Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Friday, July 31, 2015

National Keynesianism and democracy’s optimal playground (part 2)

There are two broad arguments used to defend the floating loonie: (1) its price is set in the capital markets and, therefore, is above politics and amateur discussion; (2) dropping it for the best alternative (US dollar) would immediately disrupt and permanently limit the Canadian government’s ability to maintain stable growth and pursue independent commercial policies. Both defenses have effectively gone unchallenged over 45 years of business cycles and swings in Canadian confidence and disdain for the elephant down there.

The first defense is probably the best. Our float, ladies and gentlemen, only performs at its best when those fidgety politicians and their wonks are perfectly still. Having agreed on all sides that complaining is bad form, it costs little politically to support it. The loonie’s devaluation (that nasty new 23% tax) does hurt us, of course. That hurt, however, is not something top performers at the Bank of Canada need feel for us, let alone address.

Last week, in the Report on Business section of the Globe and Mail, David Parkinson wrote a story entitled “Why the Bank Doesn’t Care About the Recent Inflation Numbers.” If he’d been writing about similar machinations in the Vatican, it would have been on the front page. Here’s Parkinson’s clean explanation on why it’s simply not discussable to worry that Canada’s core inflation rate, for the last 11 months, has been above the bank’s own 2%  ceiling:

“In its closely watched quarterly Monetary Policy Report this week, the bank reiterated something it has been saying for a while now: That the core rate is overstating the true underlying inflation in the Canadian economy. It is being juiced by some temporary rises in a few isolated components of CPI, and, more importantly, by what it calls the ‘pass-through effects’ of the Canadian dollar’s depreciation over the past year or so.”

The bank and its accountable governor can "pass through" the pricing of the Canadian dollar to the capital markets, but Canadians cannot "pass through" the affects. They must absorb them.

Devaluation, nudged by bank-rate cuts and deprecating statements about the economy by the governor, is prized in private by Keynesians as the only civilized way to “adjust” costs (wages, salaries, and benefits) in industries that can’t seem to keep up when the dollar was strong. It tightens everyone’s belts—supposedly to give failing industry’s space to reorganize to meet competitive pressures. This gentle, opaque process leaves our politicians unscathed—and, unfortunately, the economy’s 20% productivity gap unscathed as well.

The second defense idles in the distance, like Napoleon’s fearsome reserves. Literally, Canada’s freedom to act as a G-7 power requires that we accept the inconveniences and uncertainties of a standalone, floating Canadian currency.

In 1927, American jurist Oliver Wendell Holmes well served tax collectors everywhere when he explained that we pay taxes for living in a civilized society. In 1971, President Richard Nixon floated the US dollar in order to give Washington more freedom to manage the US economy within a severely changing global context. Ottawa still thinks that Nixon’s medicine for America was meant for Canada too.

Ottawa’s economic policy professionals insist that Ottawa needs a bank of its own that’s free to execute a responsive monetary policy for a uniquely Canadian economy. This flattering assertion rests on equally flattering assumptions. Canada’s economic circumstances are unlike America’s; its material aspirations, demographics pressures, trade prospects, business culture, and commitment to low inflation and full employment targets deserve the obeisance of a dedicated, separate dollar.

The historical adjustment mechanism of internal migration by people and capital from low wage and declining regions to more dynamic industries and regions, apparently, won’t happen continent-wide unless we totally erase our border.

Are Germans learning French? Has their common currency—the euro—turned French workers into Prussians? Do New Yorkers send their kids en masse to live in Houston to bolster national unity? Do Californians vote en masse like voters in New Orleans, Louisiana or Fargo, North Dakota? Does either of our two currency areas have in place a fiscal mechanism to deal automatically with economic shocks and Greek-style state bankruptcies that might befall some regions and not others? 


When Alberta is booming, is not Texas too? When Ontario is losing jobs to Mexico, does Michigan not as well? When jobs are scarce in Nova Scotia, are they not scarce in Maine? When real estate prices are white-hot in Toronto and Vancouver, are they not rising dangerously in booming US cities as well? Can you think of a year of depression in the US that didn’t depress most regions of Canada as well? 

A Keynesian from Mars would see that our two currency areas are highly diversified and viable—and divided from each other unnecessarily.

