at rerouting Keystone XL around sensitive ecosystems along its proposed path through Nebraska.
Canada’s ticket to selling its petroleum to Asia is Enbridge Inc.’s $5.5-billion Northern Gateway pipeline, which would ship oil sands bitumen from northern Alberta to a marine facility in Kitimat, B.C., where oil would be unloaded onto tankers for export.
The broader goal of the TPP is to create a tariff-free region and members view it as a critical multilateral agreement, especially with the ongoing troubles from the Doha Round of World Trade Organization negotiations.
Mr. Obama said Saturday he’s “confident” the TPP members can complete the free-trade agreement, hopefully within a year, and have it serve as a model for future pacts.
Mr. Harper, meanwhile, downplayed perceived strains in the Canada-U.S. relationship — be it on Keystone, Beyond the Border or Buy American — blaming domestic American politics for the decisions.
“Remember, not all these things are final decisions. I think Canadians would be wrong to interpret any of these decisions as against Canada,” Harper said. “This is simply the political season in the United States and decisions are being made for domestic political reasons that often have little or nothing to do with what other countries may think.”
He said negotiations on Beyond the Border — a bilateral trade and security agreement designed to better co-ordinate intelligence sharing and streamline cross-border trade — are going well and that he’s optimistic “a very strong program” will come out of it, with an “announcement in the very near future.”
A working group conducted public consultations on the measures and has completed a 30-point action plan. The Harper government originally said the plan would be ready by the end of summer, but details still haven’t been unveiled.
Other cross-border issues include the new $5.50 surcharge on Canadians and Mexicans travelling by air or boat to the United States — a move Harper has attacked as a bad policy designed to bail the U.S. out of a huge debt on the backs of Canadians and other visitors.
There has also been some tension between Canada and the U.S. in recent weeks after the White House included new Buy American provisions in Obama’s $447-billion job creation bill that could prevent Canadian companies from bidding on billions of dollars of infrastructure contracts.
The Harper government’s push into Asia-Pacific faces some stiff competition, though, from the United States.
Obama said Sunday, at the beginning of a day of talks with the 21 APEC member economies, that Asia-Pacific is “absolutely critical” to America’s economic growth and meeting his goal of eventually doubling U.S. exports.
“We consider it a top priority because we’re not going to be able to put our folks back to work and grow our economy and expand opportunity unless the Asia-Pacific region is also successful,” Obama said.
"The Trans-Pacific Strategic Economic Partnership Agreement, or TPP, began as a four-country Pacific free trade agreement that came into force in 2006. Initially it encompassed only New Zealand, Chile, Brunei and Singapore. However, those countries want to expand to more markets. Canada could have joined years ago, but has so far remained on the sidelines while its major competitors jump on board."
The hang-up for Canada joining these talks: Canada's defense of supply management. Over the weekend that changed.
http://news.nationalpost.com/2011/11/13/canada-wants-to-join-u-s-and-asia-pacific-region-free-trade-deal-harper/
Canada to strike new U.S. and Asia-Pacific region free trade deal: Harper
Nov. 13, 2011 •
By Jason Fekete
HONOLULU — Prime Minister Stephen Harper announced Sunday Canada will apply to join a new free trade agreement with the United States and the Asia-Pacific region, and suggested that Canada’s farm supply management systems could be on the table for negotiation.
Mr. Harper also said Canada will look further into selling its oil and gas to Asian countries due to U.S. delays in approving the Keystone XL pipeline.
Mr. Harper, who met U.S. President Barack Obama over lunch on the fringes of the Asia-Pacific Economic Cooperation summit in Honolulu, said Canada will formally ask to join the emerging Trans-Pacific Partnership trade group of nine Asia-Pacific countries.
A handful of countries in the TPP negotiations — including possibly New Zealand and the United States — have been resisting Canada’s entry into the group because of the Canadian supply management system that protects fewer than 20,000 dairy and poultry farmers behind a tariff wall and hands them production quotas.
The Conservative government has repeatedly said it will strongly defend Canada’s supply management system and that it wasn’t yet in the country’s interest to join the trade group — something reaffirmed Saturday by International Trade Minister Ed Fast.
But Sunday, Mr. Harper stressed his government now wants into the TPP, currently being negotiated among the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. He said he was informed that Mr. Obama has asked for Canada to join the trade agreement.
The Prime Minister said Canada can “easily meet” the broad strokes of the agreement unveiled Saturday by Mr. Obama, even if it means throwing into the mix a supply management system that forces Canadians to pay higher prices for products like milk, cheese, chicken and eggs.
“It has been told to me that President Obama, in fact, was very strong indicating that he would like to see Canada join the Trans-Pacific Partnership. We are indicating today our formal intention, we’re expressing formally our willingness to join the Trans-Pacific Partnership,” Mr. Harper said.
“We will make an application and I am optimistic we will participate in the future,” he added. “Whenever we enter negotiations, as we’ve done in the past with other countries, as we’re doing right now with Europe, we always say that all matters are on the table. But of course Canada will seek to defend and promote our specific interests in every single sector of the economy.”
Japan announced Friday it was entering negotiations into the TPP and appears willing to dismantle some of its tariff walls for rice and grain farmers.
The prime minister met Mr. Obama later amid a growing number of cross-border irritants, including the Keystone XL, Buy American provisions, the Beyond the Border initiative and new $5.50 travel surcharge to the United States.
Mr. Harper said he’s disappointed with the Obama administration’s decision to delay a ruling on the TransCanada Corp.’s Keystone XL pipeline and consider rerouting it, but believes the project will proceed because it’s critical for both the Canadian and American economies.
“We are disappointed. Nonetheless, I remain optimistic that the project will eventually go ahead because it makes eminent sense, and I would also point out, I think it’s important to note that there has been extremely negative reaction to this decision in the United States because this pipeline and this project is obviously what’s in the best interests of not just the Canadian economy but also the American economy,” Harper said.
“I do think as well though — and I think this is important to say — this does underscore the necessity of Canada making sure that we’re able to access Asian markets for our energy products and that will be an important priority of this government going forward and I indicated that (Saturday) to President Hu of China.”
The Obama administration announced Thursday it is delaying a final ruling on Keystone XL oil sands pipeline until after the November 2012 presidential election while the government looks to reroute it. The $7-billion Keystone XL would carry up to 830,000 barrels of oil per day from northern Alberta to refineries on the Gulf Coast of Texas.
The U.S. State Department said it’s ordering a new review of the project aimed at rerouting Keystone XL around sensitive ecosystems along its proposed path through Nebraska.
Canada’s ticket to selling its petroleum to Asia is Enbridge Inc.’s $5.5-billion Northern Gateway pipeline, which would ship oil sands bitumen from northern Alberta to a marine facility in Kitimat, B.C., where oil would be unloaded onto tankers for export.
The broader goal of the TPP is to create a tariff-free region and members view it as a critical multilateral agreement, especially with the ongoing troubles from the Doha Round of World Trade Organization negotiations.
Mr. Obama said Saturday he’s “confident” the TPP members can complete the free-trade agreement, hopefully within a year, and have it serve as a model for future pacts.
Mr. Harper, meanwhile, downplayed perceived strains in the Canada-U.S. relationship — be it on Keystone, Beyond the Border or Buy American — blaming domestic American politics for the decisions.
“Remember, not all these things are final decisions. I think Canadians would be wrong to interpret any of these decisions as against Canada,” Harper said. “This is simply the political season in the United States and decisions are being made for domestic political reasons that often have little or nothing to do with what other countries may think.”
He said negotiations on Beyond the Border — a bilateral trade and security agreement designed to better co-ordinate intelligence sharing and streamline cross-border trade — are going well and that he’s optimistic “a very strong program” will come out of it, with an “announcement in the very near future.”
A working group conducted public consultations on the measures and has completed a 30-point action plan. The Harper government originally said the plan would be ready by the end of summer, but details still haven’t been unveiled.
Other cross-border issues include the new $5.50 surcharge on Canadians and Mexicans travelling by air or boat to the United States — a move Harper has attacked as a bad policy designed to bail the U.S. out of a huge debt on the backs of Canadians and other visitors.
There has also been some tension between Canada and the U.S. in recent weeks after the White House included new Buy American provisions in Obama’s $447-billion job creation bill that could prevent Canadian companies from bidding on billions of dollars of infrastructure contracts.
The Harper government’s push into Asia-Pacific faces some stiff competition, though, from the United States.
Obama said Sunday, at the beginning of a day of talks with the 21 APEC member economies, that Asia-Pacific is “absolutely critical” to America’s economic growth and meeting his goal of eventually doubling U.S. exports.
“We consider it a top priority because we’re not going to be able to put our folks back to work and grow our economy and expand opportunity unless the Asia-Pacific region is also successful,” Obama said.
Friday, 11 November 2011
What Do You Think of Economics Now?
It's been called the "dismal" science, and it's not just because the news always seems to be grim. The characterization originally came from a reactionary Victorian "thinker" called Thomas Carlyle. He didn't like progressives of the time like Charles Darwin and John Stuart Mill advocating against slavery. Economists back then were also arguing in favour of equality. So Carlyle wrote this in December, 1849 in a London Monthly called Fraser's Magazine. His article was titled "Occasional Discourse on the Negro Question". Carlyle's view on Economics was that it's "quite abject and distressing...dismal science...led by sacred cause of Black Emancipation."
Now we look to economists to make sense of incredibly complex issues involving enormous sums of money that we really can't comprehend. The new element that has people so freaked out is that sovereign governments, which were always considered a safe bet, are starting to renege on their debts. The logic was that governments have the legal authority to tax (their citizens might not like it), so will always be good for the money they borrow. We're learning that's not the case.
