Category Archives: Economics

A month later

I have not been writing much about COVID and its consequences simply because, day to day, very little changes.

I am very lucky. I live in British Columbia which has had among the lowest per capita case rate and death rate in the developed world. There are a variety of reasons for this first among them the provincial government’s decision to treat its citizens like grown ups. The government has shared its statistics, its models and its recommendations. It has issued very few “orders” nor has it locked down the economy. Social distancing, the ubiquitous plexi glass barriers at the cash tills, maximum occupancy to prevent over crowding are pretty much it in terms of required measures. No sit down dining in restaurants and bars closed. We are encouraged, but not required, to “stay at home”.

Yesterday there were only 15 new cases in the province. The curve has been decisively flattened. On Vancouver Island, where I actually live, there have been only 126 cases overall. There were no new cases yesterday.

The rest of Canada ranges from New York City levels of illness in Montreal to very little illness on the prairies and in most of the Maritimes. Ontario, particularly Toronto, has been hit pretty hard and has reacted with broad lock downs and fines for illicit dog walking or hoops shooting.

Right now, BC is coming back online in a phased way and I suspect most businesses will be operating with capacity restrictions by mid June.

Now the question is how much economic damage has the virus done.

While it is convenient for politicians and economists to think of the economy at the macro level with unemployment rates and money supply and such like, the actual economy is a vast set of tiny transactions and the habits which power those transactions. Before we can really talk about the effect of the virus on such lofty things as aggregate demand, we have to think about the very small scale exchanges of daily life.

To give one example: if a person who, before the virus, went to an office everyday is now working from home their web of tiny transactions will have changed shape – gas bought once a month rather than once a week, no dry cleaning, no Starbucks, no lunch in the food court. The question is whether, even if they keep their job, they will be going back to the office. Increasingly, the answer seems to be no as everyone from the Bank of Montreal to Facebook have announced that they are looking at leaving their workforce at home.

These sorts of choices – whether made by the individual, companies or governments radically and unpredictably change the economic balance in ways we will not fully understand for years. There is no way to model this sort of change because there is no way to predict what a shift to working at home will actually mean economically. Nor do we really have much ability to work through the ramifications of extremely limited air travel or fanless sporting events.

Now, add to these and countless other shifts in behaviour, there is also the uncertainty as to the rate of change in that behaviour. Air travel is, at the moment, very, very limited. Flights are cancelled, air crew furloughed, smaller planes deployed where possible. That happened at the beginning of April and is ongoing. It is not, directly, the result of government saying “reduce air travel” but rather a consequence of lockdowns and “stay at home” edicts. It is also a very rational response to the virus itself – who wants to sit in close quarters with someone who is asymptomatically infected? Will that change and if so how fast?

A lot of the day to day transactions of life require a background of general trust, a sense of confidence. You can flatten the curve, lift the lock downs and generally stimulate the economy with helicopter money but until trust and confidence are restored you are essentially pushing on a rope.

I suspect we are coming to the end of the first wave of the virus. A good, hot summer, may see the end of it. However, the possibility of a second wave, potentially worse than the first, cannot be dismissed. Which is just one more worry to pile on top of the profoundly out of kilter economy.

In many ways the biggest obstacle to economic progress is the very idea that we will somehow “get back to normal”. The fact is that there is no longer a “normal” to return to which means we will be going forward into a economy which we will be inventing as we go. Which might sound scary but, realistically, market economies have always invented their own futures.

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Helicopter Money

Canadian banknotes falling from sky.

I have, and I checked, $85.00 in my pocket. I have had that for several days. We also have a few hundred dollars in the proverbial cookie jar.

We, like virtually everyone else, use our debit cards and online banking to do 95% of our transactions. I know how much money I have by checking into my bank account online. If I get a cheque I take a picture of it and it is cashed.

Money is now, effectively, digital. So is credit but that is another story. I receive a small pension and my wife gets the Child Tax Benefit. Digitally.

