Where have all the anti-globalization activists gone?

Over the last decade or so, every time there's a WTO meeting or G8 summit, a lot of protesters show up to bring attention to some very real concerns about free trade agreements. Most recently there have been a number of protests against the TPP.

Globalization has made the world richer, but the way it has been implemented has given much more power and wealth to corporations, and diminished the ability of nations to regulate activities within their borders. At this very moment, for example, a Canadian pipeline company is suing the US government for $15B for not approving a very unpopular pipeline proposal - and it's suing based on the rules of NAFTA.

So now Britain has voted to leave the EU. Polls showed that "the top issue among those voting to go was Britain's right to act independently" (link).

The deficiencies of the EU are widely recognized. As Paul Krugman wrote recently:

The E.U. is deeply dysfunctional and shows few signs of reforming.

...Today’s E.U. is the land of the euro, a major mistake compounded by Germany’s insistence on turning the crisis the single currency wrought into a morality play of sins (by other people, of course) that must be paid for with crippling budget cuts. Britain had the good sense to keep its pound, but it’s not insulated from other problems of European overreach, notably the establishment of free migration without a shared government.

...The most frustrating thing about the E.U.: Nobody ever seems to acknowledge or learn from mistakes. If there’s any soul-searching in Brussels or Berlin about Europe’s terrible economic performance since 2008, it’s very hard to find. And I feel some sympathy with Britons who just don’t want to be tied to a system that offers so little accountability, even if leaving is economically costly. (link)

Soon after England and Wales voted to leave the EU, Larry Elliott, Economics Editor at the Guardian, wrote an article in the Guardian titled "Brexit is a Rejection of Globalisation" (link). He talks about the free trade movements of the last 30 years resulting in "a much diminished role for nation states". Elliott argues that the EU failed:

Jobs, living standards and welfare states were all better protected in the heyday of nation states... than they have been in the age of globalisation. Unemployment across the eurozone is more than 10%. Italy’s economy is barely any bigger now than it was when the euro was created. Greece’s economy has shrunk by almost a third. Austerity has eroded welfare provision. Labour market protections have been stripped away.

...Torsten Bell, the director of the Resolution Foundation thinktank, analysed the voting patterns in the referendum and found that those parts of Britain with the strongest support for Brexit were those that had been poor for a long time. The result was affected by “deeply entrenched national geographical inequality”, he said.

There has been much lazy thinking in the past quarter of a century about globalisation. As Bell notes, it is time to rethink the assumption that a “flexible globalised economy can generate prosperity that is widely shared”.

So do you see my problem? Brexit is such an enormous boon for anti-globalization that it is being heralded as a reversal of the entire globalization trend. Why aren't the anti-globalization organizations marching in the streets?

I can answer that question, but it saddens me. Over the last week, "conventional wisdom" has decided that everyone who supports Brexit is racist. I have been practically spat on because of the sentiments I expressed in my last post (link), that "my head said Remain but my heart said Leave". One supposed old friend wrote:

60+ year old citizens of the UK who voted to leave (and they are the majority of wanna-be leavers) are delusional. They want to restore that tiny little island to its imperial greatness, or at least to its completely diminished splendour during WWII. They want an England with white rulers and black slaves.And of course the slaves are all rapists, and none of the white rulers is. Foreigners are all murderers and rapists. So the tiny little island may be able to pull in tourists to see its nearly dead monarch until she dies. Then the itiny little island dies. And this is where your heart is? I pity your heart. Unbelievable.

with a followup email the next day:

Fuck your heart Dwarf.

Every day recently, there are articles about thousands of people protesting Brexit; none about people supporting it. I just googled "Brexit" and the first hundred articles were overwhelmingly negative, largely based on the personalities of its spokespeople. The stock market in Britain is soaring (the FTSE 100 is at a 5-year high), but even that is being spun as negative with repeated claims that panicked Britishers are buying up everything in sight - which is a totally ridiculous argument.

Not many people, apparently, have the courage to take on the anti-Brexit crowd.

