Thursday, December 31, 2009

Prorogation of Parliament: Further Proof that Canada is the Fossil of the Year

During the Copenhagen Summit, Canada had the dubious distinction of being selected as the fossil of the year for its failure to respect its obligations under the Kyoto Accord and its underwhelming targets for further Green House Gas reductions. Locked in our colonial past, we have difficulty letting go of concepts and practices that are more appropriate to 17th and 18th centuries and embracing a mindset suited to the context of the 21st century.

For instance, look at the manner that Parliament was suspended yesterday. The Prime Minister of a minority government, which has the support of less than one-quarter of the electorate, telephoned the representative of a foreign monarch to request that Parliament be prorogued, and the request was granted thereby suspending the work our Parliamentarians should be carrying out on behalf of the people.

In short, we are locked into a constitutional arrangement that bypasses any notion of a modern democracy in which the majority of the population exercises its democratic will. Instead, we are ruled by the regime of the strongest man who plays by the political rules set out in Britain during the Middle Ages.

In this arrangement, the strongest man is the one who actually controls and dominates the most territory, and it is he who in principle exercises the power of the crown that has dominion over the entire territory. Over time, military campaigns were replaced by electoral campaigns in order to determine to whom the subjects within a demarcated territory owed their fealty.

Transposed into the 21st century, here in Canada we are still looking to find the man who can control the majority of the parcelled territories as determined by the results of the electoral wars. The Prime Minister of the day has control of the greatest number of parcelled territories, also know as electoral districts, but doesn’t control an absolute majority of the districts. As a result, he can be deposed by the leader or group of leaders from opposing political clans, with the caveat that another political battle must take place, otherwise known as a general election, to see which of the aspirants to the crown controls the greatest number of districts. To the winner go the spoils of victory, sovereign control of the entire territory, until the next electoral battle is called, usually at the whim of the strongest man, or sooner if a pretender to the crown dares to topple a strong man who controls less than an absolute majority of the territories.

With regard to controlling a parcelled territory, fealty is an all or nothing proposition for the subjects within the district. It goes to the winner of the electoral battle determined by the aspirant who garners the most votes. No majority is required, and the winner will in turn pledge his fealty to the leader of the political clan to whom he owes his victory.

These are the basic rules which govern Canada. They are archaic at best.

So, the question arises, how is Canada to take its place amongst other modern democracies of the world? The correct response it that it cannot take its place amongst modern nations until it replaces its crown-in-parliament governance. To do this, Canada must move beyond its simple winner-take-all electoral campaigns that allow a minority of like-minded individuals to usurp political control from the majority.

If we continue to live under the regime of the strongest man, we will be perpetually focused on the contest to seize the crown, leaving us unable to participate meaningfully in negotiations that require a perspective that transcends notions of territorial sovereignty.

Saturday, December 19, 2009

Copenhagen: the Economy Über Alles or How Føcked Are We?

For the first time in history, all major economies have come together to accept their responsibility to take action to confront the threat of climate change.

The quotation above from Barak Obama pretty well sums up the Copenhagen summit for me. The Copenhagen Accord advances the desires of the world’s leading economies and not the people who actually live on the planet. It’s a huge step backwards from Kyoto.

In the Kyoto Accord, the vast majority of the world’s nations ratified a legally binding treaty the spelled out the amount of GHGs to be reduced by each signatory and set out a time table for the reductions to take place. Certainly, not having the two biggest emitters, the US and China, included in the agreement reduced its value as an effective means of addressing the problem of climate change. Yet, the document spells out what are the expected results.

The Copenhagen Accord, however, is a fill in the blank document, where states fill in their names and the reductions they are willing to commit to. Moreover, the agreement is not legally binding, so any nation can pick whatever target figure it pleases, knowing full well that there are no penalties for failing to meet the target. Essentially, Canada’s environmental policy has now been ratified by the world’s leading economies.

It should be obvious that economies are not legal entities that have any responsibilities whatsoever. Failure to increase a nation’s GDP is not an indictable offence. As a result, the so-called deal that emerged was by and large an agreement between the stewards of the largest economies not to allow a legally binding agreement between nation states arise that would place unwanted constraints on future economic growth.

So, in response to the question, how føcked are we, I would say that we the people got pretty well føcked over. Let me explain.

With regard to climate change, the nightmare scenario that is emerging is that as we run out of conventional oil to motor our economies, states will turn to other fossil fuels, namely coal and tar sands oil, to keep their economies running. Renewable energy sources as a replacement for conventional oil cannot fuel economic growth. Therefore, faced with the prospect of either a steady state, low-carbon economy or one that maintains present rates of growth but at the cost of increased GHGs due to the utilization of dirtier forms of fossil fuels, the Copenhagen Accord paves the way for the latter.

There is no way of getting around it. The choice is between a liveable planet over the long-term or unsustainable economic growth over the short-term. Left to the stewards of the economy, scorched-earth policies will be put into place. Left to the stewards of the planet, a low carbon economy will emerge.

Unfortunately, watching the Copenhagen summit unfold was like watching a disaster movie in slow motion.

Saturday, December 12, 2009

Fight Climate Change with Tax on Financial Transactions

This week French President Nicolas Sarkozy and British Prime Minister Gordon Brown with support from German Chancellor Angela Merkel announced they were in favour of the implementation of a Tobin tax on all global financial transactions.

It is refreshing to see an idea that has been around since the 1970s make its way back into the public discourse. After all, we have just recently invested untold trillions of dollars of public money to save the global financial system from collapse. It’s time for those who draw revenue from this sector to pay up. Indeed, those who toil in the real economy and pay tax on goods and services should not be left with the responsibility of bailing out the speculators. There are vast sums that can be gathered and utilized to finance the emergence of a low carbon economy.

Moreover, a financial transaction tax can be implemented in such a way as to also create significant disincentives for speculative financial transactions that suck capital out of the real economy. Tax rates should reflect the period of time that a security is held: the longer the time period, the lower the tax rate. That way, return on investment reflects the creation of real added value and not the speculative decision of the direction in which the value of an asset will move.

Objections that such a tax would limit economic growth are merely the shrieks of zombie economists who steadfastly believe that the volume of transactions in the monetized portion of the economy is the only indicator of the well-being of the population.

Monday, December 7, 2009

Canada Needs an Environmental Protection Agency with Bite

For those of us who take climate change seriously and are exasperated with Canada’s pathetic track record on environmental issues, the question arises do our democratic institutions have the capacity of bringing about the scale of change necessary to address the problem.

Looking at what’s happening in the United States, it may be a case of collective wishful thinking to believe that the Senate or the Canadian Parliament will adopt a climate bill that will deliver the goods with regard to significant Green House Gas (GHG) reductions. Yet, significant action may come about through regulation rather than legislation.

Today, the US Environmental Protection Agency (EPA), in a follow-up to a 2007 Supreme Court decision that placed GHGs under the purview of the Clean Air Act, declared that GHGs threaten the public health and welfare of the American people. As a result, the EPA is now in position to implement stringent emission standards for transportation as well as for any large emitters. Of course, the regulations will be challenged in the courts, which will delay their implementation, but slowly the regulatory framework will emerge and it will be independent of the partisan politics (e.g. the US Senate) that prevent significant change from coming about.

To learn more, visit the EPA website at

Given how our parliamentary system is profoundly undemocratic, presently we have a minority government with the support of only 23% of the electorate that dictates the terms of our climate change policy, we should follow the Americans' lead and create an independent agency that decides the regulatory framework for the reduction of GHGs. It would require an act of Parliament, but once in place it would escape the domination of electoral politics. In other words, the consequences of climate change are far too important to leave it to our politicians to come up with effective legislation.

Sunday, December 6, 2009

Public Health Trumps Economic Growth: Doctors Force Quebec Government to Back Off

Chalk one up for Quality of Life advocates. On Friday a group of 20 doctors working in the regional hospital in Sept Iles, Quebec, resigned on mass to protest the Quebec government’s complicity in going ahead to develop a uranium mine in close proximity to the town’s source of water. If the government doesn’t step down and the doctors go ahead with their plans, the region’s only hospital will be forced to close.

To learn more, visit

This is a clear case where the quality of life of the town’s inhabitants must come before economic growth. This is not simply a question of jobs versus public health. It goes much further. This conflict underlies the tension between two different worldviews: one that asserts that the public good is advanced by continued economic growth and one that places the standard of material life along side many other health indicators and does not privilege material well-being over all other quality of life indicators.

Clearly, from the doctors’ perspective, the exploitation of a uranium mine is detrimental to the public health of the region. Moreover, they judged it to be against their professional code of ethics to remain silent and simply treat the inevitable increase in the number of sick and infirm as a result of mining uranium in the region.