I did take economics at university and remember a teacher who said at it's not so much a science as a confidence game. We have to believe that the pieces of paper and metal we carry around in our pockets have value, and that others feels the same way. It's why when Jim Flaherty speaks publicly you get the feeling that you're getting more of a pep talk from a hockey coach than a serious discussion of the days events. He has to keep us feeling confident that this enterprise we're all a part of will be OK If enough people lose confidence, then you get a run on the banks (although given the debt levels many Canadian families are carrying, it might not be so much a demand for all that's in a savings account, but telling the loans manager you won't be paying back that line of credit.) It was a run on the banks that really precipitated the Great Depression.
Anyone following U.S. politics knows there are libertarians like Ron Paul who argue that once the U.S. (and Canada and other developed countries) went off the gold standard under Richard Nixon, that paper money lost its value. It used to be that the currency in circulation was backed by gold bullion. Now central banks literally print money. Millions of people have benefited from this. (an expanding economy creates jobs and consumption, the risk is inflation, too much money chasing too few goods). Given how gold has soared in value over the last five years, there are a lot of people who think the same way Paul does, that when the dust settles it will be those with gold bullion stored somewhere who will prosper while the rest of us live off root crops, and burn the furniture to stay warm.
The Occupy movement has certainly gives us a little more insight into how people view the dismal science. Many think capitalism itself is beyond repair, while others that the rich and powerful have gamed the system to their advantage, and that's the problem (I don't have any doubt about that).
I admire writers who can take on complex issues and simplify (and be right in my opinion). Here are a couple. There are many others. John Kenneth Galbraith was my touchstone when I was a student. His book on the Great Depression had a real impact on me. There was a section where he wrote about the cruelty of governments not doing anything, demanding austerity to balance budgets. He wrote that there was demand for houses, hammers, nails and wood, people who were good carpenters, all that was missing was money. He argued it didn't make any sense for the government not to provide it. I guess that's why I'm not a libertarian.
http://motherjones.com/kevin-drum/2011/11/why-businesses-love-regulatory-complexity
http://www.nytimes.com/2011/11/11/opinion/legends-of-the-fail.html?ref=opinion
November 10, 2011
Legends of the Fail
By PAUL KRUGMAN
This is the way the euro ends — not with a bang but with bunga bunga. Not long ago, European leaders were insisting that Greece could and should stay on the euro while paying its debts in full. Now, with Italy falling off a cliff, it’s hard to see how the euro can survive at all.
But what’s the meaning of the eurodebacle? As always happens when disaster strikes, there’s a rush by ideologues to claim that the disaster vindicates their views. So it’s time to start debunking.
First things first: The attempt to create a common European currency was one of those ideas that cut across the usual ideological lines. It was cheered on by American right-wingers, who saw it as the next best thing to a revived gold standard, and by Britain’s left, which saw it as a big step toward a social-democratic Europe. But it was opposed by British conservatives, who also saw it as a step toward a social-democratic Europe. And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.
So now that the euro project is on the rocks, what lessons should we draw?
I’ve been hearing two claims, both false: that Europe’s woes reflect the failure of welfare states in general, and that Europe’s crisis makes the case for immediate fiscal austerity in the United States.
The assertion that Europe’s crisis proves that the welfare state doesn’t work comes from many Republicans. For example, Mitt Romney has accused President Obama of taking his inspiration from European “socialist democrats” and asserted that “Europe isn’t working in Europe.” The idea, presumably, is that the crisis countries are in trouble because they’re groaning under the burden of high government spending. But the facts say otherwise.
It’s true that all European countries have more generous social benefits — including universal health care — and higher government spending than America does. But the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.
Oh, and Canada, which has universal health care and much more generous aid to the poor than the United States, has weathered the crisis better than we have.
The euro crisis, then, says nothing about the sustainability of the welfare state. But does it make the case for belt-tightening in a depressed economy?
You hear that claim all the time. America, we’re told, had better slash spending right away or we’ll end up like Greece or Italy. Again, however, the facts tell a different story.
First, if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.
What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.
The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.
The moral of the story, then, is to beware of ideologues who are trying to hijack the European crisis on behalf of their agendas. If we listen to those ideologues, all we’ll end up doing is making our own problems — which are different from Europe’s, but arguably just as severe — even worse.
http://www.progressive-economics.ca/2011/11/06/what-do-banks-actually-do-teach-in-with-occupy-toronto/
The Progressive Economics Forum
Nov. 6, 2011 •
Jim Stanford
What do banks actually DO? Create credit out of thin air.
Were Canadian banks bailed-out? Absolutely, to the tune of $200 billion. And they are still protected and subsidized more than any other sector of the economy.
What must be done with these banks? Tax them, control them, and ultimately take them back.
Those are the “take-aways” from a short talk on the banking system that I was honoured to give as part of an Occupy Toronto rally last weekend at the corner of King and Bay in downtown Toronto. Several folks have asked for the written version of my speech, which is posted below.
***********
Well, here we are on Bay Street again, amidst all these gleaming towers, and all this luxury, and power, and affluence.
And what an amazing community we have formed here.
On behalf of the CAW and the CCPA, let me begin by thanking all of you for what you are doing. What you are building. The political and moral space you have opened up through the Occupy movement these past few weeks.
There’s no better place than right here to talk about what’s gone so terribly wrong in our society. About the enormous and immoral contrast between what we see here on Bay Street, and what things are like where most Canadians – the 99% of Canadians – live and work. Down on Main Street.
You already know that, that’s why you’re here. All this nonsense I’ve heard in the last two weeks about the Occupiers being naïve and confused, is so wrong. I have a Ph.D. in economics, and I can assure you that the people in this crowd today know more about economics – more about real economics – than all the stock brokers in these tall towers put together.
You know about work. About production. About sharing. And about sustaining.
They stand around throwing darts at the dartboard, to pick the next stock they’re going to buy. Proving every day that while government may or may not be able to pick winners, they can’t be any worse at it than the stock market is!
Work. Production. Sharing. Sustaining. That’s the basis of real economics, the real job of improving living standards and protecting the environment.
Not throwing darts. Not rolling dice. Not placing bets.
I often think about what goes on inside these towers. The plush offices, the oak paneling, the fine art on the walls, the private dining areas, the clubs and bars.
Not everyone down here works like that, of course. Most of the real work is done by hard-working office workers, who work hard for not much money.
But the ones who call the shots down here, and call the shots for our whole economy, they do very well. Every now and then I get to step inside one of those towers, in the course of my job. Into one of those investment banks. Those private dining areas. Those boardroooms.
The meals, the furnishings. And of course the compensation. Immoral, offensive compensation. All of it tax-deductible.
Then I compare all that to the generally shoddy state of public institutions and facilities in this city. Like the rec centre in my neighbourhood, out in Parkdale. Or the public schools where my kids go to school. Fine, wonderful schools. But underfunded and dingy, to be sure.
Rob Ford said he went to City Hall to stop the gravy train. When I compare public institutions in this city, to these towers here on Bay Street, I know that Rob Ford missed his target by about 3 blocks. He was 3 blocks too far north.
Want to stop the gravy train, Rob Ford? Come down here to stop the gravy train! A gravy train that’s funded with the proceeds of what, ultimately, is just gambling.
Ever since the Occupy movement came to Canada – even before that, actually – there’s been an enormous myth propagated that these guys here on Bay Street – the Canadian banks – did nothing wrong.
Our banks are strong and safe, they say. They were prudent. And they weren’t bailed out.
They pat us on the head, and they say: “Go to Wall Street to have your little protest. But don’t bother protesting here. Because we didn’t do anything wrong.”
Well that’s simply a lie. It’s a bald-faced, empirically refutable lie.
In the first place, Canadian banks were bailed out – and in a big way. Check the record:
At the end of 2008, and the beginning of 2009, Finance Minister Jim Flaherty and other federal officials moved heaven and earth to help Canada’s banks. Flaherty implemented a new program called the Extraordinary Financing Framework. Or “EFF” for short.
You know, I could think of another meaning for the acronym “EFF.” Elitist Friggin’ Financiers! That’s the real EFF.
It consisted of many different ways to help the banks – these powerful, prudent banks – during their hour of need.
Buying back mortgages in order to inject cash into the banks’ coffers. Providing huge loans, at near-zero interest rates, from the Bank of Canada, when commercial lenders wouldn’t dare. Providing other lines of credit, including in U.S. dollars. And backing the whole thing up with very weird forms of collateral – or sometimes with no collateral at all.
For example, the Bank of Canada was willing to accept asset-backed commercial paper, or ABCP, from the banks to back up some of these emergency loans.
Remember the ABCP debacle in Canada? That sophisticated, but highly unstable market totally froze up in Canada, even before the global meltdown.
If you owned ABCP as an individual, you couldn’t spend it. It was just paper in your pocket. But the banks held ABCP, and they were able to convert it into cold hard cash, courtesy of the Bank of Canada, when they needed it.
In total, various federal agencies offered the banks up to $200 billion in cash and short term ultra-low-interest loans, at a point in time when the banks could not attain this financing from normal commercial sources because of the global crisis.
They needed it. They got it. It was a bail-out, pure and simple.
It was a smart thing to do. The banks have paid the money back, with interest in some cases. (Not much interest, since the interest rates were near zero.)
But that doesn’t mean it wasn’t a bail out.
So for the banks and their executives to lecture Canadians, and our governments, about the need to be prudent and fiscally responsible and tighten our belts, is the most offensive thing we could possibly hear.
If it weren’t for Canadian governments and taxpayers, they would quite possibly be out of business.
We’re in this together. Let’s start acting that way!
So the banks were bailed out, pure and simple. And moreover, they continue to be coddled and protected and subsidized by the state. Our government is indeed a “nanny state,” where high finance is concerned.
They are protected against foreign takeovers.
Tell me, if we can protect our banks against foreign takeovers, why can’t we protect our land, and our resources, and our factories, and our jobs against foreign takeovers? Why is it protectionist to protect people, but not protectionist to protect banks?
They are protected against crises of confidence by an extensive public deposit guarantee system, and a public mortgage insurance program that eliminates most of the risk of their lending.
And they receive enormous subsidies delivered through Canada’s distorted tax system.