We are in the middle of a health crisis but also an economic meltdown. Hundreds of thousands of Canadians will be laid off. Businesses will close, the markets are in turmoil. We are at the middle of the month but, in 14 days, rents and mortgages will have to be paid. Day to day bills have to be met and, in a couple of weeks, a lot of people will have literally no money because COVID-19 will have destroyed their income.

The Quebec government announced today that it will pay people who do not have Employment Insurance $573 a week to self-isolate. I expect other provinces will follow suit. I also expect that the Federal Government will announce some sort of allowance to get people through what is going to be an economically fragile period.

Assuming that there are 23 million adults in Canada, it would cost 23 billion dollars to give everyone of them $1000. Which is a lot of money. Even for a Liberal government. (Of course the net cost could be reduced a lot by a) making it taxable, b) restricting it to people receiving the GST credit.)

An injection of $1000 per adult would goose the economy and make getting through the next month a heck of a lot easier for Canadian families. But is it prudent or even possible economically?

Right this instant, world wide interest rates are at all time lows. Sovereign debt can be had at less than 1% and even if the entire payment was borrowed it would be a blip on Canada’s overall deficit and interest payments. Essentially, the Government of Canada would be giving its citizens a long term loan using our excellent credit rating to raise the funds. Of course, those citizens would be paying that loan back over time through their taxes; but acting quickly could reduce real economic harm to a manageable economic problem.

We may have to do this for a few months. Which is ugly for the balance sheet but probably good for the nation.

There is the obvious risk of inflation and an equally obvious risk for the Canadian dollar. But, against that, we have to recognize that the enemy here is deflation as the economy contracts due to “lockdown” and despair as individuals and families hit the economic wall.

Yes, this would be Ben Bernanke’s “Helicopter Money” . It was not actually Bernanke’s idea, it was Milton Friedman’s. Read the article at the link. The original idea of “Helicopter Money” was that it was a tool of last resort when monetary policy has run out of bullets. (And when the prime interest rate is at .25%, that is an empty gun.)

Friedman and Bernanke saw this in strictly financial terms; they did not see the possibility of a non-financial crisis. COVID-19 is just that. A health crisis with a nasty financial side effect.

I am a hard money guy. I despise the lazy pseudo-Keynesians happy to spend in the bad times and just as happy to spend in the good times. I hate deficits. But, right now, I am hoping some adult in Ottawa – there has to be at least one – is getting ready to push billions of digital dollars into the hands of a bewildered Canadian public.

Now, to be fair, they will probably spend it on “beer and popcorn” (as the lame Liberal strategist said back in 2005 blowing Paul Martin’s election chances.) But for many Canadians it would be a lifeline through layoffs, cut hours, business slowdown and having to stay home.

It can be done in an hour. 92.5% of Canadians filed their taxes online in 2019. Most will have a bank account registered with the CRA. So will a lot of us who have a pension or a GST rebate or a Child Tax Benefit entitlement.

Pushing the button and sending a chunk of money to Canadians who are reeling from lock-down, social distance and losing their jobs makes a lot of sense.

We’ll deal with the fiscal consequences when COVID-19 is done.

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French Police vs. Yellow Vests

This is interesting.

The Yellow Vests are, ostensibly, protesting Macron’s imposition of higher fuel taxes in the name of CO2 reductions and the Paris Accord. However, while there is a strand of the protest which is really just people who like throwing rocks and lighting fires – apparently from both sides of the political aisle with more than a few of France’s increasing immigrant population taking advantage of the chaos – the bulk of the protestors seem to be the French version of deplorables. Working and lower middle class people from the provinces and the outer suburbs who have been steadily falling behind economically.

Historically, the French have been very good at organizing strikes and protests and the French police have become very good at breaking up such demonstrations.

But what this video shows is the French police “standing down”. Taking off their helmets. The crowd applauds and breaks into La Marseillaise.

Will the Yellow Vests bring down Macron? While I devoutly hope they do they will not do it on their own. However, if the police down tools that would be a different situation altogether. Of course, there would still be the Army; but how reliable the Army would be is an open question.

The one thing which the Yellow Vests need to keep their effort going is continued large numbers of non-violent protestors. This weekend there were fewer than last weekend. Christmas is coming. The point about street protests is they succeed when they are massive, they fail when people stay at home.