For far too long the proponents of economic growth at any cost have had their way unchallenged. This gesture goes a long way to assert that the quality of life of the population comes before material well-being of an increasingly isolated elite.

In fact, the situation in Sept Iles demonstrates how useless the GDP metric is in determining a quality of life problem. Since the calculation of GDP doesn’t differentiate between what is good and bad for the public – it simply adds up the volume of all monetized transactions – the increase in health care expenditures expands the region’s GDP, which is to be interpreted as a good thing for the population at large. In other words, when wearing the GDP blinders, the question of whether or not to go ahead with the development of the uranium mine doesn’t even arise since the internal logic of the mindset has already determined what course of action should be undertaken.

If we consider that increased economic growth has led to ever increasing growth in the proportion that health care expenditures demand of provincial government budgets (soon to reach 50% in Quebec), the question should be raised, can we the public, in particular the middle-class, afford continued economic growth? Essentially, those who stand to gain the most financially from the development of the mine are the invesors who are more than willing to offload the externalities of its development to the public purse, and it’s the middle class who fills its coffers. Slowly but surely the members of the middle class are becoming wage slaves.

Thursday, December 3, 2009

Financial Crisis or Oil Shock

Financial Crisis or Oil Shock

Former CIBC chief economist for world market, Jeff Rubin, makes a strong case that the financial crisis is a symptom of a sudden doubling of the price of oil, which triggered a rise of interest rates that left sub-prime mortgages at an unprecedented level of risk to default. Rubin, in my opinion, is Canada’s leading economist who understands the link between energy resources, the economy, and financial markets.

You can read the entire article at

Risks, Consequences and Copenhagen


Martin Wolf’s most recent Financial Times column contains one of the best short arguments for a new climate policy that I’ve seen. He notes that climate skeptics — or sceptics, in the British spelling — argue that the science of climate change is uncertain and that putting a tax on carbon emissions is therefore a mistake. Mr. Wolf then writes:

Yet it is not enough to argue that the science is uncertain. Given the risks, we have to be quite sure the science is wrong before following the sceptics. By the time we know it is not, it is likely to be too late to act effectively. We cannot repeat experiments with just one planet.

When you’re thinking about taking some kind of corrective or preventive action, you want to keep in mind two factors: the risk of a bad event occurring and the potential consequences of that event. In the case of the climate, the science suggests that the risks of a much warmer planet are significant and the potential consequences severe. Can we be certain that such consequences will occur? Of course not. But it seems a bit reckless to assume — to hope, really — that they won’t.

That’s precisely the sort of thinking that caused economic policy makers, at the Federal Reserve and elsewhere, to ignore the signs of a dangerous bubble in real estate and on Wall Street.

Mr. Wolf’s column is worth reading in full. It also includes more detailed arguments about what should happen at the coming Copenhagen climate conference and beyond.

Wednesday, December 2, 2009

Canada's Reputation Lies in Tatters

George Monbiot writes a scathing criticism of Canada’s environmental record. It’s important to be aware of how members of the international community see us. We have as a tendency to be rather sanctimonious, not realizing that we are no longer seen as the kinder, gentler North Americans.

For the kinder, gentler version of his article, go the Globe and Mail at

Finally, Heather Mallick takes it all in and asserts that not only is it embarrassing to be a Canadian, but that the root of the problem is the democratic deficit in Canada.

Monday, November 30, 2009

Managing the Mother of all Minsky Moments

During the 2008 Canadian federal election, I had the opportunity to be a political commentator for a cable television program. One thing that struck me during the campaign is that when the markets plunged, losing more than 30% of their value, the political class was at a loss to explain the events.

Remember the talk of how our economic fundamentals were sound, that a carbon tax would move us into a recession, and that there was no need to worry about returning to budgetary deficits? Well looking back, it now appears that our politicians really had no idea what was happening although they tried their best to grapple with the extraordinary events.

Certainly, from the perspective of those who believe in the efficient-market hypothesis, the market crash and the subsequent great global recession could not be foreseen. Fortunately, the failure to anticipate and account for economic events of this magnitude forced economists to look for other explanatory models. Much attention was then given to the work of Hyman Minsky and his Financial Instability hypothesis.

In short, Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. He claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.

In other words, during the last federal election the economy passed through what is called a Minsky moment. Greed gave way to fear amongst lenders and borrowers, setting off a daisy chain of reduced expectations, credit contraction, asset liquidation, bankruptcies, layoffs, and reduced economic activity. Throughout the OECD, national governments were forced to intercede with massive injections of public funds in order to prevent a collapse of the financial and economic systems.

To that end, national governments turned to budgetary deficits in order to continue furnishing the governmental goods they provide while at the same time experiencing a significant drop in tax revenues due to the decrease in economic activity. Essentially, the infusion of public funds halted the economic decline. From the perspective of the financial industry and government fiscal policy, it is devoutly to be wished that the credit crisis will play itself out and economic growth returns so that the deficits are eliminated and the accumulated debt can be reduced.

However, there now appears the real possibility of passing through a Minsky moment of a much greater scale. Specifically, this moment entails the widespread realization that we have moved from a period of resource abundance to resource scarcity, and the resource in question is conventional oil.

Economic growth is fueled by the availability of cheap conventional oil. Despite our best efforts and brightest minds, there is no alternative energy source that comes close to producing an energy return on the energy invested to extract or produce conventional oil. It is by far the source of energy that has the highest energy density relative to its productions costs. Switching to alternative sources of energy, although desirable from an environmental view, carries the economic cost of reducing energy consumption and economic growth.

It is simply a question of physics. Less energy available means that less work can be done. Other energy sources will replace oil consumption but at a much higher cost, which reduces the amount of work that can be performed. From an economic point of view, this means an inevitable contraction of the global economy that will be qualitatively different. This contraction will not be short-lived, a part of the normal business cycle predicted by economic historians drawing upon Minsky’s work. It will be structural and will require a complete re-conception of the economic and financial systems.

Recently, global financial markets destabilized when it became apparent that the latest round of debt-fueled economic growth had played itself out. Without economic growth, companies become unable to pay back the interest on their debt. To make good on their financial obligations, assets must be sold, but in a market in which asset values are declining rapidly. Thereafter, a vicious circle develops where declining asset values further reduce the availability of credit and the capacity to service debt, which in turn causes bankruptcies, layoffs, reduced consumer spending, business investment, thereby leading to economic recession. Eventually, perceptions change when a critical mass of investors believe that the bust portion of the cycle has bottomed out and assets are then put back into more productive use, thereby generating higher profits, which in turn re-initiates the extension of credit, the appreciation of assets, hiring, consumer spending, and in turn economic growth.

This oscillation between boom and bust is sustainable as long as economic growth is sustainable over the long-term. However, the bust turns into a full-blown collapse if economic growth does not return. Having jettisoned the gold standard in favor of fiat currencies (money is created out of thin air upon the contracting of a debt obligation), the global financial system functions on the belief of continued economic growth. Without growth, the interest on acquired debt cannot be paid.

Debt relief can be obtained if it is believed that a recession will be short-lived, but if the contraction becomes structural, as would be the case once we begin to travel downwards from peak conventional oil production, defaults on debt obligations accompanied by massive asset liquidation will increase exponentially. In other words, the Great Global Recession turns into the Great Global Depression.

Interestingly enough, as George Monbiot noted, last week two whistleblowers from the International Energy Agency (IEA) alleged that it has deliberately upgraded its estimate of the world's oil supplies in order not to frighten the markets. Three days later, a paper published by researchers at Uppsala University in Sweden showed that the IEA's forecasts must be wrong, because it assumes a rate of extraction that appears to be impossible. In fact, almost every year the Agency has been forced to downgrade its forecast for the daily supply of oil in 2030: from 123m barrels in 2004, to 120m in 2005, 116m in 2007, 106m in 2008 and 103m this year. But according to one of the whistleblowers, even today's number is much higher than can be justified, and the International Energy Agency knows this.

Given the current levels of national debt, it would appear that borrowing from future generations to alleviate financial and economic crisis has reached its limits. Inevitably, the delivery of government goods will be reduced in order to bring some financial stability to government expenditures. However, another financial shock, much larger than the latest round, will create economic conditions beyond the capacity of governments to react. Laden with debt, national governments won’t be able to intervene in any meaningful way unless they reduce the systemic risk that their economies are now exposed to.

Two measures must be taken in the immediate future if we are to stave off economic collapse. The first is to increase the reserves that banks must maintain in order to make loans. Fractional-reserve banking within global financial markets amplifies systemic risk exponentially. To avoid a complete freeze of credit markets within a shrinking global economy, banks must be legislated to hold in reserve funds equivalent of at least 25% of their loan portfolios. Second, a financial transaction tax, similar in kind to the Tobin tax but applicable to all financial transactions, must be implemented. Funds generated from this tax should go towards either building up financial reserves or paying down the national debt.