Even while arguing against Brexit, people could be starting a discussion of the ways the EU needs to improve. Instead, we have vitriolic articles about one person who said he regretted his vote to leave, that is magically turned into a claim that most leave-voters regret their decision; claims that an uptick in google searches for "European Union" in England means that those who voted Leave somehow didn't know what the EU is; and on and on.

I am confident that the economic shock of Brexit will soon subside. I am not so sure that the world community will ever regain its sanity about what just happened, and why.

Oh, and for those clinging to the notion that Brexit was purely motivated by ignorance and racism, read this article written by Larry Elliott a month before the vote, in which he argues for Leave: Brexit May Be the Best Answer to a Dying Eurozone.

Another View on Brexit

I wasn't eligible to vote on Britain's exit from the European Union, and I'm not sure how I would have voted. My head said Remain but my heart said Leave - and I find myself quite pleased that England and Wales found the strength to free themselves from the EU.

During the campaign, every article I read made the assumption that the Leave camp were all skin heads, xenophobes, illiterate farmers, or doddering old fools. ("Doddering old fool" was defined as anyone over 54.) They said that people who supported Brexit were doing it out of fear and loathing. The only rational reason for Leave that I saw was that Brexit would lower the value of the pound, thus boosting British manufacturing and blue collar jobs.

In fact, there are lots of good reasons for England and Wales to leave the EU. The EU is a mess. Eight years on, Europe hasn't recovered from the 2008 financial crisis. The central bank situation leaves Europe unable to fix its economy. (How did they think they could share a currency but not have a strong central bank?) European countries are having to resort to negative interest rates as unemployment soars.

I'm not even scratching the surface of the problems with the EU. The upshot is that this incompetent organization dictates a huge array of things that should be up to the people: Britain is unable to regulate everything from the size of trucks to how foods are packaged to, yes, immigration. Trade has superseded democracy.

Since the Brexit vote, everyone's going on about market turbulence as if markets have fallen into the sinkhole of hell. In fact, markets have been turbulent since January, mostly because of fears that China won't grow as fast as it used to. Market turbulence is a serious problem but is nothing new. In general, the market goes down and then it goes up again.

I'm not ordinarily a fan of direct democracy. Voters in my town were conned by anti-vaxxer types into voting to take fluoride out of our water. Californians have damaged their public schools by their crazy and conflicting propositions, resulting in some schools being forced to offer after-school dance classes while cutting core subjects.

But this is different. Free trade agreements and common markets restrict our democratic rights. We, the people, should have a say in that. David Cameron called this vote for all the wrong reasons, but still, history will show that he did an important and progressive thing in allowing Britons to decide to Brexit.

Culture of Layoffs

Another story about another company laying off a percentage of their workforce. This time all we're told is that 81 employees were laid off, representing 5% of the workforce, and that the company "ended production of some unprofitable products".

I wonder what would happen if companies were expected to report more information about layoffs - and by "expected" I mean by law where possible, and by convention and community standards otherwise. And if they don't provide the info, newspapers should investigate and get the goods.

The information I'm looking for has to do with the negative side of layoffs. How long, on average, had these people worked there? What percentage got a good performance ranking in their last review? What sort of severance did the company provide? What was the total direct cost to the company of the layoffs (severance, out-placement, travel and consulting fees required by the move)?

If all these details were provided, would the market automatically react as strongly to reward companies that lay off a big chunk of their workforce?

I once worked for a publicly-owned company whose management was committed to avoiding a take-over. Every time the stock price fell they laid off employees to bring it back up. There were so many layoffs that they didn't use the terminations to get rid of low performers: terminations were totally a function of what someone was working on, and the best and the brightest regularly got cut. This culture of continuous layoffs created a totally dysfunctional company with a decidedly subpar product, but it also kept it successful.

That kind of success is a market distortion. Unproductive - even antiproductive - behavior is rewarded. It's a systemic failure.

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Pseudo-Specialists Defining Policy

A culture of irresponsibility took root from Wall Street to Washington to Main Street...