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Here’s Hoping

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Sundance is a remarkably well informed American commentator who pays attention to trade. The above is not confirmed but if that turns out to be the Canadian position the politics will be fascinating.

A complete capitulation to Trump would make Trudeau look like the wimp most of us already think he is. It would also give us a chance to catch the tailwind of the current American economic boom.

It would, I suspect, cause the left in Canada to implode simply because it would suggest that their hero Justin takes business more seriously than posturing. And when you give up posturing what does the left have left?

As Trump would say, “We’ll see what happens,” but real Canadian patriots have to hope that common sense prevailed and that we are on the road to genuine free trade with our friends to the south.

[Note seeing much action on the CDN/USD front. If the above is true I would expect a fairly sharp rise in the value of the Canadian dollar.]

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True North

Justin Trudeau, Donald TrumpOnly in Canada would the rudeness of our Prime Minister to a departing guest be raised – admittedly by Warren “Lying Jackal” Kinsella – to a question of Canadian patriotism. Our Minister of External Affairs has wagged her stubby little finger at the Donald and called his response to Trudeau’s rudeness “inappropriate”.

In so far as there is any thinking at all in Ottawa I suspect some bright light in the PMO, in the wake of Ford’s victory in Ontario, has had the idea that the way for Trudeau to win the next election is to try and cast that election as an opportunity for good Canadians to vote against the monster Trump. It is just the sort of idea which will emerge from a gender-balanced brain trust a bit high on soy. Because decent, good Canadians hate Trump and if Trudeau is seen to stand up to the orange ogre we will all troop to the ballot box in Trudeau’s support. While I think that is unlikely, it is really all these clowns have left.

Which is very bad news for Canada. Because Trump is not kidding on tariffs and could care less if all the Canadas rise as one in support of the Little Potato. As I pointed out below, at virtually no cost to the American economy, Trump can pretty much wipe out the one bit of manufacturing which exists in the so-called “Golden Triangle”. And if Ms. Freeland thinks he is inappropriate now, imagine how fast her finger will have to wag if he hits oil and lumber with the same sort of across the board tariff.

A lot of diplomacy and trade strategy can be learned in a school yard. Six grade one students are unwise trying to take on the kid in grade seven. While they might be able to slow him down they can’t actually hurt him, but one solid punch from the big kid and a little kid is laid out flat. Is that fair? Of course not. But it is how the world works.

Poking a bear is never, ever, smart.

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Tit for Tattle

Oh Good, a trade war….we’re hitting the Americans where it hurts. This usually works out well.

Here’s a counter suggestion: total, real, free trade. No tarriffs either way on Canadian or US made and manufactured goods. An open border for evrything from steel to cheese. (And yes, the dairy farmers will scream…let’em.)

Canada is not going to win a trade war with its biggest trading partner. It is a silly idea and one which only the Liberals could come up with. But we could be creative and say, unilaterally, that we are eliminating all tarrifs and other barriers to US made goods. That would swat the ball back into Trump’s court.

So far as can be seen, the biggest US gripe about Canada is transhipment of Chinese goods. We can deal with that with a value add requirement.

Trump is never going to give an inch to retaliation. He’d rather die. But a better deal for Canada and the US, now we are talking.

And, best of all, cheap cheese and wine and all manner of good things.

Doom and Disaster

The glee on the left at the defeat of the Republicans’s, and, more especially, Trump’s Obamacare reform package really knows no bounds. The human Cheeto stands exposed as incompetent and obviously unfit for office. And so on.

Realistically, the Paul Ryan inspired, three stage, series of rather lame changes to Obamacare deserved to die.  It is unfortunate for Trump that he aligned his White House with the bill and that is a mistake he’ll have to live down. But the fact is that the RyanCare version of ObamaCare was, at best, conceptually muddy.

With the withdrawal of this piece of legislation, the US is left with ObamaCare and it is a pretty good bet that this edifice will gradually collapse as its own contradictions and faulty assumptions are worked out in the marketplace. The ongoing collapse of the insurance exchanges, the rise in deductibles and the sheer expense of medical insurance for middle income families all suggest that the ObamaCare model is in increasing trouble. A fact not lost on Trump.