Here’s just one example. Capital gains taxation. If you make money by buying and selling an asset, your speculative profit is called a “capital gain.”
In Canada, you only have to declare half your capital gains income on your tax return. It’s called “partial inclusion.”
If you flip hamburgers in a hot, greasy fast food restaurant all day, you have to declare every penny of your hard-earned income on your tax return.
But if you flip stocks and bonds all day in one of these towers, you only declare half.
That’s immoral. It’s inefficient: because it encourages gambling over real production. But most of all it’s offensive, when these subsidized fat-cats lecture the rest of us about tightening our belts.
Same goes for across-the-board corporate tax cuts. The federal CIT rate has been cut almost in half since 2000, from 29% to 15%. Tell me, have any of you had your tax rates cut in half since 2000? I didn’t think so.
But these banks have.
Those cumulative tax cuts (along with provincial rate cuts) have saved the financial sector over $10 billion per year. Just the new tax cuts that the Harper government implemented since 2006 alone (cutting the federal rate from 21% to 15%), put another $3 billion per year into the pockets of the banks.
Tell me, looking around Canada today, and all the problems we face. Is further enhancing the after-tax profits of the financial industry, really the top priority? Really the most important thing for Canada to spend $3 billion on per year?
Of course not. But in our society, it’s not priority that determines where money is spent. It’s power.
So banks are protected and subsidized, and bailed out when needed. But what do banks actually do, in return for all that money?
What is their actual economic function?
Let’s cut through the mystification of high finance, and ask that simple question: What do banks do? What do bankers actually produce?
The practical answer, in concrete terms, is simple: nothing. They produce nothing.
In that, the banks are different from the real economy, where hard-working people like you and I produce actual, concrete goods and services that are useful.
Banks, and the financial sector more generally, don’t produce goods and services that are useful in their own right. They produce paper. And then they buy and sell paper, for a profit.
Here’s a little economic lesson. You can’t live off paper. You need food, clothing, and shelter to survive – not paper. And since we are human beings, not animals, we need more: we need education, and culture, and recreation, and entertainment, and security, and meaning. Those are the fundamentals of economic life. Not paper.
What is paper actually good for? You can wallpaper your house with it. You can line your birdcage with it. In a pinch, you can wipe your butt with it.
But other than that, paper is just paper. It is not concretely useful in its own right.
How do banks create that paper? Let me put it bluntly again: They create it out of thin air.
It is not an economic exaggeration to state that the private banking system has the power to create money out of thin air.
Not cash. Not currency. Only the government can produce that.
But most money in our economy – over 95% of money in our economy – is not currency. Most money consists of entries in electronic accounts. Savings accounts. Chequing accounts. Lines of credit. Credit card balances. Investment accounts.
In that electronic system, new money is created, not by printing currency, but through creating credit. Every time a bank issues someone a new loan, they are creating new money.
It’s like a big magic machine, creating money out of thin air. And it’s called the private credit system.
One of my favourite economists, John Kenneth Galbraith, put it this way: “The process by which private banks create money is so simple that the mind is repelled.”
How do they do it? They start out with some capital. Let’s say a billion dollars. Then they lend it out. Then they lend it out again. And again. And again and again, 10 or 20 or 50 times over.
Each new loan, is new money. The economy needs that money, let’s be clear. Without new money, we wouldn’t be able to pay for the stuff we make. So we’d stop making it, and we’d be in a depression.
So the creation of new money (or credit) is as essential function for the whole economy. It’s like a utility. But we’ve outsourced that crucial task to private banks. We’ve given them a legal license to print money – and the freedom and power to do it on their own terms.
Their goal is not providing the economy with a sensible, sustainable supply of the credit we need. Their goal is using their unique power to create money out of thin air, to maximize the profits of the banks, and the wealth of the shareholders.
How does this system work, creating money out of thin air? It only works if:
Number 1: Not everyone comes to the bank to withdraw all this imaginary money, in the form of real cash, at the same time. And if…
Number 2: The banks keep lending to each other, which is essential to make sure each one has the cash it needs for withdrawals.
We can immediately see that this system is inherently fragile. Banks create new loans many times larger than their capital, profiting off the interest they earn. But the money was created out of thin air. It’s not actually there, if people want it at the same time, and if the banks won’t help each other out.
So Canada’s banks are fragile, too. True, our banks only lent their capital out 20 times over, not 50 times like the Europeans did. That’s because Canadian regulations capped the leverage at 20. But they’ve still got 20 times more loans out there, than they actually have money in the bank.
Confidence is essential to the stability of the whole system. But confidence is intangible and impossible to predict. If confidence went south, Canadian banks would collapse as surely as Lehman Brothers or Dexia did.
Now, what do the banks do with all that money they created out of thin air? They lend it out. Some of it flows into the real economy, to pay for homes and cars and capital equipment. But not enough goes there. That’s why our real economy is stuck. That’s why there are 2 million Canadians unemployed, official and unofficial.
What about the money that doesn’t flow into the real economy? Unfortunately, the banks use enormous amounts of it to place bets, enormous bets, buying and selling the paper assets that are created and traded in these towers. It’s gambling, not production. It’s legalized, subsidized gambling, all protected by the state.
The interaction of the private credit system, together with the speculative motive, that creates such turmoil and destruction, with each successive financial bubble. Without massive injections of new credit, the asset bubble could never expand so far – whether it’s sub-prime derivatives, dot-com stocks, or rare earth futures.
If speculators had to spend their own money on these asset bubbles, the prices could never rise to such precarious and destructive levels.
Now, there are two key problems with the operation of this private credit system, and its interaction with speculation, that we must understand in order to fight for change.
First, the flow of credit – created out of thin air by these banks – is like a roller-coaster, all depending on the mood swings of the bankers.
When their greed overwhelms their fear, they will lend to anyone with a pulse. But when their fear overwhelms their greed, and they want to hoard every penny possible against the feared run on the bank, they pull back loans even from their most reliable customers.
This roller-coaster, called the “bankers’ cycle,” is an inherent and destabilizing feature of the private credit system. And since the whole economy depends on the flow of new money, the flow of new credit, we are forced to follow the same roller-coaster.
The second problem is that there’s nothing underpinning the paper valuations of financial assets, when they’ve been pumped up by the combination of speculation and irresponsible credit creation.
Then, when speculators’ moods switch polarities, the whole thing comes crashing down. Quoting Galbraith again, “A popped balloon never deflates in an orderly manner.”
And then we all pay the price for a crisis we didn’t cause. And we all suffer the hangover from a party we weren’t invited to.
This cycle of paper expansion and contraction, euphoria and panic, is hard-wired into the DNA of the deregulated private financial system. The cycle has happened before. And it will happen again. The current crisis was no unfortunate accident, no “perfect storm.” This crisis is simply par for the course, for a system that values speculation over production – and that gives the private credit system free reign to throw gasoline on the fire, through unlimited, unregulated credit creation.
It will happen again and again, until we change the rules of this pointless, destructive game.
So what do we do?
First, tax them. That’s the idea behind the Robin Hood Tax, that we are fighting for today. Make them pay a little bit, with every pointless, unproductive transaction, to help clean up the mess they left behind.
A transactions tax alone won’t solve the problem. It won’t stop the process. But at least it will support the public services that we need, all the more so in the wake of each financial meltdown.
Same goes for corporate tax cuts. Let’s reverse them. Put the federal rate back to 18% for the financial sector alone, and we’d raise $1.5 billion per year for essential public services.
Taxing the banks is important. But taxing the banks is not enough.
So, second, we must control them. Put in place rules that require them to use this immense power, the power to create money out of thin air, to use it sensibly and productively. Prohibit the gambling. Make sure loans are aimed at sustainable, productive purposes.
The new measures being promoted internationally by Mark Carney are a step in the right direction. But a tiny, tiny baby step. We need more powerful restrictions.
And friends, even controlling the banks is not enough.
What we ultimately have to do is take them back. There’s nothing magical about creating credit out of thin air. There’s no special technology or knowledge needed. Just the legal power.
We can create credit out of thin air, just as well as any private bank can. Ultimately, we need a public, democratic, accountable banking system. One that serves the Canadian economy, not the wealth of those who own banks.
If we can create money out of thin air to buy and sell sub-prime mortgage bonds, then by god we can create money out of thin air to pay for affordable housing that could end homelessness.
If we can create money out of thin air to buy short options on Greek sovereign debt, then we can create money out of thin air to invest in a green energy system to stop global climate change.
If we can create money out of thin air to speculate on international currencies, we can create money out of thin air to buy needed medicines to prevent hundreds of millions of needless deaths from disease in the Third World.
There’s no magic to it. These ideas are prudent and rational and economically sound. Because like we said at the beginning, it is work and production and sharing and sustaining that supports our real economy. Not gambling with paper.
These towers look powerful. But ultimately they are built on paper.
We’ve got the real power, with our ability to work and produce and share and sustain. We’ve got the power to build something new. We’ve got the power to replace these towers with a system that works.
And that’s exactly what we’ve started to do with this movement. Thank you for what you are doing! And let’s get on with the job!
Now we look to economists to make sense of incredibly complex issues involving enormous sums of money that we really can't comprehend. The new element that has people so freaked out is that sovereign governments, which were always considered a safe bet, are starting to renege on their debts. The logic was that governments have the legal authority to tax (their citizens might not like it), so will always be good for the money they borrow. We're learning that's not the case.
I did take economics at university and remember a teacher who said at it's not so much a science as a confidence game. We have to believe that the pieces of paper and metal we carry around in our pockets have value, and that others feels the same way. It's why when Jim Flaherty speaks publicly you get the feeling that you're getting more of a pep talk from a hockey coach than a serious discussion of the days events. He has to keep us feeling confident that this enterprise we're all a part of will be OK If enough people lose confidence, then you get a run on the banks (although given the debt levels many Canadian families are carrying, it might not be so much a demand for all that's in a savings account, but telling the loans manager you won't be paying back that line of credit.) It was a run on the banks that really precipitated the Great Depression.
