Should Ontario Become an Independent Country?

Ok just forget how crazy the question sounds.  The recent wrangling between Ontario and Alberta over the value of the Canadian dollar, oil output and the decline of manufacturing in Ontario (and other provinces east of Ontario) raises some reasonable questions about the Canadian monetary and fiscal union, aka the Confederation of Canada, aka, British North America, aka Canada.

Critics have long argued that the Bank of Canada’s single minded attention to price stability, i.e., inflation, and to a single policy instrument, i.e., the interest rate, was both too crude and too cruel.  Too cruel because it makes unemployment the site of dynamic economic dynamic adjustment and too crude because it is both geographically insensitive and structurally daft.

Here I will put the cruel to one side and consider the crude.  Interest rate adjustment is a crude way to attempt to manage the macro-economy.  Think about the regional dimensions.  If you exclude Western Canadian growth the beavers teeth look not nearly so sharp, or as long.  The present interest rate regime is probably too low for western Canada and too high for eastern Canada.  Suggesting that, all things being equal, the Canadian dollar is probably too high and too low.  Too low for the resource sector and too high for manufacturing.

Federal tax policy has not helped either.  The unilateral decrease in corporate income tax rates deprived the federal government of resource revenue while having little if any impact on investment in the manufacturing sector.   The west did not need a GST rebate the east did.  And to add insult to injury, the Federal government has decided to move to an austerian footing.  Again viewed through the lens of the west probably not a totally idiotic position to take (countercyclical one might say).  Viewed from the east, however, a completely counter-productive, pro-cyclical policy.

All of which raises the question if Ontario, or indeed if all of the provinces east of Manitoba, would not be better off with their own federal government and their own central bank.

O.k. time to remember how crazy the question was.  Not that crazy after all.  But it is only a sane question because macroeconomic policy (fiscal and monetary policy) is so cruel and crude.

Gordon V Jackson: the corporate tax cut myth

Apparently Stephen Gordon is having a hard time figuring out where Andrew Jackson, the chief economist for the CLC, got the bizarre idea that:

The argument for corporate income tax cuts has been that increased after-tax corporate profits would be re-invested in company operations, boosting economic growth, productivity, and jobs.

Stephen replies in the comments section:

No. That’s not the argument. At least, I’ve never heard anyone make it.

No one, ever, anywhere, has insinuated or made that argument.  Really?  To continue reading and comment click.

Stimulative austerity bearing fruit in Britain? Not. Nor globally

George Osborne was quick out of the gates with the austerity as stimulus gambit.  Which as everybody from myself to Paul Krugman predicted was going to be a flop.  Osborne has been trying to save face by arguing that his government’s austerity package saved Britain from becoming Greece  (the most disingenuous piece of clap trap coming from the other side of the Atlantic since Tony last spoke of the need to go to war in Iraq).  The bond vigilantes are not swarming in on fully sovereign countries (i.e., those with the power to go around the bond market if they so choose; see almost any post by Bill Mitchell).  Indeed, Japan has a debt to GDP of over 200% and is issuing ten year bonds with great fan fare at below 2%.

Meanwhile Cameron has been trying to save face with an alternative: namely, that it is the crisis in the Eurozone that is to blame.  As Bill Mitchell points out the Eurozone was in crisis before Cameron pushed through austerity.  That is to say, if the British economic recovery hinged on a buoyant Europe it was a silly plan.

Now some fair-minded reader might insist that neither Osborne or Cameron could have known that the crisis in Europe would go from bad to worse and they are therefore the victims of optimism but not stupidity.  Not so.  Like the Canadian Finance Minister, Osborne has been preaching austerity and public sector restructuring to all and sundry.  The problem is that the austerity gambit requires that exports do the heavy lifting in terms of dragging the domestic economy up, up and away.  But if all the countries that buy your imports are also trying to do the same then in the aggregate we all loose: a in an anchor cut loose.