- President Obama

The culture of irresponsibility wasn't restricted to greedy guts who were reeling in hundreds of millions in shady financial dealings. It extended to policy-makers, media, and the civil servants who worked in the regulatory agencies and bond-rating companies. It was born in universities. It was the direct result of the way Economics is taught. Economics, at least as I was taught it in Canada in the 80s, is an indoctrination into simplistic free-market ideology backed up by complicated math based on dubious assumptions.

A number of people have been writing lately about Sheila Bair, head of the Federal Deposit Insurance Corporation, who repeatedly blew the whistle on subprime mortgages and other financial shenanigans prior to the financial industry collapse last year, but was shouted down and is still shut out by the powers that be who are planning America's financial industry reform.

A prevailing argument is that Bair was able to see beyond the paradigm of the day because she's female - not part of the old boy's club, wired differently, more caring, whatever. I don't know about that, but I can see one thing that Sheila Bair has that sets her apart from the rest: an undergraduate degree in philosophy with no formal economics training. (She's also a lawyer.)

Economists have taken over too much of the policy area. Social scientists should provide input, but not set policy. We live in a world dominated by pseudo-specialists, when what we need is pragmatic generalists.

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Not Sideswiped

Lately I hear a common lament: How did we all not see that this financial crisis was coming? The discipline of economics is under attack for its inability to foresee such a massive collapse. The field of risk management is in turmoil as experts try to find better statistics that can cope with black swans. Outside of particular sectors like real estate, the hedge fund industry - that group of analysts who were supposed to be able to create wealth out of adversity - are rapidly going extinct, literally shutting up shop, one after another.

But it wasn't just Paul Krugman who warned of the US housing bubble: the Economist magazine wrote about it frequently several years ago. Back in 2003 or 2004 I saw a US network news magazine documentary about the new subprime mortgage; it predicted exactly when the defaults would start to occur and how devastating they would be. I attended lectures about the coming financial meltdown and wrote about them in blog posts like The unsustainable world economy (April 2007) and A big mess is brewing (May 2007). I quoted Thomas Palley as saying there would be a worldwide economic crash, and soon. I quoted Marcello De Cecco's ominous prediction that a big mess was brewing. I wrote not only about the coming collapse, but about proposed solutions.

So why didn't we act? There are a variety of reasons.

Ideology and greed in the Bush government
The Bush people believe that the free market is the optimum mechanism for economic activity. Arguments that the free market was not working properly were taken as attacks on their beliefs. (And yes of course this makes no sense: there is no free market, especially in the highly regulated financial sector.)

This ideological viewpoint also reduced the ability to tinker with the economy. It has been my impression that Bill Clinton and Paul Martin were tinkerers, keeping everything humming along, watching indicators, taking action when there were problems. The Bush government had a different approach: if it ain't broke, don't fix it; and the only indicator that matters is the growth of wealth. Fed chair Alan Greenspan seemed to view monetary policy as a way to rev up the economy indefinitely, rather than a tool to keep the economy healthy.

The short term, populist nature of our worldview
We were in a bubble. People were getting richer and richer. People may pity the hedge fund firms that have shut down, putting people out of work, but the hedge fund managers who made the fateful decisions got rich by riding the wave as long as they could. They get paid a percentage of their profits, and pay only 15% income tax; they made out like bandits. When their funds tanked, they didn't lose any of their previous income.

While our mutual funds were humming along, we little guys were happy too. Any government action to dampen the boom would not have been well received by voters.

The "blind eye" effect
People on the left have been warning about the rapid change in wealth distribution. This was not just esoteric critism: it was widely discussed. In 1980, CEOs made on average 13 times the minimum wage. By the 2000s, they are making 1,000 times the minimum wage. The percentage of wealth held by the top 1% has skyrocketed. The problem wasn't that policy makers didn't know about this; the problem was that it was framed as a moral issue, rather than an economic one. Now we see that this change has made the entire economy more vulnerable - that the stabilizing force of the middle class is diminished.

International dominance of the US
Without the US, the rest of the world was unable to act. Like it or not, the US is G1. We can't replace Bretton-Woods without US involvement. There were things that individual countries could do (Iceland's decision to deregulate its banks in 2001, which led to the collapse of its entire economy, is Iceland's fault alone) but a broad international movement to avoid the crisis was not possible. And most of the changes to regulation cannot be done unless they're done by international agreement. Otherwise, countries that increase regulation will just see an outflow of capital to countries that don't regulate.