That’s an assertion that Martians and individual Canadians can make without making matters worse for the battered dollar they’re still stuck with. Wouldn’t it be lovely if we could have an informal discussion on the subject while the politicians are wholly preoccupied with market-tested election clichés?

Tuesday, July 28, 2015

National Keynesianism and democracy’s optimal playground (part 1)

Canadians of every income class are paying a new (and rising) 23% import and travel tax for the privilege of having a dollar that’s free to bob like a cork—a cork that magically accommodates Ottawa’s management manual for Canada’s internally loose and externally entangled economy. Do they in return, however, receive superior government for keeping a standalone, supposedly market-priced Canadian dollar?

Paul Krugman and other Keynesian scholars living offshore in New York and London admire our cork and believe that eurozone members—especially Greece—are suffering terribly because they no longer have corks of their own floating, in a sea of trouble.

The Canadian Nobel Prize economist Robert Mundell developed an alternative concept of transnational Optimal Currency Areas that helped convince the 17 eurozone governments to replace their individual currencies by creating the euro, in 1999. They hoped their OCA inspiration would do a better job of expanding prosperity and peaceful trade than continuing to let Europe’s tangle of national borders justify its tangle of currencies.

Canada’s state intelligentsia, to this day, barely gives the case for a transnational Canada-US currency the time of day. Overwhelmingly, those in the know insist that the status quo is optimum, that Canada’s economy is too different from that giant economy to the south to forgo having a cork of its own. And besides, why would our cork interest global thinkers in Washington?

As is so often the case, economic jargon and wonky gossip disguise raw self-interest and legitimate politics.

Friends of the Canadian dollar place the pursuit of national full employment and income equality over the pursuit of wider regional efficiencies and productivity. Proponents of a wider currency area, on the other hand, stretch “optimum” for the sake of distant liberal free trade benefits. Twentieth-century vested interests—in Canada’s auto industry, for instance—use “optimum” to justify not buying anything that’s not a perfect fit, immediately.

Certainly, the gap between the mixed economies of Germany and Greece is painfully greater than the six national borders between them. However, that gap between Canada and the US depends today less on one border and more on exactly where you live and work within either federation. Keynesians in both capitals are chasing the same economic growth imperative, almost in tandem, quarter-after-quarter, and, instantly, over the phone in emergencies.

North American business site-locators and investors carefully study regional census data, business cycles, and shifting consumer preferences. They worry little, however, about the respective professionalism of regulators and public servants or the chances of a comeback by Marx in Saskatchewan or even radical left or right separatists in Quebec or anywhere else. Cross-border Canadian and American white-collar and blue-collar workers ask about the quality of local schools, not whether they’ll be shunned in the workplace and in neighborhood stores.

Still, being human, government monetary economists are not likely to decide en mass that their lucrative, highly technical skills are unnecessary and serve an unnecessary currency. They will continue to believe and avow that there exists no sophisticated alternative to the Canadian status quo.

Okay, they needn’t be muzzled—but they shouldn’t own the podium.  

Whatever the ideological hype of their government, the Greek public overwhelmingly favors keeping the euro and seems ready to keep sacrificing to avoid going back to the glorious days of a sovereign drachma.

The euro represents in Greece not merely peace of mind for tourists and foreign investors, but now also genuine restraint on mischievous Greek governments that, in the past, artificially inflated their economy in order to finance extravagant and crony government. And while the eurozone doesn’t have a formal “sharing” fiscal union to complement its currency union, Greeks surely note that Greece has received—and is receiving—hundreds of billions of euros in help, in large part, because it’s in the euro currency union.

Greek middle classes and entrepreneurs are asserting the benefits of a common currency, believing it serves their interests, if not the interests of individual state managers. Canadians aren’t hurting as much and are more deferential.

Yet Canada is an exceptionally safe place to think out loud. We’ve done ourselves little harm when we’ve tried it before.

The Bank of Canada isn’t holding a gun to our heads. It merely represents a set of pro-loonie defenses that puff up the benefits of the loonie and shrug away the price we pay in forgone purchasing, in lower productivity, and in our ability to move money, products, labor, and ideas back and forth across our defenseless border.


