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)

Wednesday, January 27, 2016

Being silly doesn’t count in January

‘    Crazy gets people’s attention. On this past Monday, if you’d googled “moderate” and “crazy” presidential candidates, you would have seen some 1.8-million searches for the moderates against some 34.3-million for the crazies. And that’s after a weekend of national speculation about Michael Bloomberg, a moderate as cool in power as Barack Obama.

     Reporters from Canada, Western Europe and Washington go forth carrying two big-league hooks in their heads. First, that that other network’s base is crazy and, second, even mature candidates must be liked by the crazies to win.

     W.B. Yeats’s “The Second Coming” and Hunter S. Thompson’s “Fear and Loathing on the Campaign Trail” juice up what they write. They see volcanic forces in church basements. After so many false starts, that crazy Dark Age is finally coming.

    Essentially, however, nothing is actually happening.

    Terrible scenarios are only scenarios. By and large, partisan audiences in Iowa don’t know what xenophobia means nor do they understand the ideological distinction between Donald Trump’s great wall and Barack Obama’s razor wire fences and his infinitesimal admittance of Syrian refugees verses Trump’s thunderous pause. At the same time, Senator Bernie Sanders’s passionate audiences don’t know how to be good “socialists” in the Democratic Party and don’t know whether Sanders knows how to be one either.

     Today’s favorables and rankings don’t tell us anything of lasting significance about today’s serious contenders or their audiences.

     In January, they twist what they think and pander to the wild eyes in the room. The Republicans simply offer a younger, wider selection. The gaucheness of the two top Republican candidates and the implausible Democrat from stolid Vermont mesmerize the media. But there’s zero evidence yet that a winning majority in either party has lost command of the distinction between entertainment and electing the next president. 

     If you’re thinking: now’s the time to emigrate to a quiet conservative place like Alberta or a quiet liberal place like Prince Edward Island, the following might settle you down.

     America’s most-liked politician is still boring Barack Obama. And he’s hardly suffering in silence. He still relishes being a target, coxing Republicans into sticky corners, and not being extreme.

     Overwhelmingly, the same Republicans and Democrats and Independents that will elect the next president have consistently elected self-proclaimed moderate presidents through the severe ups and downs since the collapse of the Soviet Union.

     It is impolite to say times are getting better—but for almost every single American who will turn up to vote in November, they are.

     Millenials are carrying amazingly optimistic levels of student and mortgage debt, as investors in the two quintessential elements of the American Dream.

     Whatever they wear on their heads or tell their grandchildren about Vietnam and the Detroit riots, the boomer voters own their homes and plenty of shares in nervous stocks.

      They drink, with a designated driver. They howl at the moon when it’s safebut not when they vote.

Thursday, January 21, 2016

Governor Poloz’s advice: You, not my bank, must change (Part 3)

Let’s agree that after 45 years of official indifference it’s time for our elected representatives and their agentthe Bank of Canadato acknowledge that the dollar’s exchange price is a public responsibility, not strictly a market responsibility. It’s time they set aside some of their busy, busy work for a big-policy deliberation. It being 2016, however, we can’t just leave them free and naked to think on their own.

After decades of official silence, what might the government say about the dollar’s value? In the spirit of incrementalism, here are three positions of escalating significance and consequence. All would aim to influence the government’s overall fiscal and monetary choices, how we and the market judge those choices.

Hopefully, they would enhance our credibility and bolster our purchasing power on this continent and globally:

1. Make a ‘Strong Dollar’ Declaration of Intent:

This would go well beyond in-camera meetings with government officials and public lectures by retired bank governor David Dodge. New York, London and Davos bankers wouldn’t be the primary audience. Canadians would be told that the bank governor, the PM and the minister of finance declare that their policies and economic vision will support a strong dollar, not rely on a cheap one. 

Along with full employment, structurally balanced budgets and stable prices, the government would accept that a stronger dollar must also be a public objective. A stronger dollar would be a tangible benchmark for consideration in the next election, as well as a benchmark in the bank governor’s and economic minister’s performance contracts. If Poloz isn’t enthusiastic, someone else should have the job.  

2. Pick a Number between 80 and 85 cents:

Instead of holding interest rates below those set by the US Federal Reserve, the Bank of Canada could intervene to hurry up the dollar’s recovery. Going back to at least 80 to 85 cents against the US dollar would provide immediate relief to consumers and place a transparent government performance test on the table. Those economists who so blithely argue that we can carry a $30-billion federal deficit should agree that the bank has the resources and credibility to defend a modest exchange rate target. It was pegged at 92.5+/-cents through the 60s when the Pearson Government created the CPP and Medicare, and negotiated the popular free trade Auto Pact with the US.

