Relentlessly Progressive Political Economy

I am starting to get a sense of why they picked Guadeloupe .

On the mass cultural front I alway seem to be a dollar short and a day late. Intense, poetic, political and beautiful. In short, a working definition of revolution.

The artist, a graduate student, calls it cheezie. I would hate to know what he thinks qualifies as serious. Too bad he feels the need to give a nod to post-modern chic to keep his cool. I would call that the consequence of vanilla rain: Shhhhh…don’t mention the war–class, race and gender = revolution.  But then you would have to believe in progress.  Happy easter.

My favorite quote:

Chocolate Rain
Dirty secrets of economy
Chocolate Rain
Turns that body into GDP
Chocolate Rain
The bell curve blames the baby’s DNA
Chocolate Rain
But test scores are how much the parents make
Chocolate Rain

Chocolate Rain by Tay Zonday

2007 Chocolate-Rain.com

Hey Dalton do you think you could display your desperate hand any more blithely? Can you really find nothing in the agreement that you would like to see improved? You would be against strengthening labour rights in the agreement? You would be against strengthening environmental protection? You would be against including soft wood? You would be against dealing with US agricultural subsidies? You can’t think of one thing you would want to see improved in NAFTA?

And if you really can’t, and if you really just want to keep the deal as is, and you really believe either of the two democratic clowns would actually renegotiate NAFTA, why would you write an article in the FT displaying just how desperate your position is if you sincerely believe Canada might have to sit at the negotiating table in the future?

It is one thing to be governed by evil men, it is quite another to be ruled by fools–to paraphrase Plato.

I think foreign trade falls under federal jurisdiction best you keep to your provincial bailiwick.

John Plender of FT wrote an article in today’s FT which is worth a read.

This rather innocuously titled piece Insight: Central bankers face a perplexing paradox concludes in the following manner:

The Fed is clearly in rate cutting mode for the forseeable future. This is a boon for the banks, who can play the yield curve, deploying low cost funds in higher yielding longer term assets. But too little of the benefit of rate cuts finds its way to end borrowers. The chances are that even when the present recession is over, the US economy will be condemned to a long period of below potential growth. It will thus be difficult for the Fed to address the inflationary side of the stagflation equation.

In countries like the US and the UK which have borrowed very heavily, this problem will be exacerbated by currency devaluations. A weak currency is part of the mechanism for correcting imbalances in their economies. Yet plunging currencies can have inflationary consequences. This will most obviously be the case with food and energy. But the wider question is how far companies will be able to pass on rising input prices, which in the UK have recently been soaring at a phenomenal annual rate of more than 19 per cent. Equally interesting is whether the fear of unemployment will be enough to prevent workers everywhere demanding higher wages to cope with rising living costs.

The risk in this nightmarish time for economic policymaking is that central bankers will leave policy too loose for too long. The bond markets offer no anti-inflationary backstop. Excess savings in Asia and the petro economies have caused the euthanasia of the bond vigilantes of yesteryear. Disinflation is dead. We may soon need a new Paul Volcker.

The first concluding paragraph represents what could be called the the consensus among conservative pessimists.

The second considers the likely path of adjustment and wonders out loud if inflation can be solved on the backs of workers.

The third councils that in the case workers don’t respond appropriately to increasing rates of unemployment that it will once again be time to bring the hammer down on workers by engineering relatively high and sustained rates of unemployment. And thus disinflation of wages.
If such becomes the case I am not sure how it can be sold ideologically. I think politics are going to get more interesting not less.

Imagine that your fortunes have been on the decline for some time and that your rich uncle, who had been bailing you out of every hubris induced mess that you had gotten yourself into, looks like even his patience and power is running thin. Now imagine that, owing to your previous misdeeds, a populist sheriff is promising to catch-up to you and make you a public spectacle.

Now imagine that yesterday the Sheriff himself was busted and that today your rich uncle stepped in with another bag of loot and convinced his rich friends also to pony-up  and underwrite your misadventures. I would say it is time to celebrate.

Spitzer is going down for the trivial crime of having visited a bordello. Whether he goes all the way down is not important. His ability to vault his career off the back of a populist campaign against the banks for their sub-prime crimes is all but stymied. And today the Fed showed up with an additional 200 billion of Liquidity/Equity.

I have now lost track of all the direct and indirect forms of Liquidity/Equity the fed and other CBs have pumped into the financial markets and all the dubious forms of asset classes they have been willing to accept.

But someone needs to ask their professor of economics how all this fits into orthodox price, risk and agency theory.

If your prof is a New Keynesian he or she will perhaps just smile. If not expect a bad grade. And then you too will start to complete the Devil Shift.

But will that be because of your bias or their power?

Travis Fast

I have to say it is with some relish that I have been watching the FED and other CBs attempt to grapple with the macroeconomic straight-jacket that neoliberalism built. It is fun watching the rather lackluster attempts at coordination. And there is some more joy to be had in the realisation that having either gutted or in their failure to create the institutional capacity for real macroeconomic coordination that the CBs are pushing on an inflation (bubble ) laden closed straw.