To stay within the business as usual, good times are just around the corner, lets continue with the status quo is an invitation to simply wait for a Force 5 Hurricane to pass over, believing that will we simply be able to pick up the pieces and return to our previous lives with only minimal discomfort.

Saturday, November 7, 2009

How to Kill the Zombie Economy

To kill a zombie, you must destroy its brain. To kill the zombie economy, we must exorcise its unrelenting pursuit of economic growth and its insatiable lust for capital gains.

Zombies eat live humans to continue their existence. In the zombie economy, the speculative economy cannibalizes the real economy to enrich the lost souls who have given themselves to Mammon.

The realm of the living is much different from the realm of the undead. In the real world, ordinary people are loosing their jobs; they are loosing their homes; they are loosing their pensions; and they are loosing hope. In the realm of the undead, the US economy grew by over 3% in the third quarter. Bankers and fund managers celebrated and welcomed the return of their million dollar bonuses.

Clearly, good fortune is not being ferried from one realm to the other. On one side, the undead relish the great wealth that has been amassed; on the other, real people are having their life-blood sucked out of them and are facing the prospect of having their children enslaved to pay down the debt brought on by the pillaging of the public purse.

How is it that the ghoulish speculators have made off with the so much of the common wealth and left such misery behind amongst the real folk?

We were fooled. We were seduced by our own desires to have more than our fair share, and we allowed the undead to take control of the helm.

We believed the ghouls of finance who told us we could become rich by producing less and by trading more. So we flipped our houses and hollowed-out our companies (paying a handsome fee for each transaction) and placed huge bets on the outcomes of games we did not understand.

All the while, we took comfort in being told that the economy was still growing. We believed that the zombie pulse of the nation, the GDP, indicated continued health and prosperity.

But, we were wrong. We could not distinguish between the sound of our collective heartbeat and the sound of the drum egging us on to place more and more of our wealth in the hands of those who run the zombie economy.

When we had spent all that we could spend, we were then told that our world would come to an end unless we agreed to hand over a large part of our future earnings to keep the system in place. Apparently, even the zombies can’t help laughing amongst themselves that we fell for this one.

So, now we toil longer for less, under conditions much less favourable, and the zombies continue to tell us stories, hoping to entice us to return to the gaming tables of financial speculation.

But now, for the sake of the unborn, we must break the zombie spell. Even the zombies know that no real thing can grow forever. Eventually, growth slows and comes to rest. We must learn to ignore the shrieks from the zombies that would have us take any action, at any price, to keep their zombie world from contracting.

There are those who know what measures need to be taken. Let us heed their counsel and stop our ears to the sirens song of unsustainable wealth.

Monday, November 2, 2009

Can’t See the Forest for the Trees

The head of the international group leading the fight against climate change has accused countries of pushing science aside in favor of self-serving "political myopia" ahead of the vital Copenhagen summit.

Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change, was quoted in the Guardian as saying: science has been moved aside and the space has been filled up with political myopia with every country now trying to protect its own narrow short-term interests. They are afraid to have negotiations go any further because they would have to compromise on those interests.

Political myopia pretty well sums the Canadian Government’s response to a landmark study published last week that details how Canada can reduce its green house gas emissions by 20% of the 1990 levels by 2020.

Federal Environment Minister Jim Prentice said there is no way Western Canadians could absorb the deep economic hit projected by the report's environmentalist authors – the David Suzuki Foundation and the Pembina Institute. Mr. Prentice, in an interview with The Globe and Mail from Kingston, said Canadians will not accept the report's advocacy of emission targets for 2020 that would reduce Canada's gross domestic product by 3 per cent nationally and 12 per cent in Alberta from business-as-usual estimates.

Well Minister Prentice have you calculated the potential economic cost of dust bowl conditions in Alberta and Saskatchewan that would result as the planet continues to heat up? Look at what’s happening in Australia and the American Southwest, never mind equatorial east Africa. What’s the projected loss of GDP in a worst case scenario where there are successive years of massive crop failures? Why would Western Canadians accept a return to the dirty thirties landscape on the prairies?

Moreover, slowing the rate of extraction of fossil fuels in the West actually makes a lot of sense from a long-term intergenerational economic perspective. The oil and gas locked in the ground will not suddenly evaporate. In fact, once the extraction of conventional oil and gas supplies begins to wane as we move downward from peak oil production, the market value of the reserves in Western Canada will increase substantially. It’s as if you would have us believe that all Western Canadians are intent to piss away their natural inheritance in one generation.

Other than the loony fringe of the Christian fundamentalist movement, where the apocalypse cannot arrive soon enough, and the shareholders of the major corporations racing to extract as much as they can as quickly as they can – they have cornered the market on asbestos suitcases – most Western Canadians have the common sense to realize that extracting non-renewable resources at full throttle is not in their long-term self-interest.

One thing that is most striking in the political myopia of our political class is that almost no serious thought has been given to the economic potential of extracting financial wealth from the real and speculative economy to preserve the carbon sequestration capabilities of Canada’s boreal forest.

A report by the International Boreal Conservation Campaign said the forests, with their rich mix of trees, wetlands, peat and tundra, were a far bigger carbon store than scientists had realized, soaking up 22% of the total carbon stored on the earth's land surface.

If you look across Canada one of [the boreal forest's] great values to us globally is its carbon storage value, said Steve Kallick, director of the Pew Environment Group's International Boreal Conservation Campaign. There is so much carbon sequestered in it already that if it escaped it would pose a whole new, very grave threat.

Canada's cold temperatures slow decomposition, allowing the build-up of organic soil and peat. The forest floors beneath its evergreens hold twice as much carbon per acre as tropical forests, such as the Amazon.

Canada has approximately 1.3 billion acres of boreal forest. Each acre can absorb on average between one and two metric tons of CO2 per year. Do the math at $30 a ton and then at $100 a ton. Evidently, the forests are worth much more as carbon reservoirs than for their lumber.

Unfortunately, the Canadian political class doesn’t seem to have a clue that we should be negotiating hard to have carbon credits for old growth forests included in the post-Kyoto accord. Talk about a missed opportunity. If we can pay Canadians for not growing wheat, we should be paying those in the forestry sector for managing the forests in an ecological manner.

Tuesday, October 27, 2009

A Tragedy in the Commons

Amongst ecologists, the tragedy of the commons is a well-known phenomenon that demonstrates how the rational pursuit of self-interest can lead to an irrational result, the collapse of a shared limited resource. The standard example is the case of a sheep herder who brings to the common grazing grounds some extra sheep to feed. As long as everyone else respects their quotas, he experiences the gain from feeding his extra sheep whereas the rest of the herders share the loss. All is fine and well until other herders begin to adopt the same strategy. If enough herders do so, the grazing of the sheep will exceed the capacity of the commons to regenerate itself, thereby diminishing the feed available to all. Everyone loses.

In the House of Commons, we have recently witnessed a similar problem in sustaining a collective action that would bring benefits that would be distributed widely. In this case, it is the adoption of Bill C-311, otherwise known as the Climate Change Accountability Act. If adopted, the Bill has already passed two readings, it would commit Canada to reducing its green house gas emissions 25% below 1990 levels by 2020 and 80% below 1990 levels by 2050. This is the scale of the required reductions that Canada and other developed countries must undertake if catastrophic climate change is to be averted.

Unfortunately, a motion was introduced to extend the time the Bill would pass in committee thereby preventing the adoption of the Act before the upcoming global summit in Copenhagen, where the global community would gather to discuss and hopefully come up with a plan to replace the Kyoto Accord. Previously, the three parties in opposition voted together in support of Bill C-311, but this time around it was the Liberals who voted with the government to scuttle the attempt to have Canada arrive at an international summit on climate change with something to bring to the table.

In regard to Kyoto, Jeffery Simpson sums up Canada’s pitiful performance in a recent article: as for Canada, its record on reducing emissions is recognized internationally to have disgraced the country's good name. It broke all its promises at Kyoto. Domestic emissions continue to rise.

Disgraceful, shameful, and uncaring are all words associated with Canada’s international reputation. Maybe its time to tear off the maple leaf from our back packs before the Olympic craze takes over the land.

Clearly, the Liberals and NDP are caught up in the perpetual electoral campaign that has seized Canadian politics. Together, with the support of the Bloc, they could have pushed this bill through, or if they felt that the long-term well being of the planet mattered enough, they could have brought down the Conservative-led Government. Yet, for all their platitudes about the importance of addressing the problem of climate change, each party remains trapped in its Quixotic quest for a single-party majority government. Once again, everyone loses.

The only bright spot to this sad story is the group of young adults who seized the moment and disrupted Parliament from the gallery during Question Period and denounced the government’s inertia with their shouting of slogans. They were of course expelled from Parliament, but it was very refreshing to see Canadian youth manifest their disapproval and refuse to join the swelled ranks of their smug and complacent Parliamentarians.