Anyone following U.S. politics knows there are libertarians like Ron Paul who argue that once the U.S. (and Canada and other developed countries) went off the gold standard under Richard Nixon, that paper money lost its value. It used to be that the currency in circulation was backed by gold bullion. Now central banks literally print money. Millions of people have benefited from this. (an expanding economy creates jobs and consumption, the risk is inflation, too much money chasing too few goods). Given how gold has soared in value over the last five years, there are a lot of people who think the same way Paul does, that when the dust settles it will be those with gold bullion stored somewhere who will prosper while the rest of us live off root crops, and burn the furniture to stay warm.
The Occupy movement has certainly gives us a little more insight into how people view the dismal science. Many think capitalism itself is beyond repair, while others that the rich and powerful have gamed the system to their advantage, and that's the problem (I don't have any doubt about that).
I admire writers who can take on complex issues and simplify (and be right in my opinion). Here are a couple. There are many others. John Kenneth Galbraith was my touchstone when I was a student. His book on the Great Depression had a real impact on me. There was a section where he wrote about the cruelty of governments not doing anything, demanding austerity to balance budgets. He wrote that there was demand for houses, hammers, nails and wood, people who were good carpenters, all that was missing was money. He argued it didn't make any sense for the government not to provide it. I guess that's why I'm not a libertarian.
http://motherjones.com/kevin-drum/2011/11/why-businesses-love-regulatory-complexity
Corporations Hate Regulation, Until They Love It
http://www.nytimes.com/2011/11/11/opinion/legends-of-the-fail.html?ref=opinion
November 10, 2011
Legends of the Fail
By PAUL KRUGMAN
This is the way the euro ends — not with a bang but with bunga bunga. Not long ago, European leaders were insisting that Greece could and should stay on the euro while paying its debts in full. Now, with Italy falling off a cliff, it’s hard to see how the euro can survive at all.
But what’s the meaning of the eurodebacle? As always happens when disaster strikes, there’s a rush by ideologues to claim that the disaster vindicates their views. So it’s time to start debunking.
First things first: The attempt to create a common European currency was one of those ideas that cut across the usual ideological lines. It was cheered on by American right-wingers, who saw it as the next best thing to a revived gold standard, and by Britain’s left, which saw it as a big step toward a social-democratic Europe. But it was opposed by British conservatives, who also saw it as a step toward a social-democratic Europe. And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.
So now that the euro project is on the rocks, what lessons should we draw?
I’ve been hearing two claims, both false: that Europe’s woes reflect the failure of welfare states in general, and that Europe’s crisis makes the case for immediate fiscal austerity in the United States.
The assertion that Europe’s crisis proves that the welfare state doesn’t work comes from many Republicans. For example, Mitt Romney has accused President Obama of taking his inspiration from European “socialist democrats” and asserted that “Europe isn’t working in Europe.” The idea, presumably, is that the crisis countries are in trouble because they’re groaning under the burden of high government spending. But the facts say otherwise.
It’s true that all European countries have more generous social benefits — including universal health care — and higher government spending than America does. But the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.
Oh, and Canada, which has universal health care and much more generous aid to the poor than the United States, has weathered the crisis better than we have.
The euro crisis, then, says nothing about the sustainability of the welfare state. But does it make the case for belt-tightening in a depressed economy?
You hear that claim all the time. America, we’re told, had better slash spending right away or we’ll end up like Greece or Italy. Again, however, the facts tell a different story.
First, if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.
What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.
The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.
The moral of the story, then, is to beware of ideologues who are trying to hijack the European crisis on behalf of their agendas. If we listen to those ideologues, all we’ll end up doing is making our own problems — which are different from Europe’s, but arguably just as severe — even worse.
http://www.progressive-economics.ca/2011/11/06/what-do-banks-actually-do-teach-in-with-occupy-toronto/
The Progressive Economics Forum
Nov. 6, 2011 •
Jim Stanford
What do banks actually DO? Create credit out of thin air.
Were Canadian banks bailed-out? Absolutely, to the tune of $200 billion. And they are still protected and subsidized more than any other sector of the economy.
What must be done with these banks? Tax them, control them, and ultimately take them back.
Those are the “take-aways” from a short talk on the banking system that I was honoured to give as part of an Occupy Toronto rally last weekend at the corner of King and Bay in downtown Toronto. Several folks have asked for the written version of my speech, which is posted below.
***********
Well, here we are on Bay Street again, amidst all these gleaming towers, and all this luxury, and power, and affluence.
And what an amazing community we have formed here.
On behalf of the CAW and the CCPA, let me begin by thanking all of you for what you are doing. What you are building. The political and moral space you have opened up through the Occupy movement these past few weeks.
There’s no better place than right here to talk about what’s gone so terribly wrong in our society. About the enormous and immoral contrast between what we see here on Bay Street, and what things are like where most Canadians – the 99% of Canadians – live and work. Down on Main Street.
You already know that, that’s why you’re here. All this nonsense I’ve heard in the last two weeks about the Occupiers being naïve and confused, is so wrong. I have a Ph.D. in economics, and I can assure you that the people in this crowd today know more about economics – more about real economics – than all the stock brokers in these tall towers put together.
You know about work. About production. About sharing. And about sustaining.
They stand around throwing darts at the dartboard, to pick the next stock they’re going to buy. Proving every day that while government may or may not be able to pick winners, they can’t be any worse at it than the stock market is!
Work. Production. Sharing. Sustaining. That’s the basis of real economics, the real job of improving living standards and protecting the environment.
Not throwing darts. Not rolling dice. Not placing bets.
I often think about what goes on inside these towers. The plush offices, the oak paneling, the fine art on the walls, the private dining areas, the clubs and bars.
Not everyone down here works like that, of course. Most of the real work is done by hard-working office workers, who work hard for not much money.
But the ones who call the shots down here, and call the shots for our whole economy, they do very well. Every now and then I get to step inside one of those towers, in the course of my job. Into one of those investment banks. Those private dining areas. Those boardroooms.
The meals, the furnishings. And of course the compensation. Immoral, offensive compensation. All of it tax-deductible.
Then I compare all that to the generally shoddy state of public institutions and facilities in this city. Like the rec centre in my neighbourhood, out in Parkdale. Or the public schools where my kids go to school. Fine, wonderful schools. But underfunded and dingy, to be sure.
Rob Ford said he went to City Hall to stop the gravy train. When I compare public institutions in this city, to these towers here on Bay Street, I know that Rob Ford missed his target by about 3 blocks. He was 3 blocks too far north.
Want to stop the gravy train, Rob Ford? Come down here to stop the gravy train! A gravy train that’s funded with the proceeds of what, ultimately, is just gambling.
Ever since the Occupy movement came to Canada – even before that, actually – there’s been an enormous myth propagated that these guys here on Bay Street – the Canadian banks – did nothing wrong.
Our banks are strong and safe, they say. They were prudent. And they weren’t bailed out.
They pat us on the head, and they say: “Go to Wall Street to have your little protest. But don’t bother protesting here. Because we didn’t do anything wrong.”
Well that’s simply a lie. It’s a bald-faced, empirically refutable lie.
In the first place, Canadian banks were bailed out – and in a big way. Check the record:
At the end of 2008, and the beginning of 2009, Finance Minister Jim Flaherty and other federal officials moved heaven and earth to help Canada’s banks. Flaherty implemented a new program called the Extraordinary Financing Framework. Or “EFF” for short.
You know, I could think of another meaning for the acronym “EFF.” Elitist Friggin’ Financiers! That’s the real EFF.
It consisted of many different ways to help the banks – these powerful, prudent banks – during their hour of need.
Buying back mortgages in order to inject cash into the banks’ coffers. Providing huge loans, at near-zero interest rates, from the Bank of Canada, when commercial lenders wouldn’t dare. Providing other lines of credit, including in U.S. dollars. And backing the whole thing up with very weird forms of collateral – or sometimes with no collateral at all.
For example, the Bank of Canada was willing to accept asset-backed commercial paper, or ABCP, from the banks to back up some of these emergency loans.
Remember the ABCP debacle in Canada? That sophisticated, but highly unstable market totally froze up in Canada, even before the global meltdown.
If you owned ABCP as an individual, you couldn’t spend it. It was just paper in your pocket. But the banks held ABCP, and they were able to convert it into cold hard cash, courtesy of the Bank of Canada, when they needed it.
In total, various federal agencies offered the banks up to $200 billion in cash and short term ultra-low-interest loans, at a point in time when the banks could not attain this financing from normal commercial sources because of the global crisis.
They needed it. They got it. It was a bail-out, pure and simple.
It was a smart thing to do. The banks have paid the money back, with interest in some cases. (Not much interest, since the interest rates were near zero.)
But that doesn’t mean it wasn’t a bail out.
So for the banks and their executives to lecture Canadians, and our governments, about the need to be prudent and fiscally responsible and tighten our belts, is the most offensive thing we could possibly hear.
If it weren’t for Canadian governments and taxpayers, they would quite possibly be out of business.
We’re in this together. Let’s start acting that way!
So the banks were bailed out, pure and simple. And moreover, they continue to be coddled and protected and subsidized by the state. Our government is indeed a “nanny state,” where high finance is concerned.
They are protected against foreign takeovers.
Tell me, if we can protect our banks against foreign takeovers, why can’t we protect our land, and our resources, and our factories, and our jobs against foreign takeovers? Why is it protectionist to protect people, but not protectionist to protect banks?
They are protected against crises of confidence by an extensive public deposit guarantee system, and a public mortgage insurance program that eliminates most of the risk of their lending.
And they receive enormous subsidies delivered through Canada’s distorted tax system.
Here’s just one example. Capital gains taxation. If you make money by buying and selling an asset, your speculative profit is called a “capital gain.”
In Canada, you only have to declare half your capital gains income on your tax return. It’s called “partial inclusion.”
If you flip hamburgers in a hot, greasy fast food restaurant all day, you have to declare every penny of your hard-earned income on your tax return.