Canada and Britain could have perhaps used austere means to jump start their domestic economies by free riding on a massive stimulus in the US and Continental Europe.  Again it has been clear for some time that was not going to happen.  So even if austerity could have worked its funky magic it would have been because Europe was doing stimulating fiscal stimulus.

The economy lab, the dark age of free trade theory, and the naive view on natural resources and economic development

Over at the Economy Lab in the Globe which Failed, which itself has gone from bad to worse, one of the economists they keep in their stable has either produced an extraordinarily naive analysis or a dishonest one.  I am going to go with naive for the sake of professional courtesy.  Not that that is the MO of economists but I am atheist fan of Jesus and not an economist…so here goes.

To be honest I can’t figure out which vintage trade model Gordon is using.  My informed gut tells me something like an off the shelve H-O-S intro text book model of free trade.  That would fit with his own vintage and the fact that he is an econometrician.  Although that creates a paradox because, as surely Gordn knows, the H-O-S free trade theorem preforms dismally–by even economic standards–in econometric work outs.  In layman’s terms: the work-horse model of free trade which is standard in introductory economics texts fails at a predictive level.

There are any number of reasons for this but just for fun here are few in no particular order:

1. The economies entering into trade were in a state of autarky (self sufficiency) and full employment.  Both of which are patently false.  More often than not nations pursue trade in the search for a remedy to chronic underemployment and unemployment and have already been engaged in trade.
2. Product and capital markets are perfectly competitive.  Again patently false.
3. Factors (capital and labour) are perfectly mobile within a national jurisdiction but not between.  You might get me to agree on labour but the whole point of neoliberal globalisation and its animating quintessential core is the free movement of capital.
4. As a corollary, capital (investors) is made up of 100% domestic nationals.  Extremely dubious assumption with respect to mining, oil and gas and a whole host of other sectors.
5. There are no firms.  While capital and labour are the only inputs (and resource endowments) there are no firms.  Just one large something or other allocating labour and capital according to their scarcities.  A model without firms that actually do the trading?  Bizarre me thinks.  This becomes particularly important with respect to determining who benefits from the gains of trade.
6. Capital is a natural endowment.  Which translated means that for the standard model the explanation is that some countries have lots of capital some do not.  Why that is; the model does not care.  But saying that you don’t care is far cry from saying anything remotely interesting.  Capital is after all nothing other than produced means of production in its physical form and its ephemeral and essential form a complex social relation.  Sorry I can’t really simplify that at this time.  But to get a sense of what I am getting at just recall that the origins of Canada is a colonial enterprise in which colonial settlement was driven by the desire to expropriate natural resources from the original inhabitants.  The origins of Canada, and its rich endowment of natural resources is thus the history of politically constituted property and not some “natural” process of economic development.

O.k. so that is that.  Of course the OEM version of free trade theory is going to be a predictive disaster.  Why anybody bothers to teach it outside of using it is an example of what happens when liberal geeks go wild is beyond me.  But let me do a real world work-out.

Let us take Newfoundland and Labrador as a historical case in point.  Here is region that has leaped from one natural resource boom to another and it has always ended in some form of administration.  The failure to develop a modern diversified economy in which resources play a role but not the primary role.  Contrast the fortunes of early diversifiers in the union, who did so via a tariff wall and you get the picture.

In Newfoundland and Labrador Gordon’s advice is being followed as the mining and oil and gas sectors account for around 40-45% of provincial output but only 4-5% of direct employment including temporary construction employment.  Neither the oil, nor the profits touch land (outside of royalties taxes and wage payments which are all relatively low) in that province because of the weak to non-existent processing of raw materials.

Gordon thinks this is the road map to economic success, I think it leads to ruin.  He is willing to bet standard trade theory on it, I am going with history.