Tuesday, October 20, 2009

The Constitutional Kerfuffle Masks the Democratic Divide

This week Canadian Prime Minister Stephen Harper referred the question of whether the federal government has the power to create a national securities regulator to the Supreme Court of Canada. Three provinces (Quebec, Alberta, and Manitoba) oppose the creation of a federal regulator.

Talk about being trapped in a dysfunctional political discourse. For more than 140 years we have been wrangling over the question ofprovincial/federal jurisdiction. What gets lost in this debate is whether the members of the public are sufficiently protected from the unscrupulous trading practices of the financial industry.

It seems to me that the more pertinent question is would it be in the best interest of the public to create a pan-Canadian regulatory agency given that Parliament is ruled by successive political oligarchies. Political power in this country is largely determined by the ability to appeal and solicit donations from the investor class. Within this framework, we would expect that such a regulatory body would be more favourable to the interests of the financial industry at the expense of the general public.

Look at the recent US experience. Effective lobbying by the financial industry led to the repeal of the Glass-Steagall Act. The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest US bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations. A year later, the Commodity Futures Modernization Act of 2000 was adopted, which exempted the exchange of financial derivatives from federal regulation.

Everything was then in place to produce an economic meltdown that enriched those in the financial industry beyond belief and produced unimaginable collateral economic damage for the bulk of the population: 8 million lost jobs, almost 1 million home foreclosures in the third quarter of 2009 alone, pension plans reduced by 30% and more, and untold trillions in accumulated public debt foisted on the present and future generations.

Here in Canada, our democratic institutions are not sufficiently democratic to prevent a similar rewriting of the financial regulatory practices that would enrich an extremely small but extremely powerful elite at the expense of the vast majority of Canadians. Neither the Conservatives nor the Liberals can muster the support of more than 25% of the electorate. Yet, the power of the majority can be exercised under the threat of sending the electorate back into a general election, something that the Economist referred to as Canada's perpetual electoral campaign.

In principle, the creation of a federal regulator could be very beneficial if it exercised its power so that the wealth generated from the real economy was distributed in a more equitable fashion and prevented the buccaneers of high finance from siphoning off this wealth through the churn of dubious financial transactions.

If there is one lesson that we should draw from the US experience is that the finance industry can capture the regulatory function. Evidently, the counterbalance to unacceptable levels of systemic risk engendered by the greed of a few is the effective representation of the many. However, the British parliamentary system substitutes the effective representation of the majority with the over-representation ofa well-heeled minority through the systemic distortion of the electoral results. Without qualitative change to our electoral system, there remains a distinct possibility that any pan-Canadian regulator would escape democratic censure.

To move forward with the proposal, democratic reform must precede the creation of the new financial institution. Questions of provincial jurisdiction are anachronistic because of the way the exchange of financial securities no longer respects territorial limits. Securities are now traded 24 hours a day in a global market.

Finally, as a resident of Quebec I can quite comfortably say that the claim that the creation of a federal regulator is an affront to Quebec sovereignty is laughable given the recent scandals in Quebec involving Vincent Lacroix and Earl Jones, two financiers that bilked their clients of millions, and the recent performance of the Caisse de dépôt et placement du Québec, the fiduciary responsible for the management of many of the province's pension plans, which saw a reduction in value of 24% of its investment portfolio (approximately $40 billion) in 2008 and a failure to generate any returns for the first six months of 2009. Having failed miserably to meet even the most modest of performance requirements, the Quebec government has little in the way of legitimacy in the eyes of its citizens as the a priori regulator of the financial industry within Quebec.

Sunday, October 11, 2009

In the Land of the Cannibals, the Ponzi Economy Rules

We are not used to thinking about our own political economy as one that cannibalizes its basic supporting subsystems in order to generate the greatest short-term profits possible for a wealthy elite. I know that some environmentalists would disagree. They would respond that they have been engaged in a struggle for decades against a political class that would expand economic production until every tree was logged, every lake and river left polluted, an atmosphere rendered unbreathable, and our topsoil turned into dust.

Tree huggers, what do they know? Well, they were bang on in identifying the self destructive nature of free market capitalism. They just didn’t predict that the insatiable appetite for profits would begin to feed off of the very means of production that generated the initial capital that the Lords of Wall Street successfully looted, multiplied, and subsequently ran off with, ravaging the US economy so that if it were a landscape, it would resemble the remains of a clear cut forest.

Presently, we are led to believe that the economy is this large, somewhat incomprehensible, singular entity. Most of our politicians try to pass themselves off as competent stewards of THE ECONOMY. In fact, we would do much better to think of THE ECONOMY as being composed of three mutually interdependent economies: the primary economy, which consists of the natural resources and the freely given human labour that sustains human society; the real economy, which is the sector of THE ECONOMY devoted to the production of goods and services with real added value; and the speculative economy in which money multiplies as a result of a series of financial transactions.

Essentially, the primary economy gives birth to the real economy, which in turn gives birth to the speculative economy. It should be obvious that if the quality of the primary economy is led to degrade sufficiently, continued activity in the other two economies will cease. This is, in a nutshell, the economic argument for addressing climate change former World Bank chief economist Lord Nicholas Stern makes in the Stern Review. If we don’t begin to act immediately, the economic costs resulting from not acting or an undue delay taking action will far outweigh the cost of the investments. Some would say it is already too late, and we will scorch the earth and leave the planet inhospitable for humans for hundreds of thousands of years.

What is relatively new is that with the near collapse of the global financial system and the Great Global Recession that ensued, it has become evident that the unfettered activities in the speculative economy have been catastrophic for the activities in the real economy. In the United States alone 8 million jobs have disappeared since December 2007, and the US government has been forced to assume trillions of dollars in debt to ward off being plunged into another Great Depression. What the stewards of the free market failed to realize is that those who were raking in billions as a result of their trades in the speculative economy were more than willing to sacrifice the well-being of those who toiled in the real economy because the scale of the profits were exponentially greater than what could be made by making money the old fashion way, earning it.

To understand how the Great Global Recession came into being, we must give proper consideration to key developments concerning economic policy during the Clinton–Bush years. In particular, there was a significant shift in the importance accorded to the speculative economy, and a decision made not to regulate the exchange of financial derivatives.

During the nineties, a seminal article, Securities: The New World Wealth Machine, appeared in the periodical Foreign Policy, which effectively explained how financial markets could become the most powerful generator of wealth. In what appears to be a classic example of putting the cart before the horse, the author articulates what would become the dominant economic strategy in the U.S:

Historically, manufacturing, exporting, and direct investment produced prosperity through income creation. Wealth was created when a portion of income was diverted from consumption into investment in buildings, machinery and technological change. Societies accumulated wealth slowly over generations. Now, many societies, and indeed the entire world, have learned how to create wealth directly. The new approach requires that a state find ways to increase the market value of its stock of productive assets. Several countries have successfully directed their economic policies toward that goal, achieving and sustaining faster growth rates than were once thought possible...

an economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.

This represents a historical shift in thinking about the economy. Evidently, there is a reversal of economic priorities in regard to the creation of wealth, in particular, a shift away from the production of tangible goods and services in the real economy to the manipulation of financial assets in the speculative economy. In other words, why go through the painfully slow way of creating wealth through the real economy when unimagined riches (for the few) can be obtained by shuffling financial securities.

Importantly, not only is there a big disconnect between a sustainable future and the desire for immediate reward, but, as well, between the well being of a political and financial elite and the rest of the population. At least, within the real economy even though the benefits are distributed disproportionally, there exists a common interest between capital and labor in that direct investment leads to the creation of jobs. In the speculative economy, however, the so called creation of wealth is little more than a transfer of wealth from those who toil outside of the financial sector to those who work within it and the clients that they serve.

In order to bring about the realization of the New World Wealth Machine, an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000 needed to be introduced. It not only removed derivatives and credit default swaps from the purview of federal regulation, it gave Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century.

Interestingly enough, the legislation was never debated in either the Senate or Congress and was adopted unanimously on the last vote of the last day of the lame duck 106th Congress, between the election and inauguration of George W. Bush.

Once the legal impediments had been removed, Wall Street began to put into practice the irrational belief that great wealth could be created by convincing those with limited means to assume levels of debt they could not possibly service, transferring the fiscal responsibility of the debt to third parties and then betting on the outcomes. Indeed, this is the unregulated world of subprime mortgages, collateralized debt obligations and credit default swaps, which has turned out to be perhaps the greatest Ponzi scheme ever undertaken.

This is the way the scam worked. During the recent real estate bubble in the United States, people were lured into buying houses with surreal financial terms (the subprime mortgage): little or no down payment and a mortgage with a low initial interest rate which would readjust to a higher rate at a later date. Imbued with the expectation that real estate values would continue to rise, people were led to believe that they could simply sell their house at a tidy profit if they were subsequently unable to meet their financial obligations when the higher interest rate kicked in. Knowing full well that many of these mortgages would be subject to default if the American real estate market began to level off (more so, if values began to fall) the financial securities industry buried these suspicious debt obligations within larger and more complex securities (collateralized debt obligation) and sold them as AAA financial products on the global financial markets. To make matters worse, one could take out an apparent insurance policy (credit default swap) on the likelihood that a party would default on its debt obligations, and even worse, such a policy could be bought without even being party to the debt, in other words, a side bet, which explains why it was necessary to gain immunity from state gambling laws. Moreover, the marketing of these derivates as a type of insurance was fraudulent since no monies were set aside from which payments could be made in case of default on a debt obligation.

It doesn’t take much to realize that this set up is nothing less than an elaborate house of cards that will begin to collapse once the subprime mortgages surpass the accepted default rate. Once this occurs, a domino effect takes over, where one default triggers another and where no one wants to be holding the toxic assets. As should be expected, the one ultimately holding the bag is the tax payer because, after all that is said and done, it’s his job or his pension that is eventually imperiled once the decline in asset prices impacts upon the real economy, and it will be his tax dollars that is called upon in order to prop up the financial system.

Without question there was an absence of effective regulation of the financial markets. In the worst case, the Securities and Exchange Commission failed to intervene in the New York financier Bernard Madoff’s elaborate scheme that bilked friends, clients and charitable foundations of approximately $50 billion despite having been informed of the gross irregularities concerning his affairs. The failure to do so has been often cited as the reluctance of regulatory officials to investigate suspected criminal behavior by those with whom they might do business after their stint at the regulatory agency is over. After all, time spent working for the government can often be parlayed into future career gains in the private sector as a result of increased familiarity with the regulatory mechanisms.

With regard to a much more disturbing phenomenon, the bond rating agencies decision to award AAA status to collateral debt obligations tainted with subprime mortgages seems to be a case of the refusal to kill the goose which lays the golden eggs. There is a flagrant conflict of interest when financial institutions have their quality of their financial products evaluated by agencies that are funded by the said institutions. Moreover, there was simply too much money to be made to take the time necessary to evaluate the risk. For example, in 2007 the top fifty individual hedge fund managers earned $29 billion. Their average income was twelve thousand times the income of the typical American family.

Finally, the investment climate allowed private equity firms to engage in leveraged buyouts of successful companies that operate in the real economy in which the real wealth of the company was sucked out and replaced with mountains of debt, often forcing the cannibalized company into bankruptcy, leaving the bondholders not holding the appropriate credit default swaps, creditors, and of course the workers in the lurch.

In the most telling example, the iconic manufacturer the Simmons Bedding Company was flipped from one private equity firm to another, generating millions of dollars of profit in the process and leaving behind an accumulated debt that grew from $164 million in 1991 to $1.3 billion in 2009. According to analysts at Standard & Poor’s, more than half of the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms.

With respect to how the financiers of the speculative economy have behaved towards those who gain their livelihood from the real economy, it is similar in kind to the way the proponents of wealth creation through the real economy behaved to those whose livelihood depended on the health of the primary economy. In both instances, there was a pathological fixation on wealth extraction with little thought and no remorse for the damage left behind.

If we are to have a sustainable future and be stewards of THE ECONOMY, we will need to reverse the direction of the cash flow. Monies gained from the speculative economy need to flow back into the real economy in such a way as to re-establish the health of the primary economy. Faced with the possibility of catastrophic climate change, this is the biggest and most important challenge facing humanity today.

Thursday, October 1, 2009

It's the Climate Stupid

We are a culture that has been denied, or has passively given up, the linguistic and intellectual tools to cope with complexity, to separate illusion from reality.

Today cinematic, political, and journalistic celebrities distract us with personal foibles and scandals. They create our public mythology. Acting, politics, and sports have become, as they were in Nero’s age, interchangeable. In an age of images and entertainment, in an age of instant emotional gratification, we neither seek nor want honesty or reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion.

Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle.

There are less than 70 days to go to the Copenhagen Conference, perhaps humanity’s last chance to come up with a viable solution to avoid catastrophic climate change. Yesterday, the US Senate made public its plan to cut green house gas emissions by 20% by 2020, using 2005 as a baseline. In the UK, British Prime Minister, Gordon Brown, announced his intention of making available $100 billion to help under-developed countries reduce their emissions.

In Canada, we are treated to the Denis Codere show. This week the nation focused its attention on the loose-cannon antics of the Liberals former Quebec Lieutenant who had resigned, claiming that he had lost the moral authority to do his job, and, what the Quebec media loves to hear, his claim that the Liberal Party is being run out of Toronto at the expense of Liberals in Montreal.

Morevover, instead of being present in Parliament to cast his vote on a vote of non-confidence that could bring down the Stephen Harper led Conservative government, he opted to miss the crucial vote in order to attend the taping of Tout le Monde en Parle, the most popular celebrity television talk show in Quebec that has a regular audience of Super Bowl proportions.

Likewise, the most popular newspaper in Montreal publishes on its front page the results of a poll which shows how the Liberals are experiencing, according the head-line, a brutal drop in the polls.

It must have been a boring week. Never mind the economy has tanked. Forget that negotiations leading up to Copenhagen have stalled and Canadian politicians, being in a state of perpetual election, have absolutely nothing to bring to the table.

Instead, we should focus out attention of the personal narrative of Michael Ignatieff, betrayed by his lieutenant and facing comparisons to his weak predecessor at the helm of the party. How will he manage? Will the Conservatives take advantage of his perceived weakness and call an election, hoping to find that elusive majority? What will happen to little Denis? Will he keep his seat or will he, like the former leader of the opposition in Quebec's National Assembly, Mario Dumont, get his own television program?

Essentially, we are being treated to what Benjamin DeMott calls “junk politics.” It does not demand justice or the reparation of rights. It seeks to divert attention away that which is important, and the result is that nothing changes—“meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.”

So what if we don’t act to make the essential changes to the way we live and we scorch the planet in the process. Pity those passengers of the Titanic that only had an orchestra to listen to while the ship was sinking—we can watch our own disaster unfold with the brilliance of HD.

Sunday, September 27, 2009

Scorched-Earth Economics

As the week comes to an end, we witnessed what Globe and Mail columnist Jeffery Simpson referred to as tired rhetoric in that both the Liberals and Conservatives were spouting the importance of the return to economic growth as the means from which Canadians are going to collectively dig our way out of the huge financial hole that we have made for ourselves.

Nothing new here except, given the possibility of global climate change of catastrophic proportions, there is something that is pernicious. Indeed, vaunting economic growth in the face of the disconcerted efforts to limit global warming to only two degrees Celsius by the end of the century is tantamount to advocating a scorched-earth policy.

As a defence strategy, rendering a terrain inhospitable in order to limit the advance of hostile armies proved to be effective, most notably by the Russians in the face of Napoleon’s armies and then again when confronted by the Germans during the Second World War. Today, however, such tactics contravene the Geneva Convention:

It is prohibited to attack, destroy, remove or render useless objects indispensable to the survival of the civilian population, such as foodstuffs, agricultural areas for the production of foodstuffs, crops, livestock, drinking water installations and supplies and irrigation works, for the specific purpose of denying them for their sustenance value to the civilian population or to the adverse Party, whatever the motive.

Yet, from an intergenerational perspective, the effects of continued global economic growth is to render useless the indispensable components of human survival (air, water, topsoil, ambient temperature) for future generations. A quick glance of the global inventory of the basic natural necessities reveals rapid depletion of water tables and the depth of topsoil, while at the same time the level of green house gases and the acidity of the oceans rise at an alarming rate. The motive for implementing a scorched-earth policy is clear, the insatiable greed of those living in the present, and the means is the ever-increasing levels of production and material throughput that goes by a rather innocuous term, economic growth, most often measured by a nation’s gross domestic product.

Clearly, a drop in economic activity brings about some positive results for the biosphere. For example, during the global recession we have witnessed a significant drop in the production of green house gases. In a report due to be released this November, the International Energy Agency projects a drop in global carbon emissions by 2.6% this year. Closer examination reveals that in the United States carbon emissions dropped by 3.8% in 2008 as compared to 2007 and are projected to drop another 6.0% in 2009.

Faced with significant deficits and mountains of accumulated debt, politicians throughout the G-8 are reluctant to make tough choices such as reducing expenditures or raising taxes and are opting to finesse their way through current economic difficulties by monetizing the debt and planning for a return to economic growth, albeit with a greater risk of runaway inflation.

It should now be recognized that the risk of allowing the externalities of increased production to negate efforts to reduce green house gases renders this economic strategy worse than useless. It is as though present generations refuse to accept the folly of their ways and either refuse to recognize that continued growth models have the effect of scorching the earth for future generations or opt to delay the inevitable downshifting of material production as long as possible.

The substitution of the reduction of energy intensity in economic production (less units of energy used for each unit of GDP produced) instead of the absolute reduction of carbon emissions hides a malicious intent. Although greater energy efficiency is devoutly to be wished, in the absence of absolute caps placed on economic activity increased energy efficiency has the perverse effect of increasing energy consumption and consequently increasing carbon emissions. For example, the increased efficiency of steam engines during the Industrial Revolution brought about an increase in coal consumption, and the increased fuel efficiency of automobiles during the first oil crisis, led to an increase of the total number of kilometers driven, which caused an actual increase in overall gasoline consumption. The tendency for increased efficiency to lead to greater rates of consumption is know as the Jevons paradox.

A second counter-intuitive phenomenon known as the Easterlin paradox should also call into question the desirability of continued economic growth. In short, there is a large body of evidence that indicates that as a society develops rising material wealth stops making the population any happier. Looking at quality-of-life indicators for OECD countries, it appears that the importance of relative wealth, in other words, how the wealth is distributed, is more important than the absolute wealth of the nation. Moreover, the documented increase in unequal wealth distribution that has accompanied the last 25 years of economic growth has not brought about an increase in the well-being of the populations of developed nations where income disparities are large. On the contrary, there is evidence to show that this type of economic growth that has characterized the end of the 20th and beginning of the 21st century has actually led to a decrease of the quality-of-life indicators for the vast majority of the populations.

Faced with the urgency of curbing green house gas emissions and the dubious utility of continuing to use an increase in economic production as a means to increase the well-being of the population of a developed country, it is time that we abandon the economic growth at all costs paradigm in favor of steady state economy.

Keeping the economy at a steady state has the advantage of placing an absolute cap on economic activity so that increased efficiency in energy use actually brings about significant reduction in green house gases. Second, the acceptance of curtailing economic growth in the developed world would bring about a marked change in attitude from the developing world with regard to their growing economies.

Overall reductions in carbon emissions require that those who are largely responsible for the problem to assume a leadership role in bringing about the solution. It is folly to believe that the developing world will accept diminished growth of its material well-being while the developed world continues to deplete the world’s dwindling natural resources at an unsustainable rate.

To avoid the global tragedy of the commons situation, it is imperative that some of the nations of the developed world abandon their scorch-the-earth economic policies disguised in the pursuit of ever increasing production levels for an approach that can sustain life as we know it and carries the possibility of actually increasing the well-being of the majority of the population.

Monday, September 21, 2009

Quebec Pays Dearly for its Democratic Deficit

Last Friday was a sad day for democracy in Quebec. The National Assembly had resumed its work, and after only three days the Liberal Government invoked closure in order to adopt an amendment that would modify the Balanced Budget Act and allow for a return to budget deficits without any clear plan on how the Province would emerge from its sea of red ink.

What I find troubling in this measure is how political power has become so concentrated in the Premier’s Office at a time when we should be questioning Premier Jean Charest’s capacity to manage Quebec’s economy. Moreover, the false majority that our electoral system bestowed on the Quebec Liberals (PLQ) came about as a result of the systemic discrimination of the Action Democratic of Quebec (ADQ), the only political party that concerned itself with the long-term consequences of Quebec’s status as the Canadian province with the highest per capita debt in Canada.

Looking back at the 2008 General Election, despite the Province being mired in the worst recession since the Great Depression, Mr. Charest called the election in order to take advantage of the ADQ’s weakness in the polls. Having dropped from 31% to 16% of the popular vote, the ADQ would bear the full brunt of our voting system’s discriminatory practices and have their seat count reduced from 41 to 7 seats. In other words, a 50% drop in popular support brought about an 83% drop in seats in the National Assembly.

What is remarkable is the PLQ’s rise from minority to majority government status came about as a result of significant drop in the participation rate during the last election. In short, the Liberal victory did not come about by its ability to attract swing voters, but by the fact that approximately 600,000 voters who voted for the ADQ in the 2007 General Election did not bother to go to the polls.

It seems that a disturbing new trend has emerged in Canadian politics: berate your opponents while hanging on to core supporters so that the margin of victory results not from increasing voter support but from the increasing numbers of the opponent’s supporters deciding not to cast their votes.

In Quebec, from 1994 to 2008, the PLQ was the more successful of the two major political parties in keeping a greater percentage of their core support as the participation rate began to plummet: the participation rate in general elections fell from 81% to 57% of the electorate. During the same time period, support for the PLQ fell from 36% to 24% of registered voters, while the support for the Parti Quebecois (PQ) fell from 36% to 20% of registered voters. In absolute numbers, support for PLQ declined by 371,652 voters or 21%, and support for the PQ declined by 609,691 voters or 34%.

Taken together, the PLQ and the PQ had the support of 71% of registered voters in 1994. However, in 2008 the combined support fell to 44% of the registered electorate. Disturbingly, during the 14 year time period, the number of eligible registered voters increased by 845,346 or 17%, yet the number of electors voting for both parties decreased by 981,343 or 20%.

Clearly, the majority of Quebec voters has moved beyond the sterile nationalist/federalist debate but are held hostage by an electoral system that makes it extremely difficult for emerging parties to gain and hold support. For example, of the five general elections the ADQ has contested, four of them have resulted in severe reductions of the number of seats that the ADQ would have won if the representation in the National Assembly accurately reflected the popular vote.

Not surprisingly, neither the PLQ nor PQ has shown much interest in adopting a proportional voting system despite the fact the public has been consulted four times over the last thirty years. In each instance the organizing committee tabled a report recommending the adoption of a proportional voting system.

In short, rather than working to give better representation of the diversity of political views in Quebec and to increase the participation of the electorate in the electoral process, the PLQ and PQ have conspired to perpetuate the status quo by shrinking the electorate to those who remain willing to choose between what the majority of the electorate believe to be two unsatisfactory options.

Looking at the state of the Province’s finances, the alternation of the two governing parties has not produced much in the way of prudent fiscal management. Back in 1970, when the Liberals were in power, Quebec’s accumulated provincial debt was almost nonexistent, standing at $2.3 billion. Since then, it has grown at a rate on average of $2.7 billion annually, reaching a summit of $130 billion at the end of March, 2009. More so, if we use currently accepted accounting practices and include the debt incurred by other government bodies, which would establish the accumulated debt to be approximately $150 billion according to the Montreal Economic Institute. Add in Quebec’s portion of the federal debt, and we reach a level of debt that is more than 80% of the Province’s GDP.

If the highest level of indebtedness is not cause for concern, the recent performance of Quebec’s public pension plans should. In 2008, the public portfolio managed by the Caisse Dépôt et Placement lost 27% of its value ($40 billion), and in the first six months of 2009 did not generate anything in the way of returns.

Looking forward, the Quebec Government anticipates another $12 billion of deficits during the next four fiscal years. This figure does not include a reduction in equalization payments from the federal government, which will inevitably incur as the major provincial contributors, Alberta and British Columbia, are now experiencing record deficits of their own.

To make things worse, Quebec’s rapidly aging population will reduce the Province’s capacity to generate economic growth from productivity gains and will only add to spiraling costs of providing healthcare.

Undoubtedly, these huge challenges will require tough decisions and innovative approaches. Unfortunately, neither of the two governing options has much to say that is relevant to the nature of the problems. It is as though we are stuck in the 1970s: the Liberals are still talking about mega hydro-electricity projects and the PQ is still proposing the panacea of independence.

To repeat a common theme in my posts, it is the tyranny of dead ideas that is the major factor in bringing about what has been referred to as the historical period we are now living in Quebec—the quiet decline.

Wednesday, September 16, 2009

Canadian Politics Make for Strange Bedfellows

The latest round of political posturing has shown how the present situation in Parliament is a farce. Drumming up the ghosts of the Liberal-NDP-Bloc coalition, the Conservatives accuse the Liberal leader, Mr. Michael Ignatieff, of wanting to lead the second coming of the once dead coalition, of which Mr. Ignatieff has flatly denied.

It is as though Mr. Harper, having vilified the Bloc as separatists and the NDP as socialists, has accused Mr. Ignatieff of having chosen to shack up with two political parties of ill repute. Shortly thereafter, however, in order to get a Ways and Means Bill adopted in the House of Commons, the Conservatives had no choice but to seek reprieve from either one of the shady political formations in getting them to support the motion; otherwise, a general election would ensue.

The moral of the tale is that the lust for power can be satisfied with the occasional dalliance with those of besmirched reputation, but woe to anyone who even thinks of establishing an enduring relationship with such political harlots.

Give us a break.

In the context of a minority government, if a governing party governs and the opposition opposes, what option exists, other than a general election, than seeking the support of one or more of the other parties so that Parliament functions. Moreover, given the inability of either one of the traditional parties to attract enough support to form even a false majority, a general election will not return us to the days of majority government.

So, like it or not, this is the situation. Either we remain in the present state of affairs in which there is a succession of short-lived minority governments unable to pass any meaningful legislation that addresses the nation's challenges, or we move on to a more stable form of government, a majority coalition formed by two or more parties.

If we are to do the latter, we must abandon our desire to be ruled by a system that privileges domination and control. A working coalition necessitates collaboration that only arises from the desire to reach consensus, a process that recognizes the capacity of those with different beliefs to find commonality and to move forward on the basis of shared objectives. Consensus does not arise form constant adversarial bickering, a feature that has come to dominate our dysfunctional Parliament.

To create a political institution that is built on the notion of seeking consensus requires a fundamental institutional change. Political power can no longer be an all or nothing affair. It is something to be shared on the basis of an accurate representation of the electorate. However, faced with an electoral system that distorts representation in order to bring about the domination and control by a single political party, we must abandon our current system in favour of proportional electoral system that does not produce false majorities. That way our politicians can escape the institutional incentives that encourage excessive partisan behaviour, and we can get on with the business of running the nation.

Monday, September 14, 2009

Blame it on the Separatists

If Canada has become ungovernable, we need not look any further than Quebec to know why. Simply put, the refusal of the Quebec electorate to support either one of the traditional governing parties combined with the inordinate distortion of the popular vote in favour of the Bloc Quebecois make it next to impossible to form a single-party majority government.

Although both the Liberals and the Conservatives have seats in Quebec, the number is insufficient to contribute to the formation of even a false majority. In general, the first-past-the-post voting system provides a bonus for the party that wins the plurality of the votes. Most often, 40% of the popular vote translates into 60% of the seats and consequently a majority government. However, in looking at the results of the last general election, it is the size of the distortion that the Bloc receives that thwarts the ability of the Conservatives to form a majority government.

With regard to their performance of obtaining popular support across the electoral districts in which they present candidates, the Bloc and the Conservatives both receive approximately 38% of the votes cast. The Bloc does this in the 75 ridings within Quebec while the Conservatives accomplish the same feat in the 308 ridings across Canada, and there’s the rub.

Calculating the popular-vote-to seats ratio for both political parties, the Bloc receives one seat for every 28,163 votes cast for the party in Quebec, and the Conservatives receive one seat for every 36,427 votes cast for the party in Canada. Breaking this down into electoral districts where each party presents candidates, the same level of support in the popular vote garners 65% of the available seats in Quebec for the Bloc but only 46% of the available seats across Canada for the Conservatives. In other words, those electors that vote for the Bloc have a significantly higher voting power than those electors that vote for the Conservatives. In fact, the votes for the Bloc produce 30% more seats than the same number of votes for the Conservatives.

Ironically, the essential component of this majoritarian electoral system has been appropriated by a relatively small minority of voters as to prevent the system form operating in the manner in which it was intended, thereby rendering the entire electoral system dysfunctional—we maintain a majoritarian electoral system that is presently incapable of producing a majority government.

To escape from this cul-de-sac, we must abandon the present out-dated method of voting. Indeed, proportionality should be a required feature of a new electoral system so that we do away with the notion that a political party forms a majority government of the basis of the systemic distortion of the popular vote. This would pave the way for the formation of majority coalitions that would extend the life of our current governments substantially.

The challenge is to convince those who have benefited from the egregious fault of the present system to abandon it in favour of a system where the benefits accrue to the electorate at large, which will find itself with a much more accurate reflection of its political diversity in the composition of Parliament. What is required is that the traditional governing parties recognize the futility of hanging on to first-past-the-post method and move forward to implement a systemic change that puts the well-being of the nation before partisan self interest.

Thursday, September 10, 2009

The Tyranny of a Dead Idea

Canada’s inability to conceive and put into place a system of governance that corresponds to its particularities is largely responsible for its slow slide away from “being the best country in the world to live in” towards a mediocre player on the world’s stage.

We are stuck in our colonial past, unable to shed ourselves from an electoral system dating from the Middle Ages in which two principal factions wage a campaign in approximately 300 winner-take-all districts. The faction that wins the most districts wins the right to rule the kingdom.

Undoubtedly, the complexity of the world in which we live is exponentially greater than the world that gave birth to the first-past-the-post voting system. Yet, for many of its supporters, it is the simplicity of the method which is its greatest strength. All it requires is electors who can place an “x” beside the name of a single candidate.

If the rate of societal change had remained unchanged since the middle Ages, perhaps such a system of governance would suffice. Unfortunately, the challenges of facing up to climate change, the decline of conventional oil supplies for an economy built on the availability of cheap oil, and a global financial system that lurches from boom to bust in ever shortening intervals necessitates the capacity to generate new ideas and ways of doing things that will enable us to adapt to the churn of incessant change. However, if all we ask of the electorate is to choose between the blue and the red team, we are not going to get anything more from the winning side than a futile attempt to bring the downward slide of our collective quality of life to a halt.

There are times when remaining with status quo is unacceptable. We live in such a time, and it is to our great disadvantage that our electoral system seeks to preserve it. When political power is an all or nothing affair, there arise emerging properties of the system that render it unsuitable for adaptation to a quick-changing environment.

First, since a large centrist electorate must be courted in order to find the widespread appeal that enables a political party to form a government, the two contending parties fight for the center. As a result, valuable new ideas rest at the periphery, failing to gain traction, for the introduction of new ideas carries the risk of alienating those at the center thereby perpetuating the status quo.

Second, each contending party must portray itself as offering unique solutions to the electorate when in reality there is quite a deal of commonality between their respective political platforms. Instead of trying to build upon what is held in common, both parties are locked in an adversarial relationship in which each lauds its supposed virtues and demonizes the other.

Within this dynamic, consensus building gives way to the alternation of domination and control. As a result, timelines shorten to accommodate the electoral cycle and long-term planning is next to impossible. We are stuck reacting to the latest crisis. Fundamental problems that require sustained action for more than ten years are seldom addressed, giving the impression that we prefer to re-arrange the deck chairs while the ship is sinking.

Finally, the electoral system is blatantly unjust. Whether or not your vote counts is totally dependent on where you live, and the majority of us live in electoral districts where the expression of an authentic choice renders the vote useless with regard to garnering representation. In short, more and more of us are effectively forced to watch from the sidelines as the size of the electorate at the center continues to shrink. We look on as the cost of inaction continues to rise and the number of those who benefit from the status quo continues to fall.

Saturday, September 5, 2009

Canada's Political System Has Passed Its Expiry Date

It appears we are going to have a fourth federal election in five years. Looking at the latest polls, there does not seem to a majority government in the making and that is with the built in distortions that the electoral system carries. In other words, single party majority government is over.

Within the political class, there appears to a collective sense of denial with regard to our political system's institutional capacity to provide our constitutional right to good government. In particular, the two political parties that offer a government option still pretend that can win a majority of seats in Parliament.

Keep in mind that the first-past-the post (FPTP) voting system transfers a significant proportion of seats to the party that wins a plurality of the popular vote at the expense of the party in opposition and the smaller parties. This feature arises due to the failure of FPTP to have a mechanism that either aggregates votes or allows voters to mark their electoral choices preferentially. As a result the majority of votes cast are ineffective, meaning that they are not used in any way to bring about representation in Parliament.

Not surprisingly, the incentive to go out to the polls on election day diminishes with the realization that one's vote does not count. Looking at the plummeting participation rates in provincial and federal elections, voters have figured this out for themselves, and the parties in power refuse to fix the problem. Consequently, elections are now being won not on the ability to attract new voters but because a significant proportion of the other party’s supporters decide not to participate.

This is exactly what happened during the last federal election. For example, the Conservatives increased their plurality of seats in Parliament because their overall loss of votes from the 2006 to 2008 federal election was only 160k compared to the 800k votes lost by the Liberals.

Moreover, with a participation rate of 58.8%, the Conservatives garnered only 22% of the votes from the eligible voters while the Liberals received a paltry 15%. Together, the supposed government options could only attract the support of approximately 37% of the electorate. Taking the latest polling numbers which have the two parties in a statistical dead heat, each one has the support of 32.6% of the survey’s respondents, and a projected participation rate of 60%, neither party can muster the support of 20% of the electorate.

Democracy is the rule of the majority.

Since even the formation of a false majority brought on by the vagaries of the voting system is not on the horizon, it is time that we abandoned our antiquated electoral system. Given the urgent need for a stable government with a mandate to implement comprehensive policies to address our mounting social, economic, and environmental challenges, it must be recognized that only a majority coalition, formed by two or more political parties, can provide the nation with the governance it justly deserves. If a proportional voting system were to be adopted, we could elect a democratic government that would be both effective and legitimate.

However, what needs to happen is that our entire political class comes clean and admits that the present system does not have the wherewithal to provide good governance. This recognition has not been forthcoming since the two major parties cling steadfast to the outdated dream of forming a single party majority. We cannot continue to have a minority government that governs like a majority under the threat of continual collapse and a return to an electoral process that brings about the same result.

Let’s not live in perpetual "Ground Hog Day", as captured by the Bill Murray film. We need to wake up, smell the coffee, and get on with bringing our political institutions in line with the realities of the twenty-first century.

Tuesday, September 1, 2009

The Leap of Faith

At the heart of faith-based discourse is Kierkegaard’s famous leap of faith. Indeed, the adherence to a faith-based discourse requires more than a " willing suspension of disbelief " to make sense of the narrative; it requires a permanent suspension of critical thought with regard to the core incidents, values, and prescriptions predicated by the faith.

Essentially, the leap involves the movement away from rational discourse towards a modality of thought that clings to the irrational acceptance of the truthfulness of the faith’s claims and assertions. Often, contrary evidence will serve to test the faith of the individual. Depending on the nature of the evidence, the individual may simply choose to ignore it, modify the discourse in an attempt to explain it away, or, if the evidence is earth shattering, decide to leave the faith-based community. Most often, the fundamental precepts of the faith are impossible to verify or falsify and are held in place by an authoritarian organization that usually takes the form of a command and control hierarchy.

Historically, religious hierarchies have had the greatest impact on the development of human societies. Faced with the existential mystery of existence, coupled with a quality of life overwhelmingly nasty, brutish and short, faith-based communities coalesced and acquired the organizational capacity to bring order into a world fraught with the ravages of continual military conquest and repeated crop failures and epidemics.

Typically, the command and control religious hierarchy would emerge years after the truth had been revealed to the anointed one. Over time, power within the hierarchy would become concentrated, causing an unequal distribution of wealth and power in the faith-based community, favoring, of course those who administer the truth. Inevitably, the constant recourse to authoritative measures to control and dominate the masses created opportunities for those exercising control to use the means of domination to increase their power and wealth at the expense of the faithful.

Before the Age of the Enlightenment, coercion was the principle method employed to maintain order. In some sense, as long as disputes center on matters of faith, that is assertions not subject to verification or falsification, the use of force is perhaps the only way to resolve them. However, once questions concerning earthly existence became at odds with received doctrine, the use of force to maintain order could not endure. The most striking example is the Roman Catholic Church's attempt to maintain its dogma of a geocentric universe. Unfortunately, holding a heretic's feet to the fire does not change the fact that earth revolves around the sun and not the other way around.

Notwithstanding the often ferocious persecution of those who challenged the received dogma, the proponents of a more rational and empirical approach persevered and gained a sufficient number of adherents until a spiral of continued scientific discoveries created a secular sphere where the possibilities to acquire wealth and power far surpassed what could be has with the confines of the faith-based religious communities.

For the most part, faith-based and evidence-based discourse co-existed, each having its own sphere of influence. However, there would be elements of faith-based thinking that would transfer into the secular sphere with disastrous consequences.

Beginning in the 19th century and continuing throughout the 20th, the world saw the rise of faith-based political ideologies: capitalism, communism, and nationalism. In each instance, the fundamental ideological precepts demand a leap of faith. For capitalism, it is the belief that the unintended consequences of the rational pursuit of self-interest, guided by what Adam Smith refers to as the invisible hand, brings about the common good. For communism, it is the irrational belief in the myth of historicism in which the oppression of the masses inevitably gives way to the rise of the proletariat and the utopia which ensues. Finally, with regard to nationalism, it requires an irrational belief in the commonly held misconception of ethnic origins and a very selective reading of history to assert and justify claims for territorial control and exploitation. Considering the scale of the bloodshed and human suffering wrought by over a century of ideological warfare, each of the above-mentioned political ideologies merits its place in the dustbin of history.

In the secular faith-based hierarchies, there exist the same powerful institutional incentives to close the minds of the faithful to opposing views. In short, maintaining fundamental truths are the means to maintaining privilege. As a result, anomalies are ignored, claims and assertions are overstated, opposing ideologies are demonized, and the common good is sacrificed for the gains of a well-placed elite.

Thursday, August 27, 2009

A Zombie Idea that Refuses to Die

This week, Nobel Prize winning economist Paul Krugman’s op-ed piece in the New York Times is a must read.

In the article, Krugman expresses his dismay concerning how the public debate surrounding the public option for health insurance in the US is being vilified for purely ideological reasons. In short, according to the cant: government intervention is always bad, and leaving the private sector to its own devices is always good.

Given the performance of the US economy during the application of Reaganomics (1980 – 2007) -- a seven fold increase in revenues for the top 1% of earners while the median income level increased by a modest 22%, the worst recession since the Great Depression, and the astronomical debt load the US has taken on to first fuel its economic growth and to then prevent the economy from collapsing -- you would think that laissez-faire would be dead.

Krugman reasons that the Zombie like existence of the mindset is linked to the inability of the American financial elite to let go of its cash cow. There is some truth in his assertion, but I believe that the root of the problem lies much deeper.

Unlike the evolution of evidence-based decision making in the public health sector, economic policy making in North America is still in the thrall of faith-based belief. From the evidence-based perspective, the collapse of the American economy is a serious anomaly that demands that the theoretical foundations of the world-view be re-evaluated, but from the faith-based perspective it is wholly sufficient to simply believe in the fundamentals.

In many ways, this is also very characteristic of the public debate regarding climate change and peak oil. On the one hand, there is a large body of scientific evidence pointing out to the dangers of climate change and to the continued depletion of fossil fuel reserves. On the other hand, there are the doubters who simply refuse to believe that we need to change our ways.

Essentially, these are two vastly different epistemological approaches that have been with us for the last 2500 years, one that deals with the life hereafter, the other with life in the here and now.

The inability to reconcile these two approaches was largely responsible for the bloodbath of the twentieth century and is placing us in dire straits as we approach the end of the first decade of the twenty-first.

In my next post, I’ll begin to examine the tension between the two camps.

Sunday, August 23, 2009

Everybody Knows

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
Thats how it goes
Everybody knows

Leonard Cohen (Everybody Knows)

One thing everbody should know is to what degree the benefits of economic growth in North America are distributed disproportionally. That way when politicians speak about the economy, we are fully aware about their intentions and the consequences of their proposed actions.

For example, for the last thirty years we have been led to believe that policies that lead to ever higher levels of economic growth are beneficial to the national interest.

Recent studies, however, raise serious doubts if this is indeed the case, especially for the vast majority of the population. In fact, once we take into consideration the effects of increasing levels of income inequality upon the health of the population, leaving aside the environmental consequences for the moment, we should have serious doubts about pursuing continued economic growth as the means to lead us to the promised land.

Economists Emmanuel Saez and Thomas Piketty, in their recently updated article, Striking it Richer: the Evolution of Top Incomes in the United States, demonstrate the effects of the implementation of free market economic policies in the US on income distribution. What you might not know is the extent to which the rich got richer. For example, from 2002 to 2007, average real family incomes grew by 3.0% annually but 65% of that growth accrued to the top 1% while only 35% of that growth accrued to the bottom 99% of US families.

The other thing you should know is how the disproportional increase in real family incomes affects health outcomes for the population. As could be expected, the implementation of neo-liberal economic policies brought about disproportional health benefits to the very well-off.

Elise Gould notes, while life expectancy has grown across the United States between 1980 and 2000, the degree to which people live longer has become increasingly connected to their socio-economic status. The Chart compares life expectancy by socio-economic decile of the most well-off to the least well-off.

In 1980, those with the highest socio-economic status had a life expectancy 2.8 years higher than those with the lowest status (75.8 versus 73.0 years, respectively). By 2000, that gap had grown: those in the top decile had attained a life expectancy of 79.2 years—4.5 years more than those in the bottom decile.

One might respond that as long as the lot of the poor improves, we should not be concerned with the unequal distribution of real benefits. This is where the question ceases to be simply economic and becomes very political. Even if all the boats may rise, albeit unevenly, during a period of economic expansion, the unequal distribution of wealth exacerbates existing social problems to such an extent as to call into question whether or not continued economic growth is called for.

Once a certain threshold of revenue per capita is attained, the benefits of increasing revenue with regard to the health portrait of a nation begin to level off. For the developed countries that have long passed this threshold, the pattern of the relative distribution of wealth becomes a more important indicator of the overall health of the population than the absolute wealth of the nation.

This suggests that with regard to how we manage our political economy in Canada, the reduction of income disparities should take precedent over continued economic growth.

In the next few posts, I will turn my attention to the evidence concerning income distribution.