Sunday, 28 April 2013

Bill S-7 & What it Means for the NDP

Earlier this week it was discovered that the RCMP had foiled a plot in which two individuals had planned to destroy a New York bound VIA train across the border.  In light of this revelation, the Harper government moved to introduce a bill in parliament that it was said would assist law enforcement officials unearth and disrupt such plots.  WIth nerves still raw following the Boston Marathon bombing and the ensuing manhunt, it’s no surprise this controversial piece of legislation was....controversial.  The Liberals, who had actually passed an earlier incarnation a decade earlier in response to the 9/11 attacks, wholeheartedly supported this Conservative bill.  This of course, led to the NDP landing the sole dissenting role.  While there are genuine concerns with Bill S-7, and very valid criticisms, there has also been very saddening politicking and partisanship on the NDP’s part, with some MPs making very dubious arguments, namely that Prime Minister John Diefenbaker would have “rolled in his grave” should he have known his own party was proposing such a law.  

While many point to the general deterioration in the NDP’s political capital, hastened by an ill-advised move to the centre, defections, and Thomas Mulcair’s generally abrasive attitude as reasons for a decline in its electoral fortunes, I’d say it’s just the petty, dumb, unhelpful and small-minded criticisms and comments that we’ve seen their MPs make in recent months. (Not to mention some pretty dumb policy wonks as well.)

In the last election, they won 103 seats, with 59 of those in Quebec.  Many heralded this “Orange Wave” as the beginning of an NDP resurgence that could down the road lead them to the PMO.  In reality, this shift to their party by Quebecers was generally fuelled by discontent with the Bloc, who had done a terrible job in Parliament pushing both a rather leftist agenda, and soft sovereignty.  First one must realize that what happened in Quebec was very similar to what nearly happened in the last Albertan elections, with the upstart and markedly more likeable Wildrose Party, a carbon copy of the ruling Conservatives minus the social conservatism, nearly capitalized on general discontent with the job the incumbents were doing.  The untested Wildrose did not really put anything too radical on the table, such as a comprehensive (and realistic) plan to diversify the economy.  Instead what happened was that they won seats and took on opposition status in legislature by doing what the NDP did; making themselves into a conduit by which the people could express dissatisfaction with the status quo.  When the people are satisfied, their electoral fortunes will fall.  When things aren’t going so great, it will rise.  The thing is, people who stumbled into the NDP fold looking for change in 2011 are increasingly shifting their support back to the Liberals, who emerged from a disastrous period in which they contemplated merging with the NDP.  With a young, charismatic leader, powerful political organizing machine and polls that say they are making headway across the country, Harper knows his greatest threat lies not with the Official Opposition, but with the party he decimated two year ago.  

But Stephen Harper doesn’t have much to worry about.  The Liberals’ upswing has generally been fuelled by NDP voters who are returning to the party they fled in droves.  The recent BOC economic outlook for the next two years was more optimistic than even Mr. Flaherty’s own prediction, and if they hold true, Canada is in a position to return to be back in the black by 2015, which is the current target, and an election year.  Jim Flaherty has said he is contemplating introducing income splitting should he eliminate the deficit on schedule.  Although this would cost roughly $1.5 billion, implementing something so politically popular going into an election would make it toxic for any party to try and repeal it.

The NDP rode a wave of discontent to (almost) the top.  And now that same wave will bring them back down to earth.  In an attempt to keep the voters they wooed in 2011, they dropped the most overtly socialist sections of their party manifesto, moving to the centre left, traditionally Liberal territory.  People who vote centre-left would much rather trust the party that’s been doing it for over a century, especially now that it’s found its mojo again.  Bloc voters, generally very leftist (explains the absence of a Conservative Party provincially and general scarcity of Conservative MPs from the province) and a significant chunk of the seats they lost in the last election should return.  Combined with a lack of anything that would compel the populace to vote NDP, there isn’t really anywhere for them to go except down.  FIPA notwithstanding, the Conservatives generally have pulled the right strings with regards to foreign policy, and when there is some unforced error that does come to light, the NDP sound like a bunch of whining teenagers, content to complain and just point blame instead of working towards a genuine solution, something that should be the hallmark of any opposition party.

Monday, 1 April 2013

The African Enigma: Aid (Part 1)

Africa is a perplexing case study for even the most seasoned economist.  Home to over a billion people, and tremendous growth in recent years (Ethiopia posted GDP growth upwards of 11% in 2012),the continent is also home to its fair share of troubles.  The birthplace of humanity is now it's laggard, subjected to centuries of harsh colonialism that has left the continent drenched in blood to this very day.  There is, however, change afoot.  Opportunities abundant, in this multiple-part series, we'll delve into just what Africa presents investors with.

Take a look at global GDP growth in 2012, and you may notice that the biggest movers were African. (Not always in the good way, South Sudan's infantile economy contracted a whopping 55%)  Libya's recovering economy, subjected to a damaging civil war in 2011, experienced 121.9% growth last year, and war-torn Sierra Leone posted a 21.3% increase in GDP.  Now just what do these numbers mean?

  Observing, and ultimately forecasting economic data about Africa is an exercise in economics, but one must also take into account various geo-political factors, history, and tribal allegiances that still play such an important role in day-to-day African life today.  It's mainly been a lack of understanding of this (as well as the lingering traumatic aftermath of colonial rule) that has caused Africa to remain "the final frontier" of economic development.  Why has African development over the last 60 years generally been sluggish at best?

From the establishment of JFK's Peace Corps in the early 60s, most Western attempts at development of Africa revolved around a smaller, grassroots humanitarian effort.  This is great when faced with sudden disasters, (man made or otherwise) such as wars, famine or floods, where immediate short term help is required.  The problem arises when either 1) this short term aid becomes extended into an annual event which donor countries end up budgeting for, or 2) the projects become so large/unsustainable that they turn into "white elephants", accomplishing nothing while just wasting everyone's money.  For a great example of this we turn to 1970s Tanzania.

In 1976, President Julius Nyerere, despite horrible stewardship of the economy (By the time he left office in 1985, Tanzania was one of the largest recipients of foreign aid in the world, and a substantial portion of it's budget was funded by foreign donor states), he made significant strides in healthcare and education, mostly by way of his pledges to make both accessible to every Tanzanian.  In a bid to help Nyerere out with his education plan, the World Bank thought they could kill two birds with one stone by building a pulp refinery that could create paper upon which textbooks could then be printed, in essence creating a new industry, and making the education reforms instituted by the government beneficial in the short term as well.  All fine and well on paper, but the reality was much different in that the suits back in Washington chose to overlook one key detail; The Tanzanians had no idea whatsoever about how to run such a plant.  The one thing that might have provided the greatest long term benefit, funding for training and education programs, was not even budgeted for in the project, for fear of the project being deemed too costly by executives across the Atlantic.  To make a long story short, the project blew up in their faces, and Tanzania was left paying the bills for this disastrous exercise in aid that for some reason it seems nobody (except maybe the Chinese) learnt from.

So just what needs to be done?  In Canada, when the CIDA, the Canadian government's aid agency, was rolled into the Foreign Affairs department, people were outraged, with German media conglomerate Deutsche Wells bemoaning the "top down control" the Harper government maintained on just about every aspect of Canadian domestic and foreign policy, and how it would negatively impact people desperately in need of aid.  Despite the perceived negative reaction by certain news outlets, this may have been the smartest thing done by a developed country when it comes to foreign development in decades.  By tying foreign aid to Canada's foreign affairs and trade department, it'll ensure that Canadian aid dollars are spent more effectively, where they can do the most good.   In announcing the move, the government touted aligning our aid and foreign development policy with trade and foreign policy goals would slash bureaucracy, reduce administrative costs and mean that the agency would now be better placed to provide long term development assistance to places that require it, more so than continued food aid, or large sums of cash that often end up unaccounted for.  Countries such as Myanmar, Afghanistan, Nigeria, Egypt and Indonesia are countries that require help, whether through expanded guest worker programs, loans, grants or training.  Coincidentally these countries that Canada has determined present potential trade partners, with explosive growth opportunities.  Some people say that this signals the onset of a new type of foreign aid policy, one where the government is motivated by profit.  To those people, I propose a question; Is there anything inherently wrong with making a profit, so long as it doesn't overtake administering aid as the primary goal?  Now of course these same people will clamour that commercial interests would surely do just that, but a legislative framework, something lacking before, is soon to be put in place, which should allay those fears.  

800 million people have been lifted out of poverty globally since 1990.  The amount of people without access to clean drinking water halved.  Great progress has been made in the fight to eradicate global poverty.  What is interesting to note about these statistics, however, is that very little, if any, of this can attributed to the billions of dollars poured into countries over the same period.  rather, trade liberalization, wider proliferation of development loans, and greater availability of productivity-enhancing technologies.  Government aid agencies must retool and refocus on ensuring that these enablers of progress are within reach of countries that need them.  It is only then when the world can once and for all end rampant poverty, and move toward a new era of shared, sustainable prosperity.