Lack of built-in anti-cyclical economic stabilizers
Many of our financial regulations are actually pro-cyclical. We need to accept that business cycles happen and plan for them, rather than ride the bubbles in vain hope they'll never end.

We need to re-evaluate how we value assets, as mark-to-market valuation appears to be a contributor to the growing intensity of business cycles. In addition, we need to do some things to dampen booms and prepare for busts, like change bank leverage requirements depending on market conditions (tightening them in booms and loosening them in busts). We also should prepare for busts by collecting bailout money from financial institutions during booms (we can start, after this crisis, by recouping our current bailout costs). We should increase the social safety net significantly, so that when people lose their jobs they get decent unemployment insurance; this is an automatic fiscal stimulator that kicks in at just the right moment and in the most effective way.

Wealth is like water. It finds every crack and seeps through. It creates floods that wash away everything in its way. The economic system is like plumbing in a house. It must be leak-proof and flood-proof. It must regulate the flow of something that will try its darnedest to break through.

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A Big Mess is Brewing

China and the US have entered an unholy alliance: China finances the US war in Iraq and in compensation the US keeps its markets open to Chinese consumer goods. Marcello De Cecco, an expert in the international monetary system, calls this Bretton Woods Two. Another way of describing it is that the US is forcing foreign central banks to finance the US trade deficit in order to keep their exchange rates from appreciating and their export-based economies from collapsing.

De Cecco, who is a professor at the University of Pisa, advisor to the Italian government, newspaper columnist and author of Money and Empire, gave a lecture this week at Waterloo's Center for International Governance Innovation (CIGI).

De Cecco argues that the current situation has some parallels to the years leading up to the First World War. Then, the pound sterling was the international currency, backed by gold, but the UK was in decline. The two emerging superpowers were the US and Germany, neither of which had ambitions to replace the pound with their own currency. It was France who challenged the pound as world monetary standard, and France that also threw instability into the system, sometimes deliberately (in 1907-14 there were several episodes where France removed money from German markets for political reasons, forcing Germany to hoard gold). The dollar became the world currency after WWII.

Now, it is the US that seems to be in decline. China is the emerging superpower, but again it is not interested in replacing the dollar as the world currency. In fact, China is behaving very responsibly, doing its best to keep the current system working. The euro is the challenger to the dollar. Half of all world assets are held in private hands in Europe, and European investors may dump the dollar if the dollar starts to decline - as may Americans and everyone else, including even China. Of the many sources of instability in the current system (not the least being the behavior of the US government), Russia, a country that is on the decline and bitter about it, may prove to be a problem.

Professor De Cecco called his talk "From the Dollar Standard to a Multiple Currency Standard: Current Developments in the Light of Pre-1914 Experience" and summarized it as: "The world in which we live today is in many ways similar to, and in other ways different from, the one which existed in the two decades before 1914. New world powers are in the making now, as they were then. Power politics seems to have superseded the politics of alliances based on ethics and values. Is the multiple currency world towards which we seem to be going bound to prove as dynamically disastrous as the one which came to an end in 1914?"

De Cecco ended his talk with the ominous statement, "A big mess is brewing."

Related post:
The Unsustainable World Economy

Update: Gwynne Dyer

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The Unsustainable World Economy

We live in precarious times. The US dollar is the official world currency - around the world, over two-thirds of all national reserves are held in US dollars - and yet it is very, very vulnerable. The vulnerabilities of the US dollar include:

* Supply-side financial markets: Enormous amounts of US debt are being held by East Asian countries, notably China, Japan and Korea. These countries are keeping their currencies artificially low (thus propping up the dollar) to fuel their growing export market. If they change their policies, the US dollar could crash.
* Supply side politics: If countries lose faith in the dollar, they could start moving their reserves and transactions to other currencies, causing the US dollar to crash.
* Demand-side US markets: US consumers are fueling the current world financial system by buying enormous amounts of cheap imported goods. (Ninety percent of Wal-Mart's sales are from imports.) If US consumers reduce their demand, say because of a housing market crash or rising interest rates, the whole financial system could topple.