Thursday, July 16, 2015

Blessed are the closers

Whether we agree with everything Angela Merkel and Barack Obama resolved in unfriendly but decisive negotiations with Greece and Iran this week, we should celebrate that closers still make it to the top in these perilous times.

Nothing in the rulebook of contemporary politics favors closing. Endlessly spinning good intentions, turning disputes over to judges or public commissions, or simply waiting on the sidelines to attack is always safer than bringing the game to a stop.

Yet some of the people we elect do step out of the routines of the status quo. They don’t just show up for the group photo and sit as long as it takes to complete the agenda. The closers own the outcome. And that, gloriously, sets them apart.

Intelligent closers don’t look for wins compulsively or squander capital simply to help sex up a communiqué. They are disciplined by the fact that when they truly win big, they risk their futures and limit their appeal as well as make their mark.

The forgiving machinery of simply carrying on is rudely sidelined, and its busy helpers are diminished. Professional survivors feel smaller. Those great decisions that pay off over time can leave the most cerebral conferences with the feel of Waterloo the next morning.

Barack Obama will never be a left-liberal icon, let alone a cocktail socialist, after securing universal health care without a single public insurer. And Pierre Trudeau’s liberal constitutional legacy includes tacky accommodations: for instance, an unelected Senate and the Charter’s notwithstanding override.

Closers learn later, after the deed is done, whether they were liberators or bullies, whether they secured “peace in our time” or were appeasers, whether they will be honored at, or not invited to, their party’s next convention.

In our neighborhood, today, we’ll soon find out whether Stephen Harper will betray dairy farmers or win equal access to the burgeoning Pacific free trade area. Later this year, we may find out whether the leader of Canada’s Liberal Party can support, conceivably join, a left government not led by a Liberal.

But let’s acknowledge that the drama of closing also includes the bracing chance that closers can pay with their careers and, if not recently, with their lives. Canada’s unsung closer today must surely be Shawn Atleo, former National Chief of First Nations, who paid with his career for negotiating and, then, actually signing a new Aboriginal education framework with a Prime Minister every grassroots lobby loves to hate.

Tuesday, July 7, 2015

Pax Canadiana and the tragedy of the 4th of July

With the same calm sense we display on Canada Day, we turn to reflect on the neighbor’s Fourth of July. Typically, our comments are admiring, with only a wry reference to their exuberance and our civility. We note contemporary shortcomings in both federations and generally leave the past alone. But there’s a restless spirit in the land: imagine how better things would be if British North America, rather than the United States of America, led the world.

Here’s Conrad Black, the dream’s most popular voice, in his clearest English:

“If the Americans had just remained within the British Empire, they would have been running it in one long lifetime, would have ruled the world less than a century after Yorktown, would have made short work of any Confederate insurrection, and would have avoided the World Wars. (Not even Germany’s hyperactive Kaiser would have gone to war simultaneously against Britain, France, Russia, and the U.S.) The Declaration of Independence, 239 years ago, defamed poor old George III and even accused him of trying to impose French civil law on Americans.”

Of course. John Adams, Thomas Jefferson, and all the other defamers of British rule would have (1) left notions of popular liberty to mature within the vast machinery of Britain’s empire and its Parliament or (2) they would have been hung.

Set aside all that the defamers inspired (supremacy of a citizen’s bill of rights, constitutional separation of powers, democratic federalism, a transcontinental political and economic union, the Atlantic Charter, the UN Declaration of Human Rights, Abraham Lincoln and Jazz, for starters) that, presumably, for lack of space, Black had to set aside.

Let’s go along with the proposition that the Europeans in the four original Canadian and the 13 original American colonies carried on as loyal British subjects.

Let’s grant that the less vehement and less arrogant voices on the two sides of the Atlantic had held the old heart and the young heart of the 18th-century British Empire intact.

Let Black savor the consequences of choosing “peace, order and good government” rather than “life, liberty and the pursuit of happiness” as the management vision for, at least, an economic and security commonwealth of the British colonies.

Imagine the old souls of the Westminster Parliamentary model keeping their grip on the machinery of government from the North Atlantic right down to Bermuda’s cane fields.

But that’s as far as Black’s British North America has the right to rearrange modern history on this continent.

Black suggests that in one “long lifetime” the English-speaking empire would peacefully move its head office and then lead a global talk-shop commonwealth—without, of course, the “gridlock” of America’s decentralized system of popular government. I should live so long.

The assumption that Tory loyalists would have promptly accommodated America’s ruthless, unruly mass immigration and their expansion west or would have promptly paid off their slave-holding aristocrats defies how they played the US Civil War and how they micro-managed the settlement of Western Canada.

Furthermore, would those British loyalists have actually received an offer from Napoleon to purchase the vast Louisiana territories? Without Motor City and the resources, industries and uncouth human capital from there to LA, would the loyal colonies of 1776 have stopped the Germans twice and won a global cold war on behalf of all sides of Westminster’s Parliament?

The implied narrative that the British Empire would, on its own, become less imperial defies precedent, including Britain’s own behavior in India and Africa. It didn’t even surrender unconditional independence to its loyal white dominions until well after WWI.
Great Britain lost the leadership of the English-speaking world before it decided to concentrate on being more civilized and a better listener than America.

There’s nothing wrong with being lucky, if you don’t confuse luck with virtue. The English Channel and the liberal American union, in fact, have helped mightily keep their island free and their liberal influence global.

Rather than "what ifs" to slag each other, it’s time we transcended the trivial insults of the 18th century and congratulate ourselves on the many smart ways both sides of the Atlantic have taken advantage of their dumb luck.

Wednesday, June 24, 2015

Hillary Clinton and “The Base”

Progressives have perfected a lethal poli-sci-sounding complaint about their right-wing opponents: they pander to their base—and, gosh, with a base full of small-minded bigots, it’s little wonder conservative leaders can’t be intelligent about the oh-so-complex challenges facing governments today.

After the Great Depression, conservatives—both the aloof elitists and the faux populists—toiled at marketing-pleasing labels for themselves. Nixon’s “silent majority” and John Diefenbaker’s “un-hyphenated Canadians” were especially successful; conservative politicians stopped being seen as incompetent WASPs.

In this new century, however, conservatives have largely suffered profitably in silence.  

Letting their opponents describe their supporters in almost lurid terms has helped keep that base militant. However, it complicates things for conservatives stuck in opposition or, in Stephen Harper’s case, without anywhere near enough votes to win in October.

Representing a militant base doesn’t win the center. Independents in both countries avoid cell groups and movements; they don’t vote for bigger government or for throwing civil servants living just next door out of work. They leave the unpleasant stuff to elected governments.

The qualifier for conservative and progressive politicians who want to win national elections is to serve a broader purpose than redressing the grievances and florid dreams of their most righteous partisans. 

The center isn’t smarter than the wings, who care the most. Its hot buttons, however, are different. The center wants presidents and prime ministers who are strong enough to represent them without having to hit the streets and make as much noise as the extremes.

Hillary Clinton doesn’t have an experience problem—or advantage. She’s spent all her quality time, all her life, with smart people, she ran for president before, and thrives in Manhattan. She doesn’t need training wheels and is given no slack for gaffes or innocent mistakes. 

Yet she’s already put her savvy and her character in doubt on a test no president has failed since the 1920s: free trade verses protection.

Her decision to oppose last week’s fast-track legislation to allow Barack Obama to complete the negotiation of a free-trade agreement with American allies and market economies next to China kept her “base” content—last week.

But last week’s pander won’t be her last. Her “base” didn’t kill the trade negotiations, negotiations that she helped launch. Instead she’s generated sticky questions about her political judgment, policy smarts and integrity. She has a lot more bowing to do.

Did her endlessly calculating machine figure out what she’ll say when Congress does, in fact, give Obama a second chance and, when he does, in the end, secure the TAPP free-trade agreement?

Will Clinton remain opposed? And if so, has she figured out how to confront China without allies who trust her?

Will she end up pressured to support Obama? If so, what happens to the family conceit of being smarter and tougher than the lame duck family in the White House?

Has she concocted a bold, courageous, original idea to wipe clean the impression today that she can’t stand up to the most reactionary elements of her “base” and Senator Bernie Sanders, an opinionated windbag from Vermont?

Centrists in the US and in Canada don’t see themselves as trade or diplomacy experts but they worry about the global economy and China. And they will likely not vote for leaders who worry more about the sensibilities of their “base.”