Wednesday, March 25, 2009

(Over)Stimulating an Economy

I hesitate to judge the economic rescue/stimulus packages passed by the various countries in the world. I only hesitate because I am not an economist. My knowledge of how the economy functions really relies upon what I absorb from media and what I've learned in my academic career.

That's all well and good, but as a citizen it is my responsibility to be critical of my government's action. I have no objections to the Canadian plan of action, but there is our neighbour to the south that I wish to discuss.

The Democrats and Obama has introduced some incredibly radical legislation in recent months to "deal with the crisis." I want to point out that my problem isn't in particular the Democrat's spending priorities, but with the amount of spending itself and the way the spending is being carried out.

As a student of history the most effective way to stimulate the economy is as part of a broader program. By this I mean the following, it's usually not enough to just throw money at the problem. Instead of just pumping billions of dollars into the economy it should be more targeted. For all of the problems of the New Deal many of the projects that were carried out benefits the economy to this day. Eisenhower primed the economy with the interstate system, Hoover built a certain dam located somewhere in the Southwest, the name escapes me.

Here's the trouble. The Americans have over stimulated their economy from the get go. Spending is absolutely out of control before this crisis, and even more so now. Keynesian economic policy says the ideal situation is that going into a recession the government goes into debt to revitalize the economy. During times of prosperity the government saves up, pays off debts. This is a pretty sound idea, no? In the 1990s and 2000s the American congress has been swimming in red ink, and now they are drowning in it.

I would argue that if spending had been controlled over the past fifteen years the problems today would require much less spending to recover. This is all part of the corrupt nature of American politics. There isn't corruption as in old politics of politicians pocketing government funds and handing off contracts to friends (while that still happens, but not in a systematic way). Instead elected officials are expected to get a big slice of the pie for their districts or states. These are earmarks.

The fact is that there are not that many "meaningful" projects to fund. I'm confident some of these earmarks were/are valuable, some congressmen/women get money for much needed projects, but can there be so many deserving projects. What about these research projects figuring our uses for wood, and bear DNA?

Regardless, now when it is time to push money into the economy it is already obscenely bloated, and government debt is huge so the impact of this new debt is getting truly staggering. It hampers the effective nature of these policies, because the economy is already heated up with government spending.

As a final criticism I'd like to go back to the idea of a broad program. Why doesn't Obama introduce an idea of a fundamental economy-shaking investment in the economy? Instead of just throwing money in why doesn't the American government start a real program. Begin investing money so that the American economy no longer works on gasoline. Invest in hydrogen technology, build new powerplants, and bring in this "smart grid" that has been mentioned. Invest billions in a meaningful way that will obvious profound implications on the American economy.

But like I said, I'm no economist.

Tuesday, February 3, 2009

Constituency of One

It has been two months since I last contributed anything on here, for which I am sorry. I have been busy. So has Ottawa.

The Canadian budget is coming to a vote. And the illustrious Liberal Party has decided to back it under their new leader Michael Ignatieff. It makes sense. The budget has a lot of money that the broad Liberal ideology cannot object to. Also, the idea of calling an election in the current climate, under a relatively unknown leader is probably - strategically - a bad idea. Bad or unstable economic times feeds two reactions amongst Canadians historically. Option one is throw the bums out, ask R.B. Bennett about that one. The other is to hold on to the party in power, and strengthen their government because they are trusted on the economy and stability is desired, Mulroney.

It's never known how the Canadian public will decide, that's usually figured out during the campaign, and how much they blame the economic downturn on the government in power.

The point isn't about the government as a whole. Or even the economic downturn. It's about four MPs from Newfoundland.

According to these Liberal MPs the budget is punative to their home province, a total of $1.6 billion in transfer payments. The Liberals under Ignatieff have already vowed to support the vote so that the Harper government doesn't collapse. To make this work Ignatieff has allowed a "one-time" protest vote for the Newfoundland MPs against the budget.

Ignatieff shouldn't have the right to "allow" these MPs to vote the way their constituents would want, to represent their interests. This is unconscionable. Ignatieff said, "I decided to permit them in the budget vote tonight a one-time vote of protest to signal their displeasure and my displeasure at these unilateral actions which, in my view, weaken our federation, cause strains in our federation at a time when Canadians should be pulling together."

MPs should care about what matters for their constituents and the business of party-line is becoming destructive to the interests of the Canadian people, especially to their regional interests. Newfoundland in the last election had a concerted ABC campaign - Anyone But Conservative - Resulting in the election of 1 NPD, 6 Liberal and no Conservative Members of Parliament. Perhaps we should abandon national parties, because of the abuse of our regional interests and follow the Bloc's lead and merely fragment ourselves.

I suppose it doesn't matter for now though, because for now they've been permitted to protest.