Tag Archives: economy

Politics as if Economics Mattered

We are watching Greece being put into receivership for debts which, almost certainly, it will be unable to pay. We are watching the City of Chicago sink into a morass of unfunded pension liabilities and a school system which is effectively bankrupt. Ontario has had its credit rating downgraded with one economist noting “Ontario’s debt ratio “has risen by more than any other province” since the Great Recession.”

It is an endless refrain of crazed right wingers like myself that governments spending more than they take in is a bad idea. Oh sure, it can be a good idea for a year or two to keep the wolves from the door, but as soon as possible a government needs to put its budget in mild surplus.

We are about to enter the federal election season in Canada in earnest. At the moment we have a mild surplus in the last federal budget but that is almost certainly gone with the collapse in oil prices and thus tax revenue. And you don’t have to be much of a cynic to think that finding a billion dollar surplus six months before the election was pretty much a sure thing.

Now, the dangerous thing about elections is that the political class from all parties likes to run on a platform of “doing things”. Increasing the child tax benefit, going green, “child care, health care, job creation, renewable energy and investments in infrastructure” all cost money.

With a slowing economy, declining tax revenues, a tanking Canadian dollar, a rising trade deficit promising more spending looks more than a little nuts.

Promising to do more with less, to reduce non-essential federal programs, to reduce the overall percentage of GDP the federal government takes, reducing the size of government in real terms would all seem to make more sense in a shrinking economy.

But a really clever party would pay attention to the structural changes which are coming to the Canadian and the world economy. We have an aging population and we have a birth rate which is below replacement. We have housing prices which disrupt family formation. We have an immigration rate – from countries which have populations with little to offer Canada – which is hitting 300,000 new Canadians a year. We have an oil economy which makes very little sense at current oil prices. And, around the corner, we have everything from driverless trucks to robotic fast food. Add to this a legal, First Nations, environmentalist veto over critical resource infrastructure and projects and you have a nation which is fast running out of runway.

I have very little time for any of the three leaders or their parties; but I would be willing to vote for anyone of them which was willing to embrace policies which grew the real economy. A litmus test is looking at what Whynn is doing in Ontario and doing the exact opposite.

Canada has the capacity to use its abundant energy and other resources to create well paying jobs and thriving businesses. We have a stable society – for the moment – with sound banks and a legal/regulatory system which has avoided a good deal of the corruption which plagues our friend to the South. We should, by rights, be thriving. But we are not. A party or a leader who asks why we are not is on the right track.

A government committed to growing the Canadian economy will, in a short while, have the money to pursue its spending priorities. Before you slice the pie you have to bake it.

Wish there was one around.

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Real Banking

I suspect we are going to be seeing more of this:

The Bank of Dave was born. Today, hundreds of businessmen and women hold accounts at his modest town-centre shop, marking a return to the sort of old-fashioned, face-to-face banking that the big operators have mostly chosen to leave behind.

Read more: http://www.dailymail.co.uk/femail/article-2163604/Dave-Fishwick-How-self-millionaire-helped-firms-unable-loans-home-town.html#ixzz1yh3Zfra4

Strangely, the giant banking corporations have a very difficult time with the small businesses and small loans which power a large part of even the most modern economy. And, with tiny interest rates paid to depositors the entire edifice has ceased to make much sense for a significant segment of the public.

In Canada credit unions have, to some extent, stepped in; however, credit unions are really designed to deal with personal rather than business banking.

The Bank of Dave pays 5% to its “depositors” and lends at 8.9% to good credit risks. A little less than a four point spread. If Dave keeps his overheads down and actually manages his loan portfolio aggressively that spread should be enough to make a profit. And it has:

At the Bank of Dave, which opened in September, only one borrower has defaulted so far. Savings are pouring in and there is a waiting  list for investors. The bank is taking in about £25,000 a week and giving out about the same in loans. The £10,000 accrued in the first six months has been divided equally between five local charities.
http://www.dailymail.co.uk/femail/article-2163604/Dave-Fishwick-How-self-millionaire-helped-firms-unable-loans-home-town.html#ixzz1yh63VaJV

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Dislocation

“The [robotic] technology proposed appears to allow cutting and sewing at costs LESS THAN in China,” according to Softwear Automation’s website. “There is only one basic innovation required; that the metric of motion should not be meters or inches but rather thread count in the fill and warp directions.”

Success could spell out huge disruptions for workers as robots continue taking over human jobs in manufacturing and other industries. Low-paid workers in developing countries stand to lose out the most in this case, but U.S. workers won’t gain much, either. Still, U.S. businesses could once again regain a foothold in the garment industry and win back a share of international trade. mother nature network via the prof
The direct substitution of machines for men (and women) has been going on for a couple of centuries but we still really do not have much of a handle on its implications or its economics.
Propose for a moment that you can robotize clothing manufacture. What would be left is building the robots and the buildings in which they would function and then designing the clothes themselves and the fabric and doing routine maintenance on the ‘bots.
So while the clothes produced would be very cheap indeed there remains the question of who could actually afford to buy them?
This is an increasingly troublesome question as various working and middle class jobs fall of the table. Economically, from a Canadian or American perspective, a Vietnamese seamstress is pretty much the same as a robot. However, from her perspective, she is at least making some money which she will spend on goods and services of some sort.
Robots don’t spend money.
Now, various economically savvy types will suggest that the robots’ owners will make tones of money which they will spend. Perhaps. It depends on whether those owners are public companies with lots of shareholders who actually consume stuff, or if they are tightly held companies with very few owners who have a lot of money to spend…buying more robots.
And the economically savvy will also point out that the clothes made by the robots will be really, really cheap. Well, so are the clothes made by our Vietnamese seamstress. Making a t-shirt cost 10% less is not going to make it vastly more affordable to people who essentially have no income.
Trade economists talk about comparative advantage and Marxists mutter about the ownership of the means of production; but underlying such conversations is the assumption that it is, as a practical matter, impossible to directly substitute capital for labour in its entirety. The evolution of robotics is making that ever more possible.
Thinking hard about the implications of labour replacement devices and their impact on how we allocate income is something we should be doing right now. Before a robot comes up with a solution which makes sense for, well, robots.
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