The current system evolved somewhat by accident. There were a series of financial crashes in 1997, notably in Russia, East Asian and Brazil. Countries responded by building reserves of dollars in case of future crises. This caused the US dollar to rise, which fueled exports from those countries. The countries liked that and started to manage their exchange rates to keep their exchange rates low against the US dollar, which caused them to hold more US currency and debt.

Meanwhile, back in the US an ideological president was elected who didn't believe in government intervention. To be fair, currency exchange intervention had been declining in the US before Bush, but Clinton's Treasury Secretary, Robert Rubin, did intervene in the currency market a couple of times. Under Bush, there has been no currency market intervention whatsoever. The US dollar - a key component of economies the world over - has been largely ignored by the US government.

This has had some benefits. The US has enjoyed a ton of cheap goods, and the reliance on cheap imports has helped dampen inflation. East Asia has seen enormous growth. Multinational corporations are making a ton of money off the cheap labor. Stock markets are booming.

But there is a huge downside. While US consumers are getting great prices, this situation is keeping their wages down. East Asian exports are growing, but the wealth isn't flowing to citizens who could in turn create a domestic market for goods. In fact, we're in a bizarre situation where capital is flowing from poor countries to the US.

Furthermore, the whole system is becoming increasingly unsustainable and could result in a huge crisis. If it does, the world economy is very vulnerable. The problems of capital flight which caused the 1997 currency crisis have not been addressed and could happen again, worse. The countries who rely on exports will be devastated if the US dollar collapses. The US currently has a huge deficit and will not be in a good position to help soften the blow for its citizens.

In addition (and this may be meandering into the genre of conspiracy theory), the US could react to such a financial crisis in a very bad way. I'm not just talking about protectionism and nationalism. Is it a coincidence that the Bush administration is trying to position China as a national threat to the US? China holds enormous amounts of US debt and the US seems to be positioning China as an enemy. Who knows what might happen.

I went to a lecture today by Thomas Palley, who argued that the solution is to create a revised Bretton Woods system. He proposes two main mechanisms:

* Managed capital flows: Put in place systems that will avert currency collapse due to capital flight. For example, a "speed bump" law on capital inflows: when someone brings capital into a country, they have to park it for a set period of time with the central bank at a set interest rate. Another example of this sort of safeguard is to require hedging on foreign exchange-denominated borrowing.
* Managed exchange rates: Currency rates should be managed to ensure sustainable trade deficits/surpluses. But the onus must be on the strong currencies to bail out the weak currencies: financial markets are now so strong that they can muster more financial clout than just about any economy, so the weaker currencies can't defend themselves. Also, the stronger currencies are reaping a benefit that they should pay for.

Palley wants these innovations to be put in place before there is a crash, to avert it. However he sees no political will in the US or elsewhere to do so. He suspects there will be a worldwide financial crash, and soon, and hopes that we can put his policies in place at least after the fact.

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Why People Deny Global Warming

Opposition to environmental protection comes, in large part, from proponents of small government who see the environmental issue as a threat to their attempt to reduce taxes, reduce regulations, and reduce government spending.

(If the threat to our country came in the form of a military threat, I'm positive that those same people would be willing to raise taxes, increase regulations, and increase government spending. Just look at recent events in the US.)

The troubling thing is that the opponents of large government do not phrase the environmental debate in terms of how we should respond to global warming; they deny the existence of global warming. Thus we have wasted years arguing about whether there is a problem, and are not making progress on how to address it.

The UN Intergovernmental Panel on Climate Change (IPCC) has been clear for some time that our pollution is causing global climate change. The most recent IPPC report states that this is "unequivocal". This isn't just a small committee. Wikipedia says, "The report was produced by around 600 authors from 40 countries, and reviewed by over 620 experts and governments. Before being accepted, the summary was reviewed line-by-line by representatives from 113 governments". I challenge anyone who doesn't believe the IPCC to say that they support big government; I don't think any such person exists.