A value of 85 cents US would be a stretch for our least-cost-competitive industries. It would say, effectively, that if you can’t adjust, get into another line of business; ask for help, if need be, but stop expecting everyone else to stay 30% poorer. The bank would only have to intervene significantly in the currency markets if the government failed to secure the public and the market’s trust that it can govern within its means.

3. Make Getting Back to Parity a Medium-Term Objective:

The basic factors of production up hereworker skills, population age, public infrastructure, access to money, reputation for competent public administration and respect for individuals and property, urban density and global brandmake our growing-increasingly-diversified regions competitive with America’s own regional champions.

There is no security or excuse for perpetuating, as public policy, a currency below par. As they say: It’s not who we are.

All three proposals I sketched out would aim to take advantage, not alter who we are: a series of economic regions chasing the same material and social goals Janet Yellen’s US Federal Reserve is trying to serve. Yes, Canadian monetary policy (interest rates and money supply) and stabilization policy (government expenditures, taxes and deficits) would have to be in harmony with Washington policy.

Acknowledging that would still allow us to debate the underlying issue: Do we maximize who we are nowa capitalist satellite of the US and its Dream—or do we want to build another vision, be a more centralized social democracy or good ol fashion isolation.

But the status quo deserves better than a 70-cent dollar.

Monday, January 18, 2016

Governor Poloz’s advice: You, not my bank, must change (Part 2)

Monetary economists and real estate agents are shaking their heads these days. Listing and closing prices in Toronto are crazy and the exchange value of the loonie is crazy as well. This volatile state of affairs, however, actually proves to themand their peers internationallythat their commodity markets are working, free of effective political interference.

Volatility is a sign of good health; sangfroid is their faith.

The Bank of Canada introduced its Free Exchange Rate policy just after Richard Nixon freed the US dollar from the price of gold in 1971.

The tectonic plates of the post-war free world—the economies of Western Europe, the US and Japanhad shifted profoundly and the US simply couldn’t afford to keep pouring hundreds of millions into exchange markets to let others exchange US dollar bills for gold at the irresistible bargain price of $35 an ounce.

The cosmopolitans in our government decided that Canada should act as a flexible plate as well.

Governor Stephen Poloz stands by their decision as if it was an act of nature. He would have us accept that it’s only fit and proper for the bank to not worry about the dollar’s falling exchange value—because not worrying about the fate of the dollar allows the bank to concentrate exclusively on supporting domestic economic growth.

Rising prices for breakthrough foreign technologies, for a family reunion in Florida and for imported fresh vegetables are not his problem and, therefore, shouldn’t be ours. Trees don’t fall in forests because I’m deaf.

Such free market dogma is ironic especially in the Trudeau family’s Ottawa. At the time the bank formally renounced further bank interference in the currency markets, Pierre Trudeau’s government was shutting down entirely the reemergence of free market prices for domestic egg and dairy products.

There are powerful arguments supporting our faith” in markets. Private sector market forces will continue to drive and largely shape economic growth, with or without conservative think tanks and the shadow of Stephen Harper. But to work efficiently, markets need a little peace, as well as freedom, to “adjust.”

It would be neat if we had to pay a freely determined market price for each stamp we buy, each day, and each mile of highway and public transit we use each day; and if every toasty home and workplace had to pay for their exact distance from the source of electricity or natural gas they consumed each day. It’s plausible technically. Such an explosion of market signals would excite geeks, office accountants and hobby speculators. Yes, it would be disruptive.

Yet does the bracing uncertainty of daily price movements, with no logical long-term destination, work as a significant facilitator of positive adjustment?

Does the daily churning of daily market prices actually generate expensive, risky changes and long-term investments by individuals and their businesses?

Is the peaceful peso creating thousands more stable, middle-class careers in our tourist and entertainment industries in Vancouver, Calgary and Toronto compared to the so-called oil-dollar? 

Certainly, after more than four decades and as many business cycles, the evidence is in on the capital market’s response toor indifference towardvolatile changes in the value of the Canadian dollar. Investment in fixed assets and real estate has been spectacular; investment in manufacturing continues to lag even in what we thought was the doomed, arthritic American economy. Canada’s investment and, consequent, productivity per worker—the middle-class’s source of before-tax income growthcontinues to lag by between 20% and 25%.