But if you flip stocks and bonds all day in one of these towers, you only declare half.
That’s immoral. It’s inefficient: because it encourages gambling over real production. But most of all it’s offensive, when these subsidized fat-cats lecture the rest of us about tightening our belts.
Same goes for across-the-board corporate tax cuts. The federal CIT rate has been cut almost in half since 2000, from 29% to 15%. Tell me, have any of you had your tax rates cut in half since 2000? I didn’t think so.
But these banks have.
Those cumulative tax cuts (along with provincial rate cuts) have saved the financial sector over $10 billion per year. Just the new tax cuts that the Harper government implemented since 2006 alone (cutting the federal rate from 21% to 15%), put another $3 billion per year into the pockets of the banks.
Tell me, looking around Canada today, and all the problems we face. Is further enhancing the after-tax profits of the financial industry, really the top priority? Really the most important thing for Canada to spend $3 billion on per year?
Of course not. But in our society, it’s not priority that determines where money is spent. It’s power.
So banks are protected and subsidized, and bailed out when needed. But what do banks actually do, in return for all that money?
What is their actual economic function?
Let’s cut through the mystification of high finance, and ask that simple question: What do banks do? What do bankers actually produce?
The practical answer, in concrete terms, is simple: nothing. They produce nothing.
In that, the banks are different from the real economy, where hard-working people like you and I produce actual, concrete goods and services that are useful.
Banks, and the financial sector more generally, don’t produce goods and services that are useful in their own right. They produce paper. And then they buy and sell paper, for a profit.
Here’s a little economic lesson. You can’t live off paper. You need food, clothing, and shelter to survive – not paper. And since we are human beings, not animals, we need more: we need education, and culture, and recreation, and entertainment, and security, and meaning. Those are the fundamentals of economic life. Not paper.
What is paper actually good for? You can wallpaper your house with it. You can line your birdcage with it. In a pinch, you can wipe your butt with it.
But other than that, paper is just paper. It is not concretely useful in its own right.
How do banks create that paper? Let me put it bluntly again: They create it out of thin air.
It is not an economic exaggeration to state that the private banking system has the power to create money out of thin air.
Not cash. Not currency. Only the government can produce that.
But most money in our economy – over 95% of money in our economy – is not currency. Most money consists of entries in electronic accounts. Savings accounts. Chequing accounts. Lines of credit. Credit card balances. Investment accounts.
In that electronic system, new money is created, not by printing currency, but through creating credit. Every time a bank issues someone a new loan, they are creating new money.
It’s like a big magic machine, creating money out of thin air. And it’s called the private credit system.
One of my favourite economists, John Kenneth Galbraith, put it this way: “The process by which private banks create money is so simple that the mind is repelled.”
How do they do it? They start out with some capital. Let’s say a billion dollars. Then they lend it out. Then they lend it out again. And again. And again and again, 10 or 20 or 50 times over.
Each new loan, is new money. The economy needs that money, let’s be clear. Without new money, we wouldn’t be able to pay for the stuff we make. So we’d stop making it, and we’d be in a depression.
So the creation of new money (or credit) is as essential function for the whole economy. It’s like a utility. But we’ve outsourced that crucial task to private banks. We’ve given them a legal license to print money – and the freedom and power to do it on their own terms.
Their goal is not providing the economy with a sensible, sustainable supply of the credit we need. Their goal is using their unique power to create money out of thin air, to maximize the profits of the banks, and the wealth of the shareholders.
How does this system work, creating money out of thin air? It only works if:
Number 1: Not everyone comes to the bank to withdraw all this imaginary money, in the form of real cash, at the same time. And if…
Number 2: The banks keep lending to each other, which is essential to make sure each one has the cash it needs for withdrawals.
We can immediately see that this system is inherently fragile. Banks create new loans many times larger than their capital, profiting off the interest they earn. But the money was created out of thin air. It’s not actually there, if people want it at the same time, and if the banks won’t help each other out.
So Canada’s banks are fragile, too. True, our banks only lent their capital out 20 times over, not 50 times like the Europeans did. That’s because Canadian regulations capped the leverage at 20. But they’ve still got 20 times more loans out there, than they actually have money in the bank.
Confidence is essential to the stability of the whole system. But confidence is intangible and impossible to predict. If confidence went south, Canadian banks would collapse as surely as Lehman Brothers or Dexia did.
Now, what do the banks do with all that money they created out of thin air? They lend it out. Some of it flows into the real economy, to pay for homes and cars and capital equipment. But not enough goes there. That’s why our real economy is stuck. That’s why there are 2 million Canadians unemployed, official and unofficial.
What about the money that doesn’t flow into the real economy? Unfortunately, the banks use enormous amounts of it to place bets, enormous bets, buying and selling the paper assets that are created and traded in these towers. It’s gambling, not production. It’s legalized, subsidized gambling, all protected by the state.
The interaction of the private credit system, together with the speculative motive, that creates such turmoil and destruction, with each successive financial bubble. Without massive injections of new credit, the asset bubble could never expand so far – whether it’s sub-prime derivatives, dot-com stocks, or rare earth futures.
If speculators had to spend their own money on these asset bubbles, the prices could never rise to such precarious and destructive levels.
Now, there are two key problems with the operation of this private credit system, and its interaction with speculation, that we must understand in order to fight for change.
First, the flow of credit – created out of thin air by these banks – is like a roller-coaster, all depending on the mood swings of the bankers.
When their greed overwhelms their fear, they will lend to anyone with a pulse. But when their fear overwhelms their greed, and they want to hoard every penny possible against the feared run on the bank, they pull back loans even from their most reliable customers.
This roller-coaster, called the “bankers’ cycle,” is an inherent and destabilizing feature of the private credit system. And since the whole economy depends on the flow of new money, the flow of new credit, we are forced to follow the same roller-coaster.
The second problem is that there’s nothing underpinning the paper valuations of financial assets, when they’ve been pumped up by the combination of speculation and irresponsible credit creation.
Then, when speculators’ moods switch polarities, the whole thing comes crashing down. Quoting Galbraith again, “A popped balloon never deflates in an orderly manner.”
And then we all pay the price for a crisis we didn’t cause. And we all suffer the hangover from a party we weren’t invited to.
This cycle of paper expansion and contraction, euphoria and panic, is hard-wired into the DNA of the deregulated private financial system. The cycle has happened before. And it will happen again. The current crisis was no unfortunate accident, no “perfect storm.” This crisis is simply par for the course, for a system that values speculation over production – and that gives the private credit system free reign to throw gasoline on the fire, through unlimited, unregulated credit creation.
It will happen again and again, until we change the rules of this pointless, destructive game.
So what do we do?
First, tax them. That’s the idea behind the Robin Hood Tax, that we are fighting for today. Make them pay a little bit, with every pointless, unproductive transaction, to help clean up the mess they left behind.
A transactions tax alone won’t solve the problem. It won’t stop the process. But at least it will support the public services that we need, all the more so in the wake of each financial meltdown.
Same goes for corporate tax cuts. Let’s reverse them. Put the federal rate back to 18% for the financial sector alone, and we’d raise $1.5 billion per year for essential public services.
Taxing the banks is important. But taxing the banks is not enough.
So, second, we must control them. Put in place rules that require them to use this immense power, the power to create money out of thin air, to use it sensibly and productively. Prohibit the gambling. Make sure loans are aimed at sustainable, productive purposes.
The new measures being promoted internationally by Mark Carney are a step in the right direction. But a tiny, tiny baby step. We need more powerful restrictions.
And friends, even controlling the banks is not enough.
What we ultimately have to do is take them back. There’s nothing magical about creating credit out of thin air. There’s no special technology or knowledge needed. Just the legal power.
We can create credit out of thin air, just as well as any private bank can. Ultimately, we need a public, democratic, accountable banking system. One that serves the Canadian economy, not the wealth of those who own banks.
If we can create money out of thin air to buy and sell sub-prime mortgage bonds, then by god we can create money out of thin air to pay for affordable housing that could end homelessness.
If we can create money out of thin air to buy short options on Greek sovereign debt, then we can create money out of thin air to invest in a green energy system to stop global climate change.
If we can create money out of thin air to speculate on international currencies, we can create money out of thin air to buy needed medicines to prevent hundreds of millions of needless deaths from disease in the Third World.
There’s no magic to it. These ideas are prudent and rational and economically sound. Because like we said at the beginning, it is work and production and sharing and sustaining that supports our real economy. Not gambling with paper.
These towers look powerful. But ultimately they are built on paper.
We’ve got the real power, with our ability to work and produce and share and sustain. We’ve got the power to build something new. We’ve got the power to replace these towers with a system that works.
And that’s exactly what we’ve started to do with this movement. Thank you for what you are doing! And let’s get on with the job!
Sunday, 6 November 2011
You Know It's Bad When...
When the big insurance companies start announcing big quarterly losses. Companies like Sunlife, and Manulife are reporting multi-million dollar losses, a sign that there really isn't much to invest in these days.
From the Calgary Herald:
Sun Life generally maintains a dividend payout ratio - the percentage of profits paid out as dividends - of about 50 per cent. In reporting its third-quarter results late on Wednesday, Sun Life said it would take a charge of at least $500 million in the fourth quarter and said that its earnings sensitivity to movement in bond yields has increased.
So this isn't because of big payouts from natural or man-made disasters, but an inability to turn big pools of money (the premiums we all pay) into some kind of revenues. If they can't make money it's hard to see how the rest of us can.
