Relentlessly Progressive Political Economy

Travis Fast,

If just posing this question irks you just think of it as an excuse to explain to your more right wing fellows why progressives would be in support of more women in the executive than less.  Alas I can only think of one reason to consider more women in a conservative cabinet to be good thing.  Representation is a good in and of itself in democratic community.

But that being the said, where are all the brown people?  If it is a question of representation as a good in and of itself then surely the parliament in general is a perfect reflection of just how excluded non-white minorities are from political representation in the Canadian democratic system.

Travis Fast,

In a potential death blow to the foundation of liberal economic theory Alan Greenspan testified today before the house that myopic self interest would not lead to the creation of the New Jerusalem here on earth.  In a paraphrase he said with reference to the prevalent ideology underpinning liberal economic theory: “yah it was dangerously wrong-headed.”  For the transcript of Greenspan’s written testimony click here.  For his exchange with Rep Waxman click here.

In a tense exchange with Representative Henry A. Waxman, the California Democrat who is chairman of the committee, Mr. Greenspan conceded a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Jefferey Sachs came out on the BBC and said that this was something liberal economists had known since the Great Depression.   That may be, but whenever they had the chance to actually do policy deregulation, soft regulation, and an underlying belief in the magical powers of self interest was the more potent policy impulse–how could it not be: it is the basic ontological model.  Needless to say after Sachs helped Russia achieve one of the largest peace time contractions–output fell and life expectancy rates also plumeted–Sachs learned apparently what his section of the  profession had apparently known since the 1930s.

It would appear therefore that the real significance of Greenspan’s testimony today is that it proves that only a massive blunder with huge human suffering can dissuade the liberal section of the economics profession the degree to which (a) their ideological instincts are no better than anyone else; (b) by extension their policy paradigm is no more scientific than anybody else; (c) their proximity to power makes them more dangerous than other economists; and crucially (d), they are not smarter than everybody else.

However, I expect the general arrogance of that section of the economics profession is so culturally ingrained that points A through D are not going to make a debut in the economics text books anytime to soon.  The fixed costs are just too high.

Global markets woke this morning to news of yet another conservative government in Canada.  Having taken note of the incredible damaged caused to capitalism by neoliberal governments, markets across the globe began a broad based sell-off. The DOW was down nearly 8%, the S&P 500 9%, and the FTSE 100 7 %.  Apparently traders viewed the Canadian election as kind of futures market for the likely outcomes of elections in the US and the UK.

Meanwhile in Toronto the TSX was down over 600 points on the news of a Conservative victory.

When Flaherty was asked what he thought of the markets reaction to his governments victory he is fantasized to have said:  “everyone knows the guys that run those markets are bunch of F***ing raving communists.”  When asked if that meant there would be no fiscal stimulus for the broader economy he is fantasized to have said: “look we already spent our wad on the Banks so the real economy can go F**k itself.”  “ungrateful bastards”

Drowned out by the federal election was the news that the Conservatives were planning to further backstop the banks by extending the initial offer to buy 25 billion in mortgages to 255 billion.  In their attempt to avoid the obvious ideological contradiction of having to nationalize the Canadian banks, or the mortgage market, the expansion of the program is now being painted as a necessary evil brought about by the unintended consequences of government bail-outs in other national jurisdictions: The Flaherty explained the situation thus:

Finance Minister Jim Flaherty indicated yesterday he would be willing to offer more support for Canadian banks in order to ensure they remain on a level playing field with rivals around the world.

“In Canada, we will continue to work in a co-ordinated fashion with our G7 partners and take appropriate actions to support our financial system, including whatever steps are necessary to ensure that Canada’s financial system is not put at a competitive disadvantage,” Mr. Flaherty said in a statement following weekend meetings with other G7 finance ministers.

He added that the government is prepared to take “appropriate action to avoid unintended consequences from policy measures by other countries that would put wholesale borrowing in Canada at a competitive disadvantage.”  Globe and Mail

This just increases the ideological bind for the conservatives.  Here is why.  At first they painted the initial 25 billion dollar partial nationalization of the mortgage market as a way to provide Canadian banks with access to liquidity.  A partial nationalization in the furtherance of financial stability.  Not an ideal ideological position to be in but hey these are hardly ideal times.  Not to mention that the Canadian business press refused to call the plan what it was: a scheme to partially nationalize of the mortgage market.

But, and here is the important point, with bailout plan mark II (225 billion) the conservatives are justifying the plan not under the guise of liquidity but rather framing it as a necessary evil to keep Canadian Banks COMPETITIVE  in the face of subsidies by other national jurisdictions.  That is they are selling it under the rubric of the protection of the Canadian financial sector’s competitive advantage.  In effect a direct subsidy to improve the competitiveness of Canadian Banks.  Now if I am sitting in the auto sector why I am I not going to ask for help?    The US auto sector just got a huge “loan” from congress why shouldn’t autos in Canada get the same help.  Or, for that matter, any other sector where it can be demonstrably shown that in other national jurisdictions those same sectors are getting support.

This ideological bind is going to play itself out in this parliament.  How can the cons promise 225 billion worth of support to the banking sector and not others?  They are now in a damned if they do and damned if they do not bind.

Welcome to governing in tough ideological times.

No amount of spin can change the fact that the once mighty liberal party of Canada continued its post Chrétien slide into mediocrity.  In the middle of a sponsorship scandal under Martin’s leadership the liberals managed to get 103 seats representing a loss of 24 % of their seats.  Under Dion’s leadership the Liberals managed to get 76 seats representing a further loss 26% of their seats.

The liberals are broke and what last nights election shows more than anything else is that the liberals can not get their vote out where it matters.  Canada’s electoral system rewards geographic concentration and strong organization on the ground.  Dion should go because whatever his virtues he does not inspire the liberal base nor, as is now clear, provide a poll of attraction from outside the liberal base.  There are only two ways forward for the liberals at this point.

1) Drop Dion for a more charismatic leader like Ignatieff and start the process of reinventing the liberal party from the grass roots up.  Much like the NDP did with Layton

2) Start merger talks with the NDP and form a new party: the Progressive Party of Canada.

I suspect the first option is the most likely.  The problem for the liberals is that they are broke and a leadership contest is costly.  But this should not be an issue.  It would not kill the liberals to have a modest leadership convention and then focus their attention on rebuilding the party at the constituency level over the next four years.

The upside to the election is that the conservatives are going to have govern through a moderate to severe recession and their fiscal room for maneuver is highly constrained.  It is going to be hard to be Harper.  Having just announced 225 billion in an effective subsidy to the big banks to help them compete for global business it is going to be hard to say to other sectors.  Here the Conservatives are going to find themselves damned if they do and damned if they do not. Having run on the idea that government steers the economy the Conservatives are likely to get foisted on their own petard.

This is long way around of saying that the liberals have time to sort out their own house as it is highly unlikely the conservatives are going to get anyomore popular.

Wow the liberals evaporated tonight.  The NDP is up 8 and the Cons 20.  Dion is gone.  HE lost against both the right and the left.

As pointed out some days ago the conservatives were busy nationalizing the mortgage market so that they would not have to be seen to be nationalizing the banks.  The Calgary Herald reported that that plan is now to be expanded to 225 Billion which would make the program equivalent to half of all the mortgages the Big Banks have on their books and over 25% of all outstanding mortgages in Canada.  Somebody needs to ask the cons why they are not getting a better deal for the citizens of Canada.  But there is another issue here: stripping banks of presumably illiquid but nonetheless performing assets to the tune of 225 billion may represent a change in the risk profile of the banks but also implies the loss of revenue down the road.

Before pulling the trigger, the Conservatives first aim to try and meet the funding needs of Bay Street directly by aggressively expanding a scheme to buy up mortgages from banks.

After initially putting up $25 billion of public money to buy mortgages, the Department of Finance is prepared to increase that limit as needed up to $225 billion, at which point the risk of taxpayer losses starts to rise sharply.

This avenue is viewed as more politically palatable and easier to square with Harper’s ideological outlook.

Moreover, while conservatives may not be nationalizing the banks they are nationalizing the mortgage market and a nationalization is a nationalization.  And of course we will have to wait to see how much of the auction is subsribed to on the 16th to get a sense of much of this is simply a promise to socialize risk should the need arise.

Tallying both sides of the Atlantic there has now been of 3 trillion dollars in money pumped into the financial markets and the stock markets on both sides of the Atlantic are posting all time daily record gains.  Does this represent  a vote by capitalists in the affirmative or contra free markets?  Interestingly when the markets were tanking it seemed to be because the advanced capitalist governments seemed hesitant to massively interfere with the workings of the market.  3 trillion worth of intervention later and the markets have unanimously voted in favour of intervention.

The other interesting point to be made is that 3 trillion seems to be a useful measure (so far) of how sorely free markets got the prices wrong: or does it.  All the Efficient Market Hypothesis (EMH)  says is that prices represent all the relevant information available to economic agents at the time of transacting.  It says nothing about the quality of that information.

So rearranging: the EMH holds that shitty information will be as efficiently represented in price formation as good information and thus tells us nothing about whether prices reflect “true” prices, but, rather simply, and uselessly, that prices reflect all the shitty information that is available.  So in a perverse way had the markets not gotten prices wrong to the tune of 3 trillion then it would have been because markets were inefficient.  Give that man a Faux Nobel.

In this light we can make sense of the Mark Carney twist

The conservative Minister of Finance, Jim Flaherty, unveiled a plan to nationalize 25 billion of Canada’s 833 billion dollar mortgage market.  Basically the plan involves the government purchasing via CMHC existing mortgages from Canada’s large banks so that they can exchange relatively long term and illiquid (but presumably performing) assets for cash.  That cash is then in turn to be put out in fresh loans to businesses and Individuals.

That sounds great if there is a liquidity problem.  But it proves that there is a liquidity problem and that gives us the first clue that our financial system is not de-linked from global turbulence.

However, Harper is selling this as a no cost to the tax payer play.  But that is a little churlish. It may be that citizens do o.k. on this deal: 25 billion in performing assets.  Although there is the question of where the government is going to get the 25 billion: presumably they will have to issue new debt which will have to be financed so it is not all clear how much the assets will net out at the end of the day to citizens.

Moreover, all things being equal one ought to get a premium for taking on relatively illiquid and long term assets and giving up cash.  As near as I can tell there is nothing in the plan that has the banks paying a premium for this liquidity.  It is all fine if liquidity is being treated as a public good but then something above and beyond the assets ought to be coming to the government.   The actual wording of the agreement suggests that the government might actually pay above fair market value and a little above notional value:

The settlement amount that will be paid for the purchased NHA MBS will be no less than 95% of the principal amount of the NHA MBS.  The price for all of the NHA MBS shall be no more than 101% of the principal amount of the NHA MBS.

Whatever the terms, the Conservatives have just nationalized 25 billion of the mortgage market.  A red rose by any other name is still a red rose.

Le SPUL : mandat de grève à 88 %

Québec, le vendredi 10 octobre 2008 — Au cours d’un référendum qui s’est déroulé du 7 au
10 octobre 2008, 638 membres du Syndicat des professeurs et professeures de l’Université Laval
(SPUL) ont voté sur une proposition de mandat de grève pouvant aller jusqu’à 12 jours de grève
intermittente, qui sera déclenchée aux moments jugés opportuns par le Comité exécutif du
SPUL.
Le résultat du référendum est le suivant : 88 % se sont prononcés en faveur de la proposition.