Now there are Panglossian interpretations of the defeat of RyanCare which cast it in terms of clever Trump suckering the establishment Republicans to make way for his own version of healthcare reform. While I suspect this sort of outcome may occur, it will be more an accident than a plan.

The underlying problem of healthcare in the US is the tension between free market principles and the desirability of people having decent healthcare at a price they can afford. Very smart people on both the left and the right have been arguing about this for decades. ObamaCare, for all of its flaws, was a solution which might have worked had the American economy expanded more rapidly. Coming up with a better plan build on the essential structure of ObamaCare, which is what RyanCare attempted to do, was always going to be conceptually muddy and very unattractive to the free markets end of the Republican world. RyanCare was not a better plan than ObamaCare and never aspired to be; rather it was an attempt at “less worse”.

At this point Trump can – as he has threatened – let ObamaCare explode simply by sitting on his hands and refusing to make the adjustments and spend the money needed to keep the exchanges functioning. Politically that might be smart or it might be incredibly short sighted as the voters will be deeply unimpressed when they lose their ObamaCare insurance.

A smarter approach is likely a complete re-conceptualization of healthcare in America and the government’s role in assisting people who need healthcare. There seems to be some consensus that the costs of  “catastrophic illness” should not be entirely borne by the individual and his or her family. And there seems to be a willingness to pay for the healthcare of the poorest people in the society which is, in fact, a welfare rather than healthcare question.

What would happen to the general insurance market if the costs of catastrophic illness was taken out of the mix to be covered by private insurance? The devil is in the details but, in principle, the cost of insurance which did not have to deal with catastrophic health events would go down. Likely quite significantly.

A TrumpCare package which “socialized” the catastrophic end of the risk pool would, in fact, be the thin end of the single payer wedge with some of the efficiencies such a system would create. Trump does not strike me as a free market ideologue and I doubt that thin end would worry him a bit. On the welfare/subsidy side it is not out of the question to essentially buy a set amount of insurance for the poorest people and ensure coverage.

Coming up with a simple, well costed, plan which deals with both expensive illness and poor people would be a huge step forward.

However, I would suggest a third element: a really serious look at how a) the incidence of catastrophic illness can be reduced, b) an initiative to create efficient best practices to deal with catastrophic illness and c) a drive to reduce the costs of treatment for catastrophic illness through everything from the use of single payer drug buying power to tort reform.

RyanCare, like ObamaCare, seemed to want to do far too many things all at once. Doing a few things very well might be a better model for Trump to follow as he cleans up the mess.

 

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Paris Plop

Heading into the final hours of COP21 – even with the traditional 24 hour extension – it is pretty apparent that:

  • there will be no legally binding agreement – John Kerry himself has finally acknowledged that he couldn’t get it through Congress
  • that the West is not actually willing to give the less developed nations of the world trillions of dollars to deal with “climate change” and the damage already suffered due to so called “historic emissions”
  • that whatever agreement is finally signed – and there is always an agreement even if it is only to meet again – the wind has gone out of the climate alarmist sails
  • that this entire exercise is not about science and it is barely about climate, rather it is about using a scare to force the West to transfer massive amounts of money to the developing world

The amusing part of the entire charade is that, when you look at the world relative to its state in 1992 when the whole climate madness began in Rio, the less developed world has radically developed.

India had a purchasing power parity GDP of 1124 billion in 1992, it was 7375 billion in 2014.

China had a purchasing power parity GDP of 1438.13 billion in 1992, it was 17617 billion in 2014.

Unsurprisingly, India is none too eager to stop buring fossil fuels and China’s great concession has been to accept unlimited growth in emissions until 2030 when, it really does promise to start reducing emissions.

Whack-a-doodle warmists and greenies will, as per usual, be sad when the Paris Conference ends with a non-enforcable damp squib of a not-a-treaty agreement. The more intelligent of them will be very depressed indeed because the wheels continue to fall of the science as the Pause lengthens, the models depart further from the observations and, oops, Arctic ice extent is the highest its been in a decade.

icecover_current

The “science” behind the climate hysteria is crumbling and the green dream of a reversion to horse and buggy days is collapsing faster than the price of oil. The fake consensus is under attack, the models are failing and, despite the great and the good all claiming that we’ll all be baked, the general public has turned away from global warming alarm.