Wednesday, 2 January 2013

Lose the Countdown: Why the talk about the "Fiscal Cliff" is overblown

One only has to look at CNBC or CNN to see these apocalyptic "Countdown to the Fiscal Cliff" timelines that pretty much distort the picture.  What should have been a simple re-adjustment of fiscal goals in light of economic conditions has suddenly turned into a giant proverbial partisan volleyball game, with the President and Democratic Senate pitted against the Republican-filled house, lobbing the ball of public opinion into the others' corner.  Last night's dramatic finish saw the Senate passed an emergency set of laws to sort of delay the fiscal cliff and soften the landing should they go over. There wasn't much anyone could do except sit close to their T.V and pray that Speaker Boehner would cut the brinkmanship and actually work towards avoiding plunging the United States into what could be a long and protracted recession, and an extended period of slow growth that could put a cap on the economy for years.  But the vital thing to keep in mind here is that this whole circus is a MANUFACTURED crisis, and really is only a a question because of the partisan bickering of both houses in the wonderful Bicameral system the United States has been blessed with.  What should have been a simple fiscal decision to stagger spending cuts and lower taxes has been hijacked by ideology and a certain pledge named after the always charming Grover Norquist.    

To understand the Fiscal cliff one must roughly understand the economy.  A rough but easy way to look at it would be to visualize the economy as a bucket, with taps injecting water, or economic activity into the economy, and drains, leaking economic activity out of it.  The "injections" would basically include investments, exports, consumer spending and the golden ticket in our case, government spending.  On the flip side, there's savings, imports, and the other key word, taxes.  In biology they teach you about an ecosystem's "carrying capacity", or just how much a population it can hold.  Well the economy works in a similar way.  There's an equilibrium where economic growth is sustainable and that is where fiscal and monetary policy combined come together to strive for this equilibrium.  The "Fiscal Cliff"  has the potential to be a destabilizing force in the economy because now government injections in the economy because what it would've done was hiked taxes, "draining" more economic activity, and lowered government "injections" into the economy moving the economy below the desired equilibrium.  But in economics everything is related, and  this would have the effect of curtailing business investment as profits are squeezed which would spin-off into other business sectors that rely on corporate investment which would cause layoffs reducing consumer spending as purchasing power declines, etc.  As you can see, the ripple effect could have serious effect on the economy that Ben Bernanke and the Fed would be pretty much useless to try and stop, considering the huge balance sheet it's accumulated through previous stimulus measures.

So things seem pretty dire judging from the economics of it all, and as a result CNN wouldn't be too far off the money with that countdown to the cliff would they?  Nope.  Congress had the option, not to mention the time to deal with this all the way back since they, characteristically like the 112th Congress, they agreed to raise the debt ceiling in yet another 11th hour deal.  And keeping with the indicators, Congress did not disappoint.  They had about a year and a half to talk about an important issue that would effect possibly millions of Americans.  Instead they resorted to a policy of brinkmanship, confrontational showdowns and concocted dumb rules they ended up breaking anyways like the unrealistic "Boehner Rule".  Not to mention making pledges that then held them hostage to the whims of one very partisan group, something that runs against the very nature of democracy itself.  Those countdowns served no purpose other than to panic political pundits and the general public, and maybe expose just how gridlocked Congress is.

At midnight when the ball dropped in Times Square there wasn't a magic switch that went off that all of a sudden plunged the United States into a recession and wiped out trillions of dollars from the global economy.  Only when businesses and people would be forced into paying more taxes and the government tap squeaked shut would we have seen any substantial real reaction.  That would've given Congress about a month to hammer out a deal. The important thing to note is that they should not have needed a month, as this was something that could have been solved by the time the Republican caucuses were taking place.  Things that had been politicized heavily such as a tax hike on the top 2% and defense and medicare spending held up negotiations and negotiations are still ongoing as the relatively over hyped sequesters, which don't cut spending but decrease projected increases in spending and find savings through "inefficiencies".  The deficit is still projected to increase by a large amount, although this is a good start.  It's been more than a decade since America has seen a surplus, and years of fiscal irresponsibility and financial imprudence have taken their toll on the country.  Of course markets may have dropped should Congress have failed to reach an agreement by the time markets had opened on the 2nd, but that's controlled by two of the worst  human emotions:  Fear and Greed.  The stock market cannot be used as a barometer of the health of the economy immediately following an event of mass economic hysteria.  Last night the Nasdaq Futures index was up around 400 points, an indicator of the bull market that took hold today.  And yet the American and global economy are not in much of a safer position now than they were 72 hours ago.  So CNN, lose the hysterical pundits and doomsday clocks, because sure catastrophe is fully possible, but this isn't the Dark Knight Rises.  There's no nuclear bomb sitting in the back of a truck with a timer saying when it's going to go off.