Here is why.  Two seconds of reflection will reveal that in Newfoundland and Labrador almost every single assumption built into the standard free trade model is violated: most certainly 1 through 6 outlined above.  Perhaps most interestingly is that Newfoundland and Labrador would not have a comparative advantage in oil and gas had it not been for the federal and provincial governments.  I am sure Gordon was decrying Hibernia as white elephant back in the day.  The problem is today the two levels of government are fighting over the allocation of royalty payments as the project is paid in full and is churning out lucrative profits for all involved.

Maybe Gordon can write something about that in his next post to the Economy Lab.  I won’t hold my breath.  My discipline right or wrong and all that jazz.

Profit, wage, NDP, and tax revenue growth in Newfoundland and Labrador

Although I covered it off in my rebuttal to the Minister of Finance Thomas Marshall  in the last post I thought maybe a graphic would be a more compelling way to illustrate what has been going on in Newfoundland and Labrador.  I am sticking with roughly the same time frame as the minister but I will take 1996 as my base year and end in 2009.  This is generous on my part because if I took 1997 and ran through to 2010 it would show the rebound in corporate profits in 2010 and start from Tom’s trough year (1997).  So what I have done is create an index by normalizing the time series to 100 for 1996.  Here I have graphed profits before taxes (profits), total labour compensation (wages), net domestic product (NDP) and all tax revenues after subsidies (tax) save for royalties.  All values are nominal.

Click for a crisper image

So yes some wage growth but nothing sufficient to bring the wages of workers in the province up to the national average.  This in the context of a province caught up in tidal wave of profits.  Keep in mind that in the interview the minister only cited wage growth and was silent about the near exponential rate of growth in profits.  But thanks to that provocation I included taxes and economic growth (captured by NDP).

Two things stand out.  Wages did not manage to keep pace with economic growth (NDP) and tax revenue growth was relatively flat.  This tells me that the government in the province has essentially been using tax cuts to make workers, corporations and small business feel wealthier while at the same time jacking up public spending and paying for all of it with royalty revenues. From a political point of view it is a slam dunk.  The problem is that it leaves the province highly dependent on oil revenue to grease the wheels and pay for public infrastructure and services, which in turn gives the oil and gas sector even more clout and it does very little in terms of economic diversification.

Some conservative economists in the province have recognised the instability in the fiscal structure but their solution is rather unimaginative: rapid provincial debt repayment and spending cuts.  But this solution is equally as short sighted as the government’s.  Neither account for what happens after the oil.  When that actually happens is hard to call but it will.  For conservative economists I suppose this is not a problem.  Diversification happens naturally so they do not need to tell a story about what comes after the oil.  Curiously though, if they truly believe something does come after the oil then it makes little sense to be worried about the provincial debt and declining oil revenues as something will come up to replace the sector.

If on the other hand the province’s actual history of lurching from one commodity boom to bust and bankruptcy and then administration by Whitehall and later by Ottawa is anything to go by then the government cannot really afford to be so reckless.  So if you agree that austerity is not the route to take then you are left with the need for economic diversification and modernization all while keeping the growth of the public debt at a low rate.  That leaves tax increases and or a more robust royalty regime in order to change the fiscal structure and engage in an aggressive process of modernization and diversification without blowing the lid off public debt which as it now stands is a very modest 27-28%.

A without prejudice rejoinder to the Minister of Finance

On Wednesday of last week the Minister of Finance for Newfoundland and Labrador Thomas Marshall was interviewed by CBC Central Morning about a report I did for the Newfoundland and Labrador Federation of Labour (NLFL).  In one respect, the fact that the minister was willing to go on the radio and respond to the report is a remarkable testimony to the health of the democratic debate in that province.  In what other province would the Minister of Finance get out of bed to respond to what he/she viewed (wrongly) as criticism coming from an out of province expert on behalf of organized labour in their province?  Few, if any I should think.  Thus the Honourable Minister is to be commended for his efforts.  That however is where the praise stops.

Politics is, of course, partly a game of perception and all too often that is all it is about.  And in this respect the minister’s interview amounted to little more than perception management via deflection and deception.  Now before I take up each of these in reverse order I should note that ministers rarely read policy briefs and reports.  Rather they are read by the experts in their department and then summaries are produced for them from which the minister may take notes.  I will therefore assume that the minister’s remarks are based on those summaries and I will further assume that any factual errors, distortions or deceptions were the product of some invisible technocrat(s) (in this case economists) working in the DoF.  Nevertheless, Canada and its provinces enjoy responsible government which ultimately means the buck stops with the minister.

To say that the minister came swaggering out of the gates would be to use a colourful style of prose that does not at all do a disservice to accurate description.  The minister made the rather shocking claim that my report– its observation and conclusions– were not based in fact—data or otherwise.  To be clear he did not merely claim that he disagreed with the data or the conclusions drawn; he said the report was absent of data and facts and a mere assertion of opinion.  Apparently Statistics Canada data, studies by the Conference Board of Canada, experts such as Paul Krugman (Nobel prize in economics), Robert Shiller, Ken Rogoff, Carmen Reinhart, Armine Yalnizyan, and indeed data collected from the minister’s own budget publications do not count as solid data and analyses.  Further where the minister does tacitly concede that I used data, he says that it is Canadian data and those facts and trends do not apply to Newfoundland and Labrador.

Let me take up each of these claims in turn.  First, the minister is of course at liberty to disagree with the data and the conclusions drawn from it, but it is an abuse of his liberty to claim that the conclusions and opinions offered are not based on data.  In the first section of my report I focussed on what I called the primary distribution of income (that between profits and wages) and the secondary distribution of income (that between different classes of salary earners).  As to the first, the minister initially dismissed my argument, substantiated by statistics Canada data I should add, that Newfoundland and Labrador have an exceptionally high inequality in the distribution of income when viewed from the division of profits and wages (these measures were all drawn from StatsCan data).  Indeed, what I showed in Graph 3 of my report was that Newfoundland and Labrador had the highest level of inequality in the primary distribution of income of any Canadian province including the other resource intensive provinces.  It is also exceptional in sense that it is not just a little bit higher but higher by over a third than Alberta.

However, when the minister was pressed on the primary distribution of income between wages and profits by the host of Central Morning Leigh-Anne Power (13m35s), the minister’s started to shuffle and argued that the profits of the oil and gas sector should be taken out of the GDP because the profits were exceptionally high in this sector and not in the others (14m45s).

This is a truly bizarre approach to my mind.  If we took oil and gas out of Alberta’s aggregate profit data I suspect they too would fall in line with the Canadian average; if we took potash out of Saskatchewan’s aggregate profits I would guess that Saskatchewan profits would be lower than the average; and I suppose we could do the same exercise and take the FIRE (Finance, Insurance and Real Estate) profits out of Ontario’s profits and then we would see a much different (lower) share of profits in GDP.  There are two problems with this approach.

If we do as the minister suggests and take the most profitable sectors out of the calculation of profits as a share of GDP or wages then the Canadian average will also be lower.  What the minister, or perhaps rather his advisers, seem to want to do is take their big profit centre out of the profit calculation and then compare that average to the unadjusted Canadian average thus sending the national average up and the Newfoundland and Labrador average way down.  I can think of several reasons why the minister would want to do this but none of them have anything to do with making systematic scientific comparisons.

Second, I will take my approach over his: profits are profits and there is nothing exceptional about the profits generated out of natural resources.  Save for the fact that the sector directly employs relatively few workers because it is a capital intensive sector.  That I should have thought was rather the point.  Even if you paid every worker in the sector two times what they were earning now it would not solve problem of the incredible amount of value being extracted from the oil and gas sector and how little of it stays in the hands of the citizens of the province.

As the minister quite rightly points out (inadvertently), when resource extraction is done by large corporations (given the capital to labour ratios) the only significant place to recover that wealth is at the level of corporate taxes and royalties.  The problem is that in Newfoundland and Labrador the extraction agreements were written in such a way that specific changes to the existing royalty regime are militated against leaving the general level of corporate taxes (and or new deals) to do the heavy lifting.  As an aside, I actually think if the political will was there they could design the corporate tax regime to get at the super profits being derived out of the natural resource sector without actually raising the general level and remain well within the remit of previous agreements.

The minister will then go on to say if you look a the Statistics Canada data that workers in the province were doing quite well as total labour compensation had increased by 87 % between 1997 and 2010.  That figure seems a little high as the Statistics Canada Data I have (Table 384-0001) shows total labour compensation increasing by 81% between over the 1997-2009 period.  But let us assume that  we are simply working off two different Statistics Canada time series so that it may be possible that his figure is correct: wages may indeed have increased by 6% in the subsequent year.  However, what the minister fails to note is that although total labour compensation increased by 81% between 1997-2009 profits increased by…wait for it…765%.  No, that was not a typo.  If ever there was a scientifically appropriate time to deploy the word “gobsmacking” now surely is that time.  If we look at the same time span GDP grew by about 137%.  So yes workers wages have increased but not nearly as fast as GDP growth and at around 10% of the rate of growth of profits.  Again that was the central finding of the report: prosperity has not been equally distributed.

As to the more narrow claim by the minister that income inequality had actually gone down in Newfoundland and Labrador over the last decade he is technically right both in absolute in comparative terms.  The only problem is that in my report I actually noted that, but also noted that was in the context of increasing income inequality so the Newfoundland and Labrador record was not that great. And further I noted that because of the last recession poverty rates had gone up in the province.  I doubt very much his data disputes my data; it is just that he wants some credit where credit is due: granted.

If the minister had actually bothered to read my report or listen to the interview I had done a week earlier he would have known that I went out of my way to point out that oil and gas were skewing the numbers. That is, relative to the total provincial economy the sector was over-sized.  And that was a problem because there was a limit to how much the primary redistribution could be altered through wage gains and because of the precariousness of relying too heavily on a non renewable resource from a revenue point view.  In combination it creates a compelling argument about why the government needs to capture more of that surplus and aggressively diversify the economy.  Moreover, I also went out of my way in the radio interview to congratulate the government on a couple of things I thought they had got right.  True I did not spend 4 of 10 minutes listing their accomplishments but that was not what my report was about.

I do not know why the minister thought he needed to argue that the report I authored was not based on facts and serious arguments.  Anyone who spent 2 minutes with the end notes would know that for a policy brief it exceeds the usual standards.  Given that Statistics Canada data, studies by the Conference Board of Canada, arguments made by experts such as Paul Krugman (Nobel prize in economics), Robert Shiller, Ken Rogoff, Carmen Reinhart, Armine Yalnizyan, and indeed data collected from the minister’s own budget publications failed to impress Tom or the economists working for the Department of Finance it might just suggest that they are merely partisans.  The question is, partisans in what war?

That the minister felt it necessary to take up valuable airspace with a rehearsal of the well worn and by now totally discredited supply side dogma is a bit of a tell.  The supply side dogma says that profits rule all, and profits are all that matter.  This Dogma reached its zenith in the great financial crisis of 2007-2008 from which the global economy has yet to recover.  That Canada skipped over the most egregious effects of the crisis was a fortuitous twist of fate.  That Tom still clings to this dogma is a shame.

All is not lost: from what I understand Tom has an ongoing gig with Department of Finance.  I look forward to hearing what he has to say in the future as this was a “without prejudice” rejoinder.

The 1 % responds: We all have lobbyists!

As the CBC bends over backwards to be fair and balanced they gave the top 1% the opportunity to respond to the Occupy Movement.  I will not bother with the all the detail of the rather detail-less criticism of the panellists vis-a-vis the Occupation.  What  I want to take scientific issue with is Terry Campbell’s, the head of the Canadian Bankers Association, claim that we all have lobbyists furthering our interests.  It is a widely adventurous and false claim.  We do not all have paid lobbyists working for us.  Indeed the claim is so evidently false on its face that it does not need refutation.  But let me just do the work-out.

Not only do I have extensive experience in political campaigns.  Not only did I do three degrees in Political Science. But I have from time to time moonlighted as a lobbyist.  From both practical and theoretical experience I can tell you none believe that we all have lobbyists working for us.  So what gives?

In philosophy they teach us to take the weak arguments of our opponents and give them the strongest possible formulation we can.  As near as I can tell Terry got his education in an epoch in which simple pluralist interpretations of liberal democracies were in a certain vogue.  I am thinking of David Easton here.  It is nice idea but to make long story short the pluralist theory of liberal democratic practice could not stand the intensity of day light (that is, serious empirical investigation).  No serious investigator into liberal democratic practice accepts the pluralist theory.

What is the pluralist theory?  The pluralist theory holds that society is composed of individuals (a rather trivial observation).  It also holds that in liberal democratic societies we subscribe to the formal rule of law and the formal equality between citizens (a significant improvement over feudal societies to be sure (I wonder if Terry is anti monarchist?).  This is all true, so what is the problem?

The problem is of course that substantially (in reality) we are not all equal.  We may all enjoy the equal right to vote but we do not all enjoy the same ability to influence (lobby) the government.  Terry seemingly has confused two separate issues: the right to speak and the means to make yourself heard.

Terry will go on in the interview to stress the degree to which the policy process is open and transparent in Canada.  Compared to the US I think he has point here.  But what he is recognising is that in Canada it is relatively easy for organized groups to at least get an airing with the government of the day on policy.  And this is where things get interesting.  What we know is that the major banks had been pushing for consolidation through mergers so that they could become to big to fail banks and go big into the US market and compete toe to toe with their American counterparts.  What we also know is that in the context of a domestic audience that was deeply sceptical of mergers that no minority government would do a giveme to the industry.  Mainline economists crowed about the irrationality of public policy being driven by a populist distrust of big banks; prestigious think tanks representing the interests of major Canadian capitalists like the C.D. Howe pushed for bank mergers and at the end of the day failed.  BUT they failed not because politicians were weak but because the massive lobbying campaign for mergers came to halt in 2007-2008 because it was clear that the American banking model was nothing more than a ponzi scheme for which the average American would be forced to bail out.  That is to say had the crisis occurred two years later and had the conservatives had a majority you can bet the family silver our banks would be in the same bog that American banks are.

Indeed the very prudence that the conservatives now stand tall on was forced on them by the reality of a Canadian public that would not swallow the logic of mergers between the big banks.  It is thus that Terry, in his particular role as the chief advocate (lobbyist) for the big banks can go on the national broadcaster and claim we are all equal.  The reality is of course that had it not been for the “irrational” distrust on the part of the electorate of big banks we would be in some facsimile of the big shitty south of the boarder.

But truth be told had the American banks not done such a spectacular job at the old pump and dump Canadian banks would have been, in their mega merged form, right there along for the ride.  What Terry is thus really lamenting is that in one of the rare instances where the big banks did not simply get to write the rules, Canadians were spared an opportunity to get totally fleeced like their American counterparts.

BUT all that was a product of minority governments and timing.  Had it been business as usual we would have had to endure the spectacle of Terry explaining to the Canadian public why the group he lobbies for is worthy of a tax payer bailout.

Note to readers:  The C.D. Howe has become so embarrassed at the paper they sponsored on behalf of of banking mergers that they have put it in the memory hole.  Thanks to the internet gods the document can be found here.

The poverty trap for real

Poverty is of course about a lack of money, but it is also about a lack of resources both in the cultural and social sense. I live in a small village of 1800 citizens.  Outside of myself, the retired doctor and the soon to be retired notary (both of which can’t hope to sell their houses) there are simply two kinds of the working class:  those with secure jobs and those that traverse the revolving doors between work, UI and welfare.  You can literally determine who is who by their smile.

To break this cycle we would need real institutional robustness.  You can give all the training opportunities you want to the poor but if they show up at a job interview missing their two front teeth; well let us just say it is not the winning smile.  At this level of concrete observation the labour market functions more like a market in chattel slaves. But even if we gave all these people a smile the labour market in which they are stuck would just change the vectors of discrimination.  The truth is there is a permanent oversupply of this quality of labour and  outside a real intervention by the state there will always be an oversupply: capitalist labour markets just can’t afford to hire all these bodies whatever the cost per hour may be.

The irony of greed: The end game for Neoliberalism?

The global economy is in the toilet and the Boomers’ representatives are chanting: “flush, flush, flush.”  Me? I am eating cigarettes and wine while admiring the remarkable consistency in the myopia of all of it.

In the name of fiscal prudence the whole of the advanced capitalist zone is in engaged in austerity budgeting and calls for more of the same.  Even Martin Wolf, in his otherwise insightful column in the FT online today, felt the need to tap his hat and nod in the direction of the genteelism of supply.  Exhibit A, the conclusion to his incisive intervention:

Reconsidering fiscal policy is not all that is needed. Monetary policy still has an important role. So, too, do supply-side reforms, particularly changes in taxation that promote investment. So, not least, does global rebalancing. Yet now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings.

As is widely acknowledged, monetary policy has little outside of conciliatory role to play at this time.  In so far as the CBs should not make the mistake of tightening policy as the ECB and the BoC did.  But apart from the role of spoiler there really is not much left for the CBs to do.  The problem is squarely fiscal.  As Wolf himself went to pains to argue.  Why then the conclusion given that further tax reductions are not only going to make the fiscal positions of governments worse they will also likely have the same effect as lowering interest rates at this time:  Nadda, ziltch, rien, nothing?  The problem is that Wolf has to tip his hat to conventional wisdom.  If not; he has no hope of bending the ears of policy makers.  Oh well, that is his plight not mine.

Here, given none are listening we may speak frankly.  The world economy is in the toilet because free trade, tax cuts, deregulation and above all the liberalization of finance over the last thirty years let loose a Tsunami of forces both economic and political.  The liberalization of finance and production allowed for the national gutting and then global whipsawing of labour.  As the profiteers profited and retired workers slept while the assets they had built were being systematically stripped and the fortunes being amassed were then turned to the seedy business (although a time honoured practice if one cares to actually read Smith) of buying off the government–and it must be stressed the intelligentsia too–broadly understood.

We now have the perfect storm.  A generation of public and private sector functionaries has been trained to believe that the market can do no wrong and the government no good.  As a corollary is of course the proposition that monetary and regressive tax policy is everything.

The irony, of course, is that any credible account of the present crisis would have to admit that we are here because free trade, tax cuts, deregulation, the flexibilization of labour markets  and above all the liberalization of finance brought us here.  How odd it is then that we should be treated to more of  the same as the cure for what ails us.

Debt Refinancing, the Federal Government and the Provinces

Ok this post is in the form of a naive question.  And it goes like this:  If the Federal Government can borrow (MMTers don’t vide your back-end here, I know they do not have to go to the bond markets) at around 3% and the provinces are stuck borrowing at around 4- 4.5 % on new issues and at an average rate of around 6 – 6.5% if not higher; then why does not the Federal government use its good name and do a massive bond issue at 3% use the proceeds to buy out the provinces’ debt at say 3.5% and net o.5+% on the deal?

To simplify the question.  What stops the federal government from using its good name to act as an intermediary and capture a revenue stream while cutting the servicing costs of the provinces?

NB the 6- 6.5% was a guess based on the structure of outstanding debt not the average present rate.  (HT Andrew for the clarification)