Needless to say, spectacular investments in the mining and energy sectors have been driven by global commodity prices. Indeed, commodities drive the dollar—not the other way around.

Poloz has been around for a while. Instead of suggesting that flexible exchange rates help players in the economy, he should have said what he surely thinks: “Not complaining about what the dollar does to you allows me and other players in Canada’s governments to spend more to help you.”

He insists that his nonchalant, no-dollar policy is all the rage.

It’s what grownups do. Let’s look at the West’s club of champions, the G-7. The US, the Euro-zone and Japan, the world’s third- and Asia’s-largest market economy, accept that they rest on shifting continent-sized economic plates and must have currencies that float freely between them. Only the UK and Canadanot Germany, nor France, nor Italystill imagine themselves as so endowed with continent-sized characteristics, obligations, privileges and policy options deserving floating currencies of their own.

Canada, at least, is facing a day of reckoning: we are suffering by holding to the decision of 1971; we may suffer if we try something else. However, we can’t deny that we have options. Let’s debate those options. For one thing, it would demonstrate that we’ve got over the PTSD of the Nixon Years and can use our freedom to think out loud in 2016. 

(To be cont.)


Tuesday, January 12, 2016

Governor Poloz’s advice: You, not my bank, must change (Part 1)

My father, his father and their business and political heroes never missed a chance to warn me that I’d have to reckon with the power of big commercial bankers. While their voices are mere memories now, Hollywood economists dramatically sustain their message.

However, the most taxing idea we face today is not our faith in Bay Street bankers, but our deference toward the Bank of Canada and the pronouncements of its incumbent and retired governors.

These individuals have all mastered one trademanaging, without political interference, a currency. The trade’s skill standards are exceedingly high and widely accepted around the world. (Indeed, our last governor, Mark Carney, was poached to run the Bank of England.) Nevertheless, in Canada, the trade survives only because we accept that the Bank of Canada (BOC) is indispensable to the management of those Canadian regions that are part of North America’s gigantic, integrated, mixed economy.

Canada’s and the United Statess economic regionsroughly a dozen from coast to coast to coastare never in perfect harmony. Their growth and inflation pressures vary over time and that makes central management of money supplies and interest rates a complicated business. However, the existence of two full-fledged central banks—the Federal Reserve for 90% of that continental economy, and the Bank of Canada for the other 10%reflects a political choice on our side of a border, not a neat, deep separation of economic aspirations, demographic and material characteristics, and domestic and international markets.  

Dad didn’t urge me to question his cherished Canadian dollar and the public duties of its BOC managers in Ottawa. He was a frustrated businessman, not a monetary economist. Fine. However, neither academics, special interests, un-muzzled retired government economists, nor fringe political parties seem willing to offer any reasons to be skeptical as well. They’ll quibble over the Bank’s individual decisions, but not whether they should be making them.

What the Bank is alone free to do is not insignificant.

The untouchables in the Bank are effectively anointing economic winners and losers across the country. Income tax decisions by the new Trudeau government are, as promised, giving some back to middle-class parents and taking more from the infamous and statistically persistent 1%. However, the impacts of the Bank’s policy of cheap interest rates and its benign indifference toward our depressed dollar are far more fine-grained, and significant. Without changing their ways in any way, some companies will make windfall profits while others, along with millions of consumers, become immediately, noticeably poorer.

Being adults, we’re expected to act like adults and sigh. 

This past week, Governor Stephen Poloz philosophized on the front pages that hard times will roll on but that having a dollar worth 71 cents US is for the best. Our cheap dollar is good for those glamorous few export sectors that have been praying for one and, sadly, is a necessary “adjustment” for the rest of us. His homily against a strong dollar is both obtuse and emphatic:

“Movements in exchange rates are helping economies, including ours, make the adjustments that must take place,” Mr. Poloz said in his speech. “This is exactly why countries choose to have flexible exchange rates.”

Poloz’s dares you: If you object to the 71-cent dollar, you have to be prepared to object to flexible exchange rates—that is, not having our dollar’s value freely determined by what the global capital markets think itand Canada’s economywill be worth tomorrow morning.

However, it’s quite debatable whether the flexible value of our dollarfloating up and down between $0.70 and $1.10 US over the last 25 yearshas stimulated or actually frustrated “adjustments that must take place.” Further, adaptive economies elsewhere don’t necessarily choose flexible exchange rates, and adaptive economies elsewhere don’t necessarily need them. Rather, his modus operandi serves, above all, the unchallenged assumption that to be prosperous and competitive we need him, his institution and a separate dollar. 

(To be cont.)