It is not easy to find a metaphor let alone a well specified macroeconomic model to capture the present conjuncture but let me try.

Imagine you have a straw with elastic walls which is filled with water, sealed on the two ends and there is an air bubble protruding in one section. Now try to work the bubble out of the straw without puncturing the straw or letting any water escape. good luck.

No workers to blame this time around, no welfare queens, no burdensome social legislation, no government crowding out –just the markets.

Apparently the BOC has decided that delinking is a myth. Or have they? The statement by the Governor included the curious justification for the interest rate cut via the suggestion that it would help insulate Canada from the deterioration south of the border. The elite in Canada really need to keep their story straight. For years we were told that Canada’s fortunes were inextricably tied to the fate of the US economy and that continentalism was not just the right ideology but the de facto status quo. Now we are being sold the tale that Canada is delinked from the US or that by some monetary magic Canada can insulate itself from the US.

Sorry, the appropriate image of Canada’s structural dependence is that we are a boat and the US is the Atlantic ocean. We rise and fall with the tide.

And while it is all fine and dandy to proffer a series of short term measures which might ease the macroeconomic pain, we might just want to open up the debate about industrial policy, long term macroeconomic management and the kind of distribution of income and assets we want to see for future generations. The CAW has produced a document which is a good start in this direction (sans any no strike clause that is).

Furthermore, we need to stop talking in liberal economic terms like free trade. What we have is a managed trade regime at three different spatial scales–just look at any trade deal, they are incredibly detailed. It has never been a question of free trade or autarky; it is a debate about the kind of managed trade regime we want. We already have manged trade and investment how could we manage it differently is the real question?

Travis Fast

Wow. The time lag I predicted was almost non existent. According to the new StatsCan report the economic output contracted by 0.7% in December. I would claim some savvy in my prediction that decoupling was a myth, but any child with grade eight math knew that the Delinking story was fantasy. And now things are going to get worse. We have a high dollar, an economic apologist for a finance minister, and a massive shock still rippling through the markets. Mark my words this is the beginning of a significant switch point. Now we are going to get to test drive the lean mean welfare state that the Liberals built and the Cons prostrated.

Economic growth slowed considerably in the fourth quarter as real gross domestic product grew 0.2%, down from 0.7% in the third quarter. Economic output contracted 0.7% in December. Significant reductions in manufacturing activities, wholesaling and in oil and gas extraction were the main sources of the December decline. In manufacturing, the major drop in motor vehicle production was primarily due to extended holiday shutdowns. The economy advanced 2.7% for the year, matching the average growth of the last five years. A more detailed analysis is available in Canadian Economic Accounts Quarterly Review.

The devil is of course in the details. I am keeping my eye on three key metrics: Corporate profits, Investment, and Inventories. Investment in machinery and equipment remained strong but corporate profits leveled off and inventories began to build.

In my heuristic model causation runs in the following manner. Corporate profits are the well spring of future investment–better stated they are a necessary but not a sufficient condition for investment. So first we should see declines in profits which then after a lag should show up in declining investment rates. Moreover increased inventories point to decreasing corporate sentiment in their capacity to ensure future sales and thereby compound negative sentiment toward future investment (out of what are decreasing profits).

Interest rate cuts are rather likely ineffectual because access to credit is not what is driving corporate confidence at this point it is uncertainty over future sales. Similarly corporate tax cuts are of little use at this point in time as tax is relative to profits. And finally the consumer is all but tapped-out. Now we get down to the dirty business of massive global capacity competing for stagnant or declining vents for their wares. This is the nasty spiral of concentration, centralization and rationalization.

With this mindset, defensive cost cutting strategies become the rule of the day. Marginal lines are slashed, product launches are put on hold and production is scaled back and workers are laid off. Workers start acting defensively too. Big ticket items such as renovations, and discretionary spending are parsed back.

Buckle up you are going to get what you voted for.

Travis Fast

The Globe and Mail is running an article online in which it is reported that the WTO is reviewing EI as a potential unfair subsidy to the fishing industry.

While there are lots of problem with the way EI / UI has been used as a poor stand in for regional economic development in the Maritimes, even the thought, however, that the WTO could consider social protection as an unfair subsidy to industry is both hogwash and dangerous.

This just opens up a Pandora’s box of problems. Is universal health insurance an unfair subsidy? Think about it. Why should a US company which has to shoulder some of the cost of its employee’s healthcare have to compete against a Canadian company which does not?

By employing such logic any number of social programs and supports could be declared trade and investment distorting. The good news is that despite what the Cons would like to happen—i.e. the WTO made us kill social protection—this dog will not hunt with the Europeans or with the many other nations.

That said, it is fine display of just how corrosive the managed trade and investment regime we now have under the WTO is. At a time when Free Trade dogmatists are pumping out reams of paper warning of a growing tide of sentiment against that great oxymoron called free trade, this is indeed bad timing.

If the free traders at the WTO do not want to be unmasked as vicious apologists that the they are, then they should decline this dance. Nothing could be worse PR.