Some stories that caught my eye over the last week (just started a new job so a little slack getting up new material up.. I will do better). In one, Canada's agriculture minister who's leading the charge to ditch the Canadian Wheat Board, surprisingly says some good things about supply management (when he stops it will be time for dairy, poultry and egg farmers to worry). Another story that got very little attention: measurement of green-house gas emissions show huge increases. A hard-ass business writer for the National POST is warning Canadians not to believe all the "energy super-power" hype. And Paul Krugman speaks honestly how the idea of government spending gets twisted depending on who's doing the talking.
http://www.theglobeandmail.com/news/politics/its-beyond-big-brother-ritz-says-of-wheat-board/article2226614/
From the Calgary Herald:
Turbulent time for Sun Life
•Shares of Sun Life hit their lowest level since the days of the 2008-09 stock market crash on Thursday after the insurer reported a $621-million third-quarter loss caused by marketrelated losses.Sun Life generally maintains a dividend payout ratio - the percentage of profits paid out as dividends - of about 50 per cent. In reporting its third-quarter results late on Wednesday, Sun Life said it would take a charge of at least $500 million in the fourth quarter and said that its earnings sensitivity to movement in bond yields has increased.
So this isn't because of big payouts from natural or man-made disasters, but an inability to turn big pools of money (the premiums we all pay) into some kind of revenues. If they can't make money it's hard to see how the rest of us can.
Some stories that caught my eye over the last week (just started a new job so a little slack getting up new material up.. I will do better). In one, Canada's agriculture minister who's leading the charge to ditch the Canadian Wheat Board, surprisingly says some good things about supply management (when he stops it will be time for dairy, poultry and egg farmers to worry). Another story that got very little attention: measurement of green-house gas emissions show huge increases. A hard-ass business writer for the National POST is warning Canadians not to believe all the "energy super-power" hype. And Paul Krugman speaks honestly how the idea of government spending gets twisted depending on who's doing the talking.
http://www.theglobeandmail.com/news/politics/its-beyond-big-brother-ritz-says-of-wheat-board/article2226614/
Its beyond Big Brother, Ritz says of wheat board
•Agriculture Minister Gery Ritz stands on Parliament Hill on Thursday.
Dave Chan for The Globe and Mail
The man who’s about to shake up the ground rules for 70,000 western Canadian grain growers believes that all farmers should be masters of their own destiny, free to choose how they sell the fruits of their labour.
However, Gerry Ritz’s farmer-knows-best philosophy also means that elsewhere in Canada, producers are still free to wall themselves off from competition in the sheltered dairy and poultry businesses.
Mr. Ritz, the federal Agriculture Minister and a former grain grower from Saskatchewan, is bringing an emotionally charged battle over the 76-year-old Canadian Wheat Board to the country’s farming heartland.
He’s hitting the road again – as he has since May – for meetings in western provinces to defend and explain changes the Harper government is making that will free wheat and barley farmers from the obligation to sell through the board for the first time since the Second World War.
The wheat board’s defenders warn these controversial changes will leave farmers to fend for themselves and consign a Prairie institution to the margins of the business – an organization that through massive sales volume helped build Canada’s reputation as a grain powerhouse.
Mr. Ritz, 60, said farmers are ready to take matters into their own hands, noting they’ve long marketed products such as canola by themselves and don’t need an agency that dictates and interferes in their lives.
“It’s beyond Big Brother. It is the Nightmare on Elm Street on every farm across Western Canada,” he said of the wheat board. He hastened to add that “some farmers feel comfortable in those constraints, having someone else do the marketing for them.”
But even as Conservatives prepare to liberate western farmers in the name of “marketing freedom,” – they refuse to reform the heavily regulated and sheltered dairy, egg and poultry industries, which have a major presence in Central Canada.
Mr. Ritz understands risk, having tried his hand at raising ostriches before entering politics. At one point, he and a partner had about 800 of the flightless African birds that can be sold for their meat or leather.
“I got some tremendously expensive boots, but boy, they’re beautiful,” he recalls.
The witty quip is standard Ritz, colleagues say: a congenial way of negotiating conversations with everyone from farmers to reporters.
The minister doesn’t recommend the exotic ostrich business for everyone. “We were in that situation where we had too much for a local market and not enough for an export market.”
Nevertheless, it was an example of farmers making their own decisions, Mr. Ritz says.
The Harper government needs to introduce even more free-market thinking in a changing world, agriculture and trade experts say.
They warn that Canada’s share of export markets for food is shrinking on many counts, and say the country needs to open up the dairy and poultry markets to win more access abroad. Hefty tariff walls protect these sectors from significant foreign competition, and production is limited by a command-and-control approach that sets prices and output.
John Weekes, Canada’s chief negotiator for the North American free trade agreement, warns that this country’s unyielding protection of its dairy and poultry farmers is becoming a major obstacle to wringing better concessions from trade talks.
“Increasingly, I think, our supply management policies ... hamper our ability to be able to negotiate trade agreements.”
Mr. Ritz rejects this, noting Canada negotiated a trade agreement with Switzerland, a big dairy producer, and that, regardless of supply management, the European Union sells far more dairy products to Canada than vice versa. “So how is our system a problem for them?”
Mr. Ritz said there’s a benefit for dairy farmers in the managed Canadian system where prices are set ahead of time – and it’s not one that the Canadian Wheat Board offered grain farmers. “The setting of your price guarantees you a profit.”
Mr. Weekes, who also served as ambassador to the World Trade Organization in the 1990s, said Canada’s resolute defence of supply management appears to have cost it a seat at major Trans-Pacific Partnership trade talks between the United States and eight partners.
“The United States is saying they are now focused on [the trans-Pacific talks] as their key trade negotiations objective and they’re talking about this as the new gold standard for trade agreements,” Mr. Weekes said.
“If it does become the new gold standard, we don’t want to have other countries such as Australia and New Zealand having better access to the U.S. market than we have under Nafta.”
Mr. Ritz said U.S. farmers, for instance, envy the stability of Canada’s dairy and poultry system.
“At the same time the Americans are slagging our supply-managed system, farmers down there are saying ‘Boy, we like the way that works.’ ... We’ve got stability. We don’t have to wait for government largesse.’ ”
He noted the Americans approved $450-million (U.S.) last year to backstop their dairy industry.
How much did Ottawa spend on backstopping Canadian dairy farmers?
“Zip,” Mr. Ritz said.
http://www.guardian.co.uk/environment/2011/nov/04/greenhouse-gases-rise-record-levels?intcmp=122
However, Gerry Ritz’s farmer-knows-best philosophy also means that elsewhere in Canada, producers are still free to wall themselves off from competition in the sheltered dairy and poultry businesses.
Mr. Ritz, the federal Agriculture Minister and a former grain grower from Saskatchewan, is bringing an emotionally charged battle over the 76-year-old Canadian Wheat Board to the country’s farming heartland.
He’s hitting the road again – as he has since May – for meetings in western provinces to defend and explain changes the Harper government is making that will free wheat and barley farmers from the obligation to sell through the board for the first time since the Second World War.
The wheat board’s defenders warn these controversial changes will leave farmers to fend for themselves and consign a Prairie institution to the margins of the business – an organization that through massive sales volume helped build Canada’s reputation as a grain powerhouse.
Mr. Ritz, 60, said farmers are ready to take matters into their own hands, noting they’ve long marketed products such as canola by themselves and don’t need an agency that dictates and interferes in their lives.
“It’s beyond Big Brother. It is the Nightmare on Elm Street on every farm across Western Canada,” he said of the wheat board. He hastened to add that “some farmers feel comfortable in those constraints, having someone else do the marketing for them.”
But even as Conservatives prepare to liberate western farmers in the name of “marketing freedom,” – they refuse to reform the heavily regulated and sheltered dairy, egg and poultry industries, which have a major presence in Central Canada.
Mr. Ritz understands risk, having tried his hand at raising ostriches before entering politics. At one point, he and a partner had about 800 of the flightless African birds that can be sold for their meat or leather.
“I got some tremendously expensive boots, but boy, they’re beautiful,” he recalls.
The witty quip is standard Ritz, colleagues say: a congenial way of negotiating conversations with everyone from farmers to reporters.
The minister doesn’t recommend the exotic ostrich business for everyone. “We were in that situation where we had too much for a local market and not enough for an export market.”
Nevertheless, it was an example of farmers making their own decisions, Mr. Ritz says.
The Harper government needs to introduce even more free-market thinking in a changing world, agriculture and trade experts say.
They warn that Canada’s share of export markets for food is shrinking on many counts, and say the country needs to open up the dairy and poultry markets to win more access abroad. Hefty tariff walls protect these sectors from significant foreign competition, and production is limited by a command-and-control approach that sets prices and output.
John Weekes, Canada’s chief negotiator for the North American free trade agreement, warns that this country’s unyielding protection of its dairy and poultry farmers is becoming a major obstacle to wringing better concessions from trade talks.
“Increasingly, I think, our supply management policies ... hamper our ability to be able to negotiate trade agreements.”
Mr. Ritz rejects this, noting Canada negotiated a trade agreement with Switzerland, a big dairy producer, and that, regardless of supply management, the European Union sells far more dairy products to Canada than vice versa. “So how is our system a problem for them?”
Mr. Ritz said there’s a benefit for dairy farmers in the managed Canadian system where prices are set ahead of time – and it’s not one that the Canadian Wheat Board offered grain farmers. “The setting of your price guarantees you a profit.”
Mr. Weekes, who also served as ambassador to the World Trade Organization in the 1990s, said Canada’s resolute defence of supply management appears to have cost it a seat at major Trans-Pacific Partnership trade talks between the United States and eight partners.
“The United States is saying they are now focused on [the trans-Pacific talks] as their key trade negotiations objective and they’re talking about this as the new gold standard for trade agreements,” Mr. Weekes said.
“If it does become the new gold standard, we don’t want to have other countries such as Australia and New Zealand having better access to the U.S. market than we have under Nafta.”
Mr. Ritz said U.S. farmers, for instance, envy the stability of Canada’s dairy and poultry system.
“At the same time the Americans are slagging our supply-managed system, farmers down there are saying ‘Boy, we like the way that works.’ ... We’ve got stability. We don’t have to wait for government largesse.’ ”
He noted the Americans approved $450-million (U.S.) last year to backstop their dairy industry.
How much did Ottawa spend on backstopping Canadian dairy farmers?
“Zip,” Mr. Ritz said.
http://www.guardian.co.uk/environment/2011/nov/04/greenhouse-gases-rise-record-levels?intcmp=122
Greenhouse gases rise by record amount
Levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago
Emissions from a coal-fired power station. The output of greenhouse gases has jumped by the highest amount on record. Photograph: John Giles/PA
The global output of heat-trapping carbon dioxide has jumped by a record amount, according to the US department of energy, a sign of how feeble the world's efforts are at slowing man-made global warming.
The figures for 2010 mean that levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago.
"The more we talk about the need to control emissions, the more they are growing," said John Reilly, the co-director of MIT's Joint Program on the Science and Policy of Global Change.
The world pumped about 564m more tons (512m metric tons) of carbon into the air in 2010 than it did in 2009, an increase of 6%. That amount of extra pollution eclipses the individual emissions of all but three countries, China, the US and India, the world's top producers of greenhouse gases.
It is a "monster" increase that is unheard of, said Gregg Marland, a professor of geology at Appalachian State University, who has helped calculate department of energy figures in the past.
Extra pollution in China and the US account for more than half the increase in emissions last year, Marland said.
"It's a big jump," said Tom Boden, the director of the energy department's Carbon Dioxide Information Analysis Center at Oak Ridge National Lab. "From an emissions standpoint, the global financial crisis seems to be over."
Boden said that in 2010 people were travelling, and manufacturing was back up worldwide, spurring the use of fossil fuels, the chief contributor of man-made climate change.
India and China are huge users of coal. Burning coal is the biggest carbon source worldwide and emissions from that jumped nearly 8% in 2010.
"The good news is that these economies are growing rapidly so everyone ought to be for that, right?" Reilly said. "Broader economic improvements in poor countries has been bringing living improvements to people. Doing it with increasing reliance on coal is imperiling the world."
In 2007, when the Intergovernmental Panel on Climate Change issued its last large report on global warming, it used different scenarios for carbon dioxide pollution and said the rate of warming would be based on the rate of pollution. Boden said the latest figures put global emissions higher than the worst case projections from the climate panel. Those forecast global temperatures rising between 4 and 11 degrees Fahrenheit (2.4-6.4 Celsius) by the end of the century with the best estimate at 7.5 degrees (4 Celsius).
Even though global warming sceptics have criticised the climate change panel as being too alarmist, scientists have generally found their predictions too conservative, Reilly said. He said his university worked on emissions scenarios, their likelihood, and what would happen. The IPCC's worst case scenario was only about in the middle of what MIT calculated are likely scenarios.
Chris Field of Stanford University, head of one of the IPCC's working groups, said the panel's emissions scenarios are intended to be more accurate in the long term and are less so in earlier years. He said the question now among scientists is whether the future is the panel's worst case scenario "or something more extreme".
"Really dismaying," Granger Morgan, head of the engineering and public policy department at Carnegie Mellon University, said of the new figures. "We are building up a horrible legacy for our children and grandchildren."
But Reilly and University of Victoria climate scientist Andrew Weaver found something good in recent emissions figures. The developed countries that ratified the 1997 Kyoto Protocol greenhouse gas limiting treaty have reduced their emissions overall since then and have achieved their goals of cutting emissions to about 8% below 1990 levels. The US did not ratify the agreement.
In 1990, developed countries produced about 60% of the world's greenhouse gases, now it's probably less than 50%, Reilly said.
"We really need to get the developing world because if we don't, the problem is going to be running away from us," Weaver said. "And the problem is pretty close from running away from us."
http://opinion.financialpost.com/2011/11/04/terence-corcoran-the-energy-superpower-that-isn%E2%80%99t/
Terence Corcoran
Canada hardly rates a mention in Daniel Yergin’s new book
When a “global energy superpower” starts delivering tough talk to its potential customers, that superpower had better be sure that people will listen. It has also better be sure it is in fact a superpower; otherwise, it may find itself talking tough to the wind.
In recent weeks, Canada — a self-proclaimed global energy superpower — has been trying to throw its weight around over the Keystone XL pipeline, TransCanada Corp.’s $7-billion project to ship oil sands production from Alberta to Texas. In Houston on Tuesday, Natural Resources Minister Joe Oliver let the Americans know that Canada had other options. “What will happen if there wasn’t approval [of Keystone] — and we think there will be — is that we’ll simply have to intensify our efforts to sell the oil elsewhere.”
Canadian oil executives, who have a lot invested in the superpower notion, are also issuing aggressive-sounding statements aimed at the United States. A headline in The Globe and Mail Friday sounded like a threat: “Oil patch to U.S.: OK pipe or lose our oil.” The story didn’t quite back up the headline, but the sense was that Canada was developing alternatives and that China is the big alternative.
If this was intended to spook the United States into approving Keystone XL, it may not be the best strategy. Mr. Oliver said Canada would “simply” have to intensify sales efforts elsewhere. There will be nothing simple about getting oil to China. Pipelines to the West Coast will have to be built over First Nations territory and through wilderness controlled by foreign-funded environmental groups. Opposition to tankers is strong.
China isn’t at Canada’s doorstep. And the Communist regime in China knows that if the U.S. doesn’t want Canadian oil sands production, then Canada has no option but to sell to China. Becoming a global energy superpower will require better negotiating positions than are shaping up around the oil sands.
Another factor playing against Canada’s claims to global prominence is the rapidly changing world energy order. Most expert assessments foresee dramatic changes in supply, technology and prices, with very little favouring Canada. Shale gas and shale oil developments in other parts of the world, from the U.S. to China and Europe, suggest the world will have plenty of supply and low prices (see Lawrence Solomon in an accompanying commentary1). Where does that leave Canada’s relatively expensive oil sands?
While Canadian government and industry officials have a lot invested in the idea of energy superpowerdom, few outside observers share the vision. Canada barely rates a mention in The Quest: Energy, Security and the Remaking of the Modern World, Daniel Yergin’s new book on the world energy market. A few pages are devoted to the oil sands, mostly to review the high costs and technical difficulties. “As the industry grows in scale, it will require wider collaboration on the R&D challenges, not only among oil companies and the province of Alberta, but also with Canada’s federal government.”
Far more impressive for the world’s energy future will be the impact of shale gas and shale oil. The “shale gale,” as Mr. Yergin calls it, has already transformed the U.S. gas market and shale oil could be next. Since Mr. Yergin’s book was written, the shale revolution has swept Europe and is about to transform China’s energy market.
A new study from Douglas Westwood, Unconventional Gas World Production and Drilling Forecast, says shale gas and other unconventional sources could make up one-third of growth in gas production by 2020, reports the Petroleum Economist. The United Kingdom, meanwhile, is sitting on what is widely viewed as a massive shale gas reserve.
How do Canada’s oil sands stack up against the shale revolution? Energy Business Reports, in a study titled Oil Sands, Gas and Oil Shales Market, sees shale gas as an energy-market “game changer.” As for Canada’s oil sands, it concludes that: “Oil sands producers are operating in a narrow financial window that may be shrinking over time. They want to avoid reaching an oil price ceiling, like the one at US$147/barrel in July 2008 that contributed to the oil price collapse below US$40/barrel.… But they also want to be confident of an oil price floor — now estimated at US$65-US$95 per barrel — to justify such long-term, capital-intensive investments. Oil markets have rarely maintained such stability … ”
Gas, of course, is not interchangeable with oil as a commodity, at least not in the short term. Oil is still and is likely to remain the dominant fuel for transportation. But low gas prices generated by the shale revolution, and lower costs to produce shale oil, could keep oil prices below levels needed for profitable oil sands production.
Canada’s claims to global energy superpower status may be hard to maintain in the years to come. Even the United States, which Canadian officials once viewed as dependent on Canadian energy supplies, may soon be in a strong position to secure more of its energy needs at home and elsewhere at cheaper prices.
None of this is a sure thing. But it already seems clear that Canada’s political and corporate energy leaders do not have the upper hand in the new world energy order.
A few years back Representative Barney Frank coined an apt phrase for many of his colleagues: weaponized Keynesians, defined as those who believe “that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation.”
Right now the weaponized Keynesians are out in full force — which makes this a good time to see what’s really going on in debates over economic policy.
What’s bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.
Faced with this prospect, Republicans — who normally insist that the government can’t create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs.
Thus Representative Buck McKeon, Republican of California, once attacked the Obama stimulus plan because “more spending is not what California or this country needs.” But two weeks ago, writing in The Wall Street Journal, Mr. McKeon — now the chairman of the House Armed Services Committee — warned that the defense cuts that are scheduled to take place if the supercommittee fails to agree would eliminate jobs and raise the unemployment rate.
Oh, the hypocrisy! But what makes this particular form of hypocrisy so enduring?
First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn’t a morality play: spending on things you don’t like is still spending, and more spending would create more jobs.
But why would anyone prefer spending on destruction to spending on construction, prefer building weapons to building bridges?
John Maynard Keynes himself offered a partial answer 75 years ago, when he noted a curious “preference for wholly ‘wasteful’ forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” Indeed. Spend money on some useful goal, like the promotion of new energy sources, and people start screaming, “Solyndra! Waste!” Spend money on a weapons system we don’t need, and those voices are silent, because nobody expects F-22s to be a good business proposition.
To deal with this preference, Keynes whimsically suggested burying bottles full of cash in disused mines and letting the private sector dig them back up. In the same vein, I recently suggested that a fake threat of alien invasion, requiring vast anti-alien spending, might be just the thing to get the economy moving again.
But there are also darker motives behind weaponized Keynesianism.
For one thing, to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good, that sometimes government is the solution, not the problem. Fear that voters might reach the same conclusion is, I’d argue, the main reason the right has always seen Keynesian economics as a leftist doctrine, when it’s actually nothing of the sort. However, spending on useless or, even better, destructive projects doesn’t present conservatives with the same problem.
Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.
Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.
So I welcome the sudden upsurge in weaponized Keynesianism, which is revealing the reality behind our political debates. At a fundamental level, the opponents of any serious job-creation program know perfectly well that such a program would probably work, for the same reason that defense cuts would raise unemployment. But they don’t want voters to know what they know, because that would hurt their larger agenda — keeping regulation and taxes on the wealthy at bay.
The figures for 2010 mean that levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago.
"The more we talk about the need to control emissions, the more they are growing," said John Reilly, the co-director of MIT's Joint Program on the Science and Policy of Global Change.
The world pumped about 564m more tons (512m metric tons) of carbon into the air in 2010 than it did in 2009, an increase of 6%. That amount of extra pollution eclipses the individual emissions of all but three countries, China, the US and India, the world's top producers of greenhouse gases.
It is a "monster" increase that is unheard of, said Gregg Marland, a professor of geology at Appalachian State University, who has helped calculate department of energy figures in the past.
Extra pollution in China and the US account for more than half the increase in emissions last year, Marland said.
"It's a big jump," said Tom Boden, the director of the energy department's Carbon Dioxide Information Analysis Center at Oak Ridge National Lab. "From an emissions standpoint, the global financial crisis seems to be over."
Boden said that in 2010 people were travelling, and manufacturing was back up worldwide, spurring the use of fossil fuels, the chief contributor of man-made climate change.
India and China are huge users of coal. Burning coal is the biggest carbon source worldwide and emissions from that jumped nearly 8% in 2010.
"The good news is that these economies are growing rapidly so everyone ought to be for that, right?" Reilly said. "Broader economic improvements in poor countries has been bringing living improvements to people. Doing it with increasing reliance on coal is imperiling the world."
In 2007, when the Intergovernmental Panel on Climate Change issued its last large report on global warming, it used different scenarios for carbon dioxide pollution and said the rate of warming would be based on the rate of pollution. Boden said the latest figures put global emissions higher than the worst case projections from the climate panel. Those forecast global temperatures rising between 4 and 11 degrees Fahrenheit (2.4-6.4 Celsius) by the end of the century with the best estimate at 7.5 degrees (4 Celsius).
Even though global warming sceptics have criticised the climate change panel as being too alarmist, scientists have generally found their predictions too conservative, Reilly said. He said his university worked on emissions scenarios, their likelihood, and what would happen. The IPCC's worst case scenario was only about in the middle of what MIT calculated are likely scenarios.
Chris Field of Stanford University, head of one of the IPCC's working groups, said the panel's emissions scenarios are intended to be more accurate in the long term and are less so in earlier years. He said the question now among scientists is whether the future is the panel's worst case scenario "or something more extreme".
"Really dismaying," Granger Morgan, head of the engineering and public policy department at Carnegie Mellon University, said of the new figures. "We are building up a horrible legacy for our children and grandchildren."
But Reilly and University of Victoria climate scientist Andrew Weaver found something good in recent emissions figures. The developed countries that ratified the 1997 Kyoto Protocol greenhouse gas limiting treaty have reduced their emissions overall since then and have achieved their goals of cutting emissions to about 8% below 1990 levels. The US did not ratify the agreement.
In 1990, developed countries produced about 60% of the world's greenhouse gases, now it's probably less than 50%, Reilly said.
"We really need to get the developing world because if we don't, the problem is going to be running away from us," Weaver said. "And the problem is pretty close from running away from us."
http://opinion.financialpost.com/2011/11/04/terence-corcoran-the-energy-superpower-that-isn%E2%80%99t/
Terence Corcoran
The energy superpower that isn’t
•Canada hardly rates a mention in Daniel Yergin’s new bookWhen a “global energy superpower” starts delivering tough talk to its potential customers, that superpower had better be sure that people will listen. It has also better be sure it is in fact a superpower; otherwise, it may find itself talking tough to the wind.
In recent weeks, Canada — a self-proclaimed global energy superpower — has been trying to throw its weight around over the Keystone XL pipeline, TransCanada Corp.’s $7-billion project to ship oil sands production from Alberta to Texas. In Houston on Tuesday, Natural Resources Minister Joe Oliver let the Americans know that Canada had other options. “What will happen if there wasn’t approval [of Keystone] — and we think there will be — is that we’ll simply have to intensify our efforts to sell the oil elsewhere.”
Canadian oil executives, who have a lot invested in the superpower notion, are also issuing aggressive-sounding statements aimed at the United States. A headline in The Globe and Mail Friday sounded like a threat: “Oil patch to U.S.: OK pipe or lose our oil.” The story didn’t quite back up the headline, but the sense was that Canada was developing alternatives and that China is the big alternative.
If this was intended to spook the United States into approving Keystone XL, it may not be the best strategy. Mr. Oliver said Canada would “simply” have to intensify sales efforts elsewhere. There will be nothing simple about getting oil to China. Pipelines to the West Coast will have to be built over First Nations territory and through wilderness controlled by foreign-funded environmental groups. Opposition to tankers is strong.
China isn’t at Canada’s doorstep. And the Communist regime in China knows that if the U.S. doesn’t want Canadian oil sands production, then Canada has no option but to sell to China. Becoming a global energy superpower will require better negotiating positions than are shaping up around the oil sands.
Another factor playing against Canada’s claims to global prominence is the rapidly changing world energy order. Most expert assessments foresee dramatic changes in supply, technology and prices, with very little favouring Canada. Shale gas and shale oil developments in other parts of the world, from the U.S. to China and Europe, suggest the world will have plenty of supply and low prices (see Lawrence Solomon in an accompanying commentary1). Where does that leave Canada’s relatively expensive oil sands?
While Canadian government and industry officials have a lot invested in the idea of energy superpowerdom, few outside observers share the vision. Canada barely rates a mention in The Quest: Energy, Security and the Remaking of the Modern World, Daniel Yergin’s new book on the world energy market. A few pages are devoted to the oil sands, mostly to review the high costs and technical difficulties. “As the industry grows in scale, it will require wider collaboration on the R&D challenges, not only among oil companies and the province of Alberta, but also with Canada’s federal government.”
Far more impressive for the world’s energy future will be the impact of shale gas and shale oil. The “shale gale,” as Mr. Yergin calls it, has already transformed the U.S. gas market and shale oil could be next. Since Mr. Yergin’s book was written, the shale revolution has swept Europe and is about to transform China’s energy market.
A new study from Douglas Westwood, Unconventional Gas World Production and Drilling Forecast, says shale gas and other unconventional sources could make up one-third of growth in gas production by 2020, reports the Petroleum Economist. The United Kingdom, meanwhile, is sitting on what is widely viewed as a massive shale gas reserve.
How do Canada’s oil sands stack up against the shale revolution? Energy Business Reports, in a study titled Oil Sands, Gas and Oil Shales Market, sees shale gas as an energy-market “game changer.” As for Canada’s oil sands, it concludes that: “Oil sands producers are operating in a narrow financial window that may be shrinking over time. They want to avoid reaching an oil price ceiling, like the one at US$147/barrel in July 2008 that contributed to the oil price collapse below US$40/barrel.… But they also want to be confident of an oil price floor — now estimated at US$65-US$95 per barrel — to justify such long-term, capital-intensive investments. Oil markets have rarely maintained such stability … ”
Gas, of course, is not interchangeable with oil as a commodity, at least not in the short term. Oil is still and is likely to remain the dominant fuel for transportation. But low gas prices generated by the shale revolution, and lower costs to produce shale oil, could keep oil prices below levels needed for profitable oil sands production.
Canada’s claims to global energy superpower status may be hard to maintain in the years to come. Even the United States, which Canadian officials once viewed as dependent on Canadian energy supplies, may soon be in a strong position to secure more of its energy needs at home and elsewhere at cheaper prices.
None of this is a sure thing. But it already seems clear that Canada’s political and corporate energy leaders do not have the upper hand in the new world energy order.
Bombs, Bridges and Jobs
By PAUL KRUGMAN
Right now the weaponized Keynesians are out in full force — which makes this a good time to see what’s really going on in debates over economic policy.
What’s bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.
Faced with this prospect, Republicans — who normally insist that the government can’t create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs.
Thus Representative Buck McKeon, Republican of California, once attacked the Obama stimulus plan because “more spending is not what California or this country needs.” But two weeks ago, writing in The Wall Street Journal, Mr. McKeon — now the chairman of the House Armed Services Committee — warned that the defense cuts that are scheduled to take place if the supercommittee fails to agree would eliminate jobs and raise the unemployment rate.
Oh, the hypocrisy! But what makes this particular form of hypocrisy so enduring?
First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn’t a morality play: spending on things you don’t like is still spending, and more spending would create more jobs.
But why would anyone prefer spending on destruction to spending on construction, prefer building weapons to building bridges?
John Maynard Keynes himself offered a partial answer 75 years ago, when he noted a curious “preference for wholly ‘wasteful’ forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” Indeed. Spend money on some useful goal, like the promotion of new energy sources, and people start screaming, “Solyndra! Waste!” Spend money on a weapons system we don’t need, and those voices are silent, because nobody expects F-22s to be a good business proposition.
To deal with this preference, Keynes whimsically suggested burying bottles full of cash in disused mines and letting the private sector dig them back up. In the same vein, I recently suggested that a fake threat of alien invasion, requiring vast anti-alien spending, might be just the thing to get the economy moving again.
But there are also darker motives behind weaponized Keynesianism.
For one thing, to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good, that sometimes government is the solution, not the problem. Fear that voters might reach the same conclusion is, I’d argue, the main reason the right has always seen Keynesian economics as a leftist doctrine, when it’s actually nothing of the sort. However, spending on useless or, even better, destructive projects doesn’t present conservatives with the same problem.
Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.
Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.
So I welcome the sudden upsurge in weaponized Keynesianism, which is revealing the reality behind our political debates. At a fundamental level, the opponents of any serious job-creation program know perfectly well that such a program would probably work, for the same reason that defense cuts would raise unemployment. But they don’t want voters to know what they know, because that would hurt their larger agenda — keeping regulation and taxes on the wealthy at bay.
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