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Future Work

3d_printing-partsMy 14-year-old got a strange little cable from China the other day. It has a USB thingie at one end and a big honking industrial grade connector at the other. It came with a CD. To get it to work he had to partition his $15 ThinkPad’s hard drive, install Windows XP and then install the software. He can now do dealer level diagnostics on about sixty different sorts of older cars. It cost him $20 which he earned himself doing online reviews (big hint, diet pills don’t actually work.)

He got it running just after installing a new keyboard on my AIR – chocolate milk is not your friend as his younger brother has been learning. And before that he did a sketch-up version of a forty dollar plastic part for a BMW rear window awning which he sent off to an online 3D printing shop and which should be here for $15.00 for two, including shipping, in a couple of days.

One of the reasons why we homeschool is that I am pretty much convinced that the idea of a “job” economy where you punch assorted academic tickets and then take an entry-level position and work your way up is pretty much over. Yes, there will still be lots of STEM jobs where the ticket punching makes a lot of sense – you can’t design or build a serious integrated circuit without a good deal of electrical engineering training – but a lot of the other career paths manufacturing, banking, government, even teaching, are undergoing radical transformations. So are the low skill jobs like taxi driving and retail sales.

[I am going to ignore the AI elephant in the corner. Once that gets out of the lab a lot of bets are right off the table.]

The whole question of “what do you need to know to get a job” is a moving target. There is no question at all that the ladies at HR will be looking for “qualifications”. Captain Capitalism suggests that college has become a fourth layer of government in the US because you can’t get the good jobs without having passed through its sorting hat. I suspect he is right, he usually is. But it is the layer of government which is easiest to evade.

I went to college for a long time. I thoroughly enjoyed myself. I learned many things. I had an excellent time and would recommend the experience highly. I also started university when a year’s tuition was $450 and when I went to law school it was something like $2800. (Yes, I really am that old.) But to put it in perspective, I paid for a third and fourth year myself as well as grad school and law school with part-time jobs. It was totally doable. Now, as my elder son is finding, it is close to impossible.

The credential itself is a lovely thing but, by the time you are in your early thirties, no one ever asks what you did as an undergraduate. They are interested in what you can do for them right now.

Richard Feynman got off to a great start taking apart broken radios in the 1930’s. Eventually, he understood enough that he could actually fix the radios. He learned about locks and security systems and, eventually, noticed that a brittle O-ring brought down the Challenger and proved it with an elegant little experiment.

I am a huge fan of university. I am also aware that the life expectancy of my children is, as I write, something on the order of 100 and probably closer to 150. Taking four years when you are 25 or 30 to study something you are interested in makes a lot of sense. But, if you have a capacity and a curiosity about how stuff works and how to fix it, it may make a lot more sense to run with that for a few years in your late teens and early twenties. If there is a credential required, a trade ticket is forever. Robots will serve you that Big Mac, they will not rejig the fuel injection on your BMW or get your cooler to be cold.

Building apps is a wonderful thing. It is nice, clean work. Hacking code is lovely and it is very lucrative. The Google guys who made Sketch-up and 3D printers have given kids like my son the ability to make “things” which would have taken a complete machine shop to build a decade ago. And that is changing the nature of work in ways which make the entire idea of credentials seem rather quaint.

A kid who goes into a trade program already knowing how to make custom parts without the machine shop is in a different world. We didn’t teach Sam how to draft or how to take measurements with a set of digital calipers. We told him it was possible and that there was a need for a particular part. He taught himself the rest.

The new jobs are going to be the old jobs with new technology. Fixing your cooler will be the same set of HVAC issues but being able to scan and replicate the broken part changes the entire ball game. More importantly, knowing that it can be done is the key bit of knowledge which will change how work is done in the future.

The credential is a “nice to have”, the knowledge is essential.

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