Looking the wrong way

By Aaron Wherry - Tuesday, January 17, 2012 at 11:48 AM - 0 Comments

Alex Himelfarb attempts to put austerity in perspective.

Today’s austerity, however, is not primarily about fiscal prudence. If it were it wouldn’t be proceeding in tandem with large, unaffordable and unnecessary tax cuts for the most affluent among us. These tax cuts make deeper program cuts inevitable. The persistent emphasis on low taxes and cuts to services and public goods  looks more like ideology masquerading as fiscal common sense. In this light, austerity seems rather to be about cutting back the state and rolling out the free market agenda. Less public, more private; less collective, more individual. It is, in other words, the fulfillment of the neoliberal counter-revolution rather than an economic plan for the future…

We need to have the debate – and the starting point cannot be some assumption about the inevitability of austerity. In fact, it ought not to be about big government versus small government. It ought to be focused on what will work to enhance the quality of life for most Canadians and what will make Canada more resilient for future generations. It ought to be a debate about what challenges, what problems, most urgently cry out for our collective attention and action. The preoccupation with austerity should not blind us to what really matters for our collective well-being.

Paying the bills (II)

By Aaron Wherry - Tuesday, January 10, 2012 at 5:30 PM - 0 Comments

The CBC reports the government will cut deeper into departmental budgets than previously planned. The Finance Minister raises the possibility that some departments may have to cut more than 10% from their budgets.

The Post reports that the Conservatives may try to adjust MP pensions, but the Finance Minister seems to defer.

On the issue of whether changes are afoot for the pension plans of members of Parliament, Mr. Flaherty said that is a decision for the House of Commons Board of Internal Economy, not the government.

The Board of Internal Economy is presently composed of three Conservatives, two New Democrats and a Liberal. Its meetings are conducted in camera.

Paying the bills

By Aaron Wherry - Tuesday, January 10, 2012 at 2:34 PM - 0 Comments

Scott Clark and Peter DeVries consider the Harper government’s health funding proposal.

The decision to tie the growth in the CHT to the growth in nominal GDP – a rate of growth that will be less than the current 6 per cent per year – clearly indicates that the federal government recognizes that it is facing a “structural deficit”  that needs to be confronted now. The Parliamentary Budget Office (PBO), international organizations and we have argued that the federal government is facing a small structural deficit now but that it will increase rapidly after 2015 due to demographic pressures on potential economic growth and health related spending.  To date, the Minister of Finance has denied the existence of a structural deficit and has publicly ignored any discussion of the demographic pressures. This is the first indication that he has seen the numbers and is worried, although it is doubtful he will admit this in public and/or release any internal research done on this subject.

In conversation: Mark Carney

By Andrew Coyne - Monday, December 5, 2011 at 11:10 AM - 0 Comments

Blair Gable

He’s among the most respected voices anywhere on financial regulation and monetary policy, and the Canadian closest to the centre of efforts to solve the European debt crisis. Governor of the Bank of Canada since 2008, Mark Carney, 46, was also recently named head of the Swiss-based Financial Stability Board. He’s a leading figure in the struggle to shore up a fragile world economy.

Q: Let’s talk about Europe. You hear people saying we may be in the last days of the euro. What is the way out of this crisis?

A:Let me say two things. One, there are longer-term issues that absolutely have to be addressed. They have to rework the way the monetary union functions—fundamental questions of competitiveness in these economies—which require multi-year reform programs. Those absolutely have to be done for this thing to work in the medium term—and there’s no point saving it in the short term, if it’s not going to work in the medium term. But in terms of creating the bridge so there’s time to do all of that, we have long advocated that they create a mechanism—a firewall—that ensures that all eurozone countries can fund themselves at sustainable rates for the next two, three years. And that is a requirement that is at least on the order of a trillion euros.

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These days, no news is good. Period.

By Paul Wells - Friday, November 25, 2011 at 7:30 AM - 0 Comments

Tara Todras-Whitehill/AP

The other day, Martin Scorsese screened his new 3-D children’s movie, Hugo, for his daughter Francesca, who was turning 12, and 50 of her friends. Two thoughts occur:

It’s probably a good thing Scorsese didn’t have a daughter turning 12 the year he made Taxi Driver.

It’s official: you’re an inadequate parent.

“What? A pinata?! Daddy, I wanted 3-D Jude Law! Francesca’s dad gave her 3-D Jude Law!”

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Is the ‘Estonian miracle’ just smart management?

By Richard Warnica - Tuesday, November 15, 2011 at 11:20 AM - 0 Comments

Miracles are always more complicated than they first appear. Even the word itself—miracle—is a kind of hedge. It’s a guard against deeper scrutiny, a way of pointing to the wonderful without probing too deeply into the details. Such is the case with the economic miracle in Estonia. The tiny tiger of the Baltic is being hailed as the anti-Greece, both for its fiscal austerity and stoic acceptance of such. But the story of how this nation of 1.3 million crawled out of the 2008 crash, gained entrance to the eurozone and set itself on the path to, fingers crossed, prosperity is both messier and more pragmatic than “miracle” implies.

Beginning in 2009, the Estonian government undertook a policy of “fiscal retrenchment”—it tanked its own economy, basically, cutting spending and raising taxes even as the rest of the West indulged in a binge of Keynesian excess. Between 2000 and 2007, Estonian GDP climbed an average of eight per cent per year. In 2009, it tumbled 14 per cent. Unemployment hit 19 per cent that year, and wages, in the private and public sectors, were slashed, in some cases by as much as 40 per cent.

And for all this, the government was praised. There were no mass protests, no legislative walkouts, no rioters tearing up the cobblestones in the streets of Tallinn. “If you look at what the [polls] said in spring of 2009, before they made the cuts, and what they were in October, November, they actually went up,” says Ringa Raudla, a senior researcher in public administration at the Tallinn University of Technology. In March 2011, the same parties that implemented the austerity plan were re-elected to another term. “People actually supported cutting the budget rather than taking out loans,” Raudla says. Continue…

The crunch approaches

By Aaron Wherry - Tuesday, November 15, 2011 at 10:00 AM - 0 Comments

Government spending has increased and the future looks expensive.

In figures for government budgeting for the fiscal year to date, the PBO shows health care allocations up by $1.6 billion. That transfer will continue to increase at a six-per-cent clip every year for at least the next four years if the government sticks to its election promises.

Servicing charges on the public debt have also jumped $1.4 billion from the same period a year earlier because higher deficits are more than offsetting the benefits of low interest rates. Those costs, too, will continue to grow as long as the government keeps adding to its debt. And old-age security payments rose $1.1 billion from last year — partly because of a growing number of beneficiaries and partly because the benefit has been enriched.

Kevin Page questions the government’s fiscal plans going forward. Of course, the Conservatives are openly dismissive of Mr. Page at this point.

On health care, the government has apparently considered a transfer formula based on age.

The Canadian hired to save the world

By John Geddes - Monday, November 14, 2011 at 9:40 AM - 0 Comments

Sean Kilpatrick/CP

Upbeat stories to spin were in short supply at last week’s G20 summit at Cannes. The host, French President Nicolas Sarkozy, narrowly avoided disaster on his home turf when the destabilizing prospect of a Greek referendum on the country’s debt crisis faded. U.S. President Barack Obama remarked on how European decision-making in the face of economic calamity struck him as “laborious” and “time-consuming,” before heading back to Washington, where laborious, time-consuming efforts to cope with America’s deficit continue. Prime Minister Stephen Harper, though, claimed bragging rights on the Riviera thanks to the naming of Mark Carney, the governor of the Bank of Canada, to head an increasingly powerful body called the Financial Stability Board. “His appointment,” Harper said, “is both a tribute to his personal qualities and a reflection on Canada’s superior performance in monetary, fiscal and financial-sector policy areas.”

Carney’s emergence as the international poster boy for everything admirable about the Canadian economy is among the more improbable stories of the Harper era in Ottawa. It’s not that he’s Ottawa’s first appointed public servant to outshine the elected politicians. Former auditor general Sheila Fraser, after her 2004 report on the sponsorship affair that rocked the then-ruling Liberals, became the face of honesty in government. Retired general Rick Hillier’s outspoken pride in Canadian troops made him, as chief of defence staff, the voice of patriotism. But Carney offers nothing like Fraser’s down-to-earth quality or Hillier’s entertaining populism. He’s a Ph.D. economist and former investment banker, and seems like one. His star quality counts for more in elite circles than among Canadians in general. Still, during this prolonged stretch of anxiety over when the next recession might hit, a figure who embodies sophisticated economic leadership is an invaluable political commodity.

As Harper’s comments in Cannes confirmed, Carney’s skills and Canada’s strengths are now being sold as a combo pack. And Carney is highly marketable. At just 46, he’s unusually young for a central banker, and cuts an athletic figure. (He ran the Ottawa marathon in three hours and 48 minutes last spring.) His bio comes complete with a Canadiana prologue any political mythmaker might envy. Born in the Northwest Territories, where his father was school principal in remote Fort Smith, he’s said one of his earliest childhood memories is the smell of the furs his mother bought for making parkas.

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Mark Carney: A central banker for a volatile age

By Andrew Coyne - Monday, November 14, 2011 at 9:40 AM - 0 Comments

Chris Wattie/Reuters

At 46, Mark Carney manages to look both younger and older than his years. This is fitting, as his approach to the economy combines a commitment to old-fashioned central bankerly verities—sound money, prudent risks—with a modish flexibility as to how these are to be secured.

That has been an unavoidable necessity in what we should perhaps now refer to as his day job, as governor of the Bank of Canada. Gone are the days when central bankers could simply focus on keeping the so-called monetary aggregates—M1, M2, all the gang—to a fixed annual growth rate, as monetarists had advised. While this approach had succeeded in reining in the Great Inflation of the 1970s and ’80s, it eventually fell victim to Goodhart’s law, named for a former adviser to the Bank of England: namely, that the moment you target any particular measure of the money supply it loses its usefulness—because people in financial markets find ways to innovate around the constraint. Central bankers have since had to steer by a variety of other measures, even as the overall objective—stable prices—has remained unchanged.

The lesson of that experience, that policy does not consist in simply issuing a set of rules, but rather exists as a continuing process of interaction between the regulators and the regulated, appears to inform Carney’s views on the causes of the financial crisis, and how to prevent another—a subject that will be his focus in his new, part-time job as chairman of the Financial Stability Board, the international body tasked with coordinating and overseeing the reform of global banking regulations. In speeches and interviews the governor has given, a number of related themes and concerns emerge. Among them:

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‘Prudent planning’

By Aaron Wherry - Thursday, November 10, 2011 at 8:30 AM - 0 Comments

Scott Clark and Peter DeVries find the Finance Minister’s budget update to be “lacking in transparency, accountability, and a realistic assessment of economic and fiscal prospects and risks.” And they suggest Mr. Flaherty start planning like Paul Martin did.

Mr. Martin’s lesson was simple. Once you have chosen the policy actions you believe are required, and given the economic assumptions, choose “risk adjustments” or “allowance for prudence” that will virtually guarantee you will not miss the target. Such a situation is “win-win” for the government. If the economy turns out better then you get credit. If the economy performs as bad as assumed you also get credit for your “prudent planning” …

Mr. Flaherty wants to now claim that he will eliminate the deficit in 2015-16. This is a mistake because the risks and evidence are stacked against this happening. It is virtually certain that he will have to revise his planning assumptions before or in the 2012 budget. It will be even more embarrassing if he has to revise it immediately after the budget.

Why so shy, Jim?

By Aaron Wherry - Tuesday, November 8, 2011 at 4:27 PM - 0 Comments

The New Democrats and Liberals are unhappy with Jim Flaherty’s decision to deliver the economic update far away from the House of Commons.

NDP House Leader Joe Comartin argued the Conservative tactic “demeans the role of Parliament and parliamentarians.” He said it follows the government’s strategy of disrespecting democracy by bringing in time allocation and closure to shut down routine debate on legislation … “I think it obviously gives the government an advantage of being able to put out whatever their messaging is, even if there are some negative parts, without having to be concerned about an immediate response in the House from the opposition parties.”

Resolutely flexible

By Aaron Wherry - Tuesday, November 8, 2011 at 3:50 PM - 0 Comments

The prepared text of the Finance Minister’s remarks is here.

Countries, just like individuals, do not stumble into prosperity. They set out a plan and stick to it, so that they are fully capable of seizing opportunity when misfortune hits, instead of merely being overwhelmed by it. 

That’s not to say, of course, that our Government believes an inflexible approach for every conceivable scenario is anything to admire.

For those of you scoring at home, six references are made to flexibility against ten references to stability.

The full economic update is available here. More from the Globe and Canadian Press.

‘Increasing the adjustment for risk’

By Aaron Wherry - Tuesday, November 8, 2011 at 3:13 PM - 0 Comments

In March, the Harper government announced that it would return the federal books to balance in the 2015-2016 fiscal year. Seventeen days later, the Conservatives changed their minds and promised instead to return to balance in 2014-2015. Seven months to the day after that, the Harper government has decided it can’t fulfill April’s promise and is going back to March’s projection (at the earliest).

Depending on how you count these things, this is either the third or fifth return-to-balance projection the government has offered in the last three years (first 2013-2014, then 2014-2015, then 2015-2016, then back to 2014-2015 and now back to 2015-2016).

Including Mr. Harper’s vow in 2008 that a government led by him would “never” go into deficit, this is the second time in three years that the Conservatives have made a balanced-budget promise during an election campaign only to abandon it after being reelected.

An opportunity to show real leadership

By Aaron Wherry - Friday, November 4, 2011 at 10:30 AM - 0 Comments

Scott Clark and Peter DeVries lay out what the Harper government should do with its fall economic update.

The current commitment to eliminate the deficit in 2014-15 would be discarded. It is neither realistic nor necessary to eliminate the deficit in 2014-15. Eliminating the deficit two or three years later would be more realistic and acceptable in the current economic environment…

A commitment to reallocate these savings from the program expenditure reviews to new initiatives to support research, investment, innovation and infrastructure in a federal-provincial partnership … A commitment to begin the difficult but necessary process of tax simplification and reform to support efficiency, economic growth and job creation. The government would commit to use the savings (which would be substantial) to lower both personal and corporate income taxes, thereby supporting economic growth and job creation.

Why Ontario is poised to become Canada’s Greece

By the editors - Monday, October 17, 2011 at 8:50 AM - 99 Comments

Frank Gunn/CP

October has been an unusually busy month for provincial politics.

Prince Edward Island, the Northwest Territories, Manitoba, Ontario, Newfoundland and Labrador, and the Yukon have all had elections in the past two weeks. Alberta’s ruling Progressive Conservatives recently picked a new premier in Alison Redford. And next month Saskatchewan will head to the polls. While every election is important, one in particular should give all Canadians pause for thought.

Ontario Premier Dalton McGuinty’s re-election last week, albeit with a minority, was an impressive display of campaigning. And yet what makes McGuinty’s return significant is not his politicking skill but his responsibility for Ontario’s ever-expanding debt. Traditionally known as the engine that drives Canada, Ontario is in danger of becoming the Greece of Confederation—if Greece happened to account for more than a third of Europe’s economy.

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Stephen Harper lectures the world

By Aaron Wherry - Thursday, October 13, 2011 at 2:50 PM - 13 Comments

The Prime Minister calls on Europe and the G20 to get their respective and collective houses in order.

Events in the summer of 2011 have made it clear that global economic challenges are by no means behind us. What started as a sovereign debt crisis in smaller countries in Europe has now spread, causing extreme stress in the European financial sector and threatening global growth. Unfortunately, this time, the policy response to our shared challenges has not been as strong and co-ordinated as it needs to be. This slow response has resulted in missed opportunities, with each missed opportunity increasing the cost and difficulty of resolving the crisis.

We cannot afford any more missed opportunities.

Last month, Scott Clark and Peter DeVries noted that Mr. Harper was among those leaders calling on “surplus” countries “to increase their expansion of domestic demand” and thus wondered whether the Prime Minister was willing to participate in a global stimulus package (to the tune of $41 billion).

The quiet cuts

By Aaron Wherry - Thursday, October 13, 2011 at 10:48 AM - 4 Comments

The Defence Department is planning to cut 250 jobs. Treasury Board will eliminate 84 jobs.

The latter cuts are apparently part of the 2010 strategic review that Paul repeatedly tried to get the government to explain earlier this year.

So what does Jim Flaherty do now about the economy?

By John Geddes - Monday, October 10, 2011 at 10:50 AM - 2 Comments

Chris Wattie/Reuters

Economic necessity made Jim Flaherty a big-spending finance minister, but he takes pains not to talk like one. Back in August—with the Greek debt crisis escalating and U.S. political gridlock on budget policy frightening investors everywhere—Flaherty was pressed by NDP finance critic Peggy Nash to consider pumping some federal cash into the vulnerable Canadian economy. “That actually is the problem—too much spending,” he told her at the House finance committee. “It’s exactly what we should not do.”

A few weeks later, heading to Marseille, France, for an anxious meeting of the G7 finance ministers, Flaherty was again asked about proposals for governments to ease off on deficit reduction. In the face of a deteriorating global economic outlook, the classic policy response would be an injection of stimulus. But Flaherty recoiled at the notion. “We want to stay the course,” he said.

The steady-as-she-goes message, though, didn’t stop unease from deepening. That prompted Flaherty, Prime Minister Stephen Harper and Bank of Canada governor Mark Carney to hold a rare photo op meeting to show they were on the case. And Flaherty noticeably softened his previously hard-edged anti-stimulus, pro-deficit-cutting rhetoric. “If we get a shock from outside our country,” he told reporters recently, “we’ll have to be responsive, and we’ll be flexible and pragmatic.” The substantial wiggle room implicit in those words served as a reminder of how abruptly Flaherty shifted, in late 2008 and early 2009, from predicting no recession and no deficits, to having to acknowledge a punishing recession and preside over unprecedented deficit spending to combat it.

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Don’t let the depression get you down

By Scott Feschuk - Monday, October 10, 2011 at 10:10 AM - 3 Comments

Getty Images; Photo Illustration by Taylor Shute

During a recent lecture in Ottawa, a prominent British commentator offered his assessment of the global economy. Martin Wolf referenced debt loads, bailout funds and all that—but permit me to distill his message to its essence: EVERYBODY RUN FOR YOUR LIVES!!

Indeed, by the time Wolf was done speaking of likely default in Europe and a potential worldwide depression, it felt as though nomadic Huns were poised to smash through the walls and make off with our animal skins and womenfolk. His vision of the future made The Road sound like a buddy comedy.

Wolf is by no means alone. These are prosperous times for pessimism. Pretty much every day now we wake up to news that the Hang Seng is down three per cent, which is a bummer because hearing “Hang Seng” used to be so much fun, in that it sounded like a bounty hunter from Star Wars. When it comes to retirement, many of us have given up on the dream of Freedom 55 and now grudgingly accept the reality of Freedom Andy Rooney, wherein we position ourselves behind a desk and keep working until we’re 92.

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Reality will bite back in Ontario

By Richard Warnica - Friday, October 7, 2011 at 2:34 PM - 8 Comments

Blair Gable/Maclean's

The Twitterati in my home province of Alberta made a lot of hay this week over a headline in The Globe and Mail that presented the election of Alison Redford, a centrist former justice minister and now provincial premier, as an evolutionary step forward for the knuckle draggers of the Prairie politic. “Alberta steps into the present,” the headline read, to which the easily offended replied, “So where were we before, the past?” Albertans have an almost reflexive sensitivity to criticism from the East. It’s a bit like what the rest of Canada feels for the U.S., a mix of smug superiority and desperation to be noticed. But Albertans should relax. Ontarians seem to think worse of each other than of anybody else. And their politics, well, they’re nothing to brag about.

Take last night’s election. It was, in many ways, an odd campaign. In a province where health care eats up $46 billion a year, more ink was spilled on cross-dressing than on doctors’ salaries. Indeed, it seemed at times as if the parties had made a pact to avoid dealing with most of what a provincial government actually does. Health care? Untouchable. Education? Just keep the kissing booths out and we’re fine. Continue…

The Commons: Say everything

By Aaron Wherry - Wednesday, September 28, 2011 at 7:06 PM - 64 Comments

The Scene. A day after the Prime Minister’s Office delighted in demonstrating their man’s eagerness to meet with the Governor of the Bank of Canada and the Finance Minister—both of them, at the same time—the leader of the opposition stood and asked if Mr. Harper might tell the House what the three men had talked about and what plans they had made. Here is how the Prime Minister responded.

“Mr. Speaker, as I have said many times, we have an economic action plan. That’s why we received a mandate from Canadians. Obviously, we are concerned about developments in Europe and elsewhere, but at the same time, the Canadian economy has created more than 600,000 jobs. This is one of the best records throughout the industrialized world. We will continue to do so.”

Apparently this much was news to Mr. Carney and Mr. Flaherty. (Later, the Finance Minister would say he could not comment on the contents of these discussions because the meeting in question was “private.” Which is a funny adjective to apply to anything that is announced with a news release, then videotaped and photographed for public distribution.)

On matters of the economy, the Prime Minister has mostly settled on two responses: say nothing or say everything. Here, obviously, he had chosen to go with the former. It most other cases these last few weeks, the government has gone with the latter. Continue…

Can Canada avoid another recession?

By macleans.ca - Wednesday, September 28, 2011 at 4:42 PM - 5 Comments

It’s time for the truth about taxing the rich

By the editors - Monday, September 26, 2011 at 10:00 AM - 23 Comments

Jake Wright/CP

President Barack Obama’s endorsement of the “Buffett rule” for taxation has Republican legislators crying “class warfare” this week. Warren Buffett, the super-rich sage stock-picker of Omaha, Neb., has taken centre stage on the U.S. political scene by pointing out how outrageous it is that he pays a lower effective tax rate than his secretary. “Last year my federal tax bill—the income tax I paid, as well as payroll taxes paid by me and on my behalf—was $6,938,744,” Buffett wrote in the New York Times in August.

“That sounds like a lot of money,” he added. (It certainly does to us.) “But what I paid was only 17.4 per cent of my taxable income—and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” Like most Americans in his elite income category, Buffett pays little more than 15 per cent on what he makes because most of it takes the form of capital gains, which the U.S. taxes at that low rate.

Buffett takes glee in telling the American masses what they want to hear in a time of frighteningly high unemployment that looks increasingly invulnerable to the everyday tools of U.S. fiscal and monetary policy. Rich folks like me, Buffett says explicitly, really are avoiding sacrifice. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” he wrote in the Times. He wants rates on income from all sources increased for individuals with million-dollar incomes, and still more for those raking in $10 million.

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The wrong medicine

By Aaron Wherry - Monday, September 26, 2011 at 9:46 AM - 4 Comments

Douglas Porter quibbles with the Prime Minister’s prescription for economic woe.

“We could be making some of the same mistakes. Certainly, there are echoes of 1937,” agreed Douglas Porter, deputy chief economist at the Bank of Montreal. Last week, Prime Minister Stephen Harper and British Prime Minister formed an unusual alliance of debt hawks, coming down firmly on the side of stricter austerity as the way out of the crisis – at least in Europe … 

Mr. Porter said Mr. Harper’s call for global austerity is “precisely the wrong medicine at this time.” Government bond yields in Canada, and in most other countries, have sunk to multi-year lows in recent days. That’s a sign that financial markets are stressed about economic growth prospects, not government deficits or inflation, according to Mr. Porter. “Governments shouldn’t be aggressively cutting spending when the economy is gasping for air,” he said. “That’s certainly the wrong prescription.”