There is a place in the environmental debate for people who are wary of big government. In fact, Canada's Green Party takes a very small-c conservative (even a big-C Conservative) approach to the environment by calling for a new tax structure that taxes waste and pollution. (I think the idea is crazy, as I have said before, on two grounds: (1) the tax system tosses out out the foundation of our current system, that people should pay proportionally more as their income rises, and so will have all sorts of unintended and negative social side effects; (2) their proposed tax system has no hope of being adopted in Canada, so the Green Party is wasting our time having this as the center of their environmental policy when they should be talking about more pragmatic, possible policy.) But the strategy is working for the Green Party - they are picking up right-wing voters.

In Europe, where big government is not such an anathema, environmental issues have been acknowledged and addressed much more effectively than in North America. And, gee willikers, the environmental initiatives haven't created behemoth public corporations, high levels of taxation or crushing regulatory bureaucracy. The free market isn't destroyed by wind power, tighter car emission standards, better urban planning, or better public transit infrastructure. It's nothing new... it's just smarter.

Germany, which is leading the way in environmental initiatives, now produces one-third of the world's wind power. It has the highest targets for cutting greenhouse gases in the EU, and is ahead of schedule. It has pioneered energy-sufficient towns and carless towns. It is the world leader in development of solar power. As one blogger writes, "Bad choices aren't banned outright (you can still buy a Hummer in Germany if you really want one), but better choices are encouraged. Discouragements: $6 a gallon gas, and special taxes on extremely inefficient vehicles. Encouragements: An efficient public-transport system, and compact, diverse neighborhoods." That kind of encouragement is no different from the Canadian government encouraging us to drive cars by paying for hiways but not for rail transit, or by zoning so much low density housing.

Germany is showing us all how to meet environmental targets. It has made huge environmental improvements without curtailing freedom in any way. An example: only one-third of German hiways have a speed limit. Argue that one if you like, but Germans like to drive fast, and they do.

Me, I'm a proponent both of free markets and of big government. In fact, I don't think markets work without a lot of government "interference". Take financial markets as an example - stock exchanges are arguably the most tightly regulated markets going, and that's what keeps them humming. If you lose investor confidence you lose investors. Hence the biggest proponent of free markets - the US - has the most tightly regulated financial sector.

I love government regulation, and I want more regulation and more enforcement throughout society. But I can see that not everyone agrees with me, and I respect that. So let's get down to work here and find a way to address the environmental issue that we can all live with, as Germany has done. Otherwise we're heading for a fall.

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The Virtues of Scarcity

This morning on The Current, Anna Maria Tremonti was talking about geothermal electricity sources. Iceland gets virtually all of its non-transportation-related energy from geothermal sources. It's easy there because they have geysers of hot water on the surface of the land. California also produces quite a lot of electricity from geysers (if I heard correctly, sometimes it's up to 20% of their electricity production). According to The Current, the technology exists for geothermal-electric generation to be used everywhere. One technique is to dig a tunnel about 500 feet deep (where the rock is hot), close off an area down there, and pipe down water. The water comes back up as steam; the steam is used to create electricity; and the cold water is sent back down the hole again. This form of electricity would be extremely cheap.

This got me thinking about what would happen if North America had virtually unlimited, dirt-cheap electricity. Hmmm. My guess is that we would use so much that we'd either start damaging the earth or use it all up.

For example, we might decide that the only way to cope with cold Canadian winters is to build giant domes over cities and heat the whole thing. Then we'd consider it an abrogation of human rights to not heat every settlement, no matter how small (and of course to cool them in summer). How about the idea of heating the rivers so we can fish and swim year-round? And freeze some in the summer so we can skate outdoors. Or we'd start using unbelievably inefficient manufacturing methods. Or prices would drop on goods so we'd start treating even more items as disposable. How about one-trip plastic cars? Disposable houses? Then we'd look back and be amazed that we could ever have survived without all this stuff. "How primitive and rustic!" we'd say, referring to those days when we had to change our clothing during the year to cope with temperature changes.

Unless there's scarcity and a price incentive, we seem to use up everything. We have water shortage issues even where I live, which is a small splotch of land surrounded by the Great Lakes - and in some communities, the only thing that is holding back complete paving-over of farmland with subdivisions is the availability of water. At one point, we'd used up the bandwidth available for transmitting radio waves - now technology has increased that limit, but who knows how long it will be until we bump up against similar constraints on our seemingly endless supply? A mature capitalist economy turns out to be one that is intent on exploiting every resource to the limit, and so destroying itself.

Perhaps that's a slightly too negative reaction to the possibility of using geothermal-electric generation...

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Nobel Not Noble

What's with this Nobel prize for economics, anyway? It provides a huge dollop of public legitimacy to some pretty dodgy characters.

I'm thinking of Milton Friedman, recently deceased at the age of 94. Friedman was a bad guy who had a bad influence on the world. Ideologically, the guy was a complete nutbar. A libertarian, he opposed all forms of government "interference". He opposed taxation, public education, driver's licenses, the minimum wage and unions. He thought the regulation of doctors caused unnecessarily high medical costs and should be abolished. And so on and so on.

Friedman's great legacy was in shaping the economic policies of Margaret Thatcher, Ronald Reagan and Augusto Pinochet. Some legacy. He was also a public propagandist. His influence was in the encouragement of prosperity at all costs without concern for the effect on individuals. And what did it all come down to? - Tax cuts for the rich, more income disparity, more pollution, a smaller social safety net, higher crime, a meaner world.

I'm not arguing that the guy wasn't smart, or that he wasn't a good economist. He was a frickin' genius. So, probably, was Hitler. Had Hitler waited a few more years before invading Poland, maybe the Nobel committee would have given him a prize.

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In Praise of Regulation

Reading about the French protesting their government's attempt to lighten the employment regulations for workers under 26, I started thinking... why don't we in North America have more regulations that protect citizens from corporate interests? I like regulations. I think regulations and public education are the two things that make society work.

There are areas of our society that are heavily regulated. The investment industry makes very very sure that there is a ton of regulation and enforcement so that everyone can keep raking in the bucks. Industries like real estate and banking also make sure there's a lot of government regulation when it helps them do business.

There are, of course, all kinds of good regulations that we never think about, like city planning, food and drug regulations, consumer safety laws, rules of the road, etc.

But there could be a lot more regulations to help individuals interact with two related groups: entities that have a disproportionate amount of power and money-making interests. It seems that we need some catalyst to create the public will to push that kind of regulation through (otherwise, government defaults to protecting corporate interests). In Canada, we seem to have the will to address some issues (maternity leave was an easy sell, gun control was not) and in the US there seems to be will to create regulations that keep business running smoothly.

In the US, the stock market crash of 1929 created a public will to regulate corporations, and a similar will arose in 2002 after some corporate scandals led to the Sarbanes-Oxley Act. Canada's anti-corruption regulations are 75 years behind the US. Arguably the most important difference in US and Canadian corporate regulation is that in the US a publicly traded company that owns another publicly traded company has to pay income tax on the dividends it gets from the company it owns. This discourages corporate structures like the one Conrad Black set up in Canada, where he owned a company that owned 10% of a company that owned 10% of a company and so on for about 10 companies deep, and he could tunnel finances from a low-down company up to himself. It's a scandal that Canada allows so much corporate corruption (Conrad Black would never have been prosecuted under Canadian law, but is facing massive fines and serious jail time in the US) and yet there is zippo public discourse about it. In fact, thousands of people invest in those low-down companies without having any idea how horrible an investment they are. (That's where the need for public education comes in.)

In terms of regulations protecting citizens from money-making interests, we have consumer regulations convering fairness in advertising, but sometimes it seems that the rules are designed to con the public into thinking that ads are true while being completely insufficient to ensure that they are. In that sense (which isn't wholly fair), the regulations are designed to benefit the money-making interests more than the consumers.

There are a lot of conusmer protection regulations I remember from 20 years ago that quietly slipped away. There used to be a law (perhaps municipal) that magazine racks couldn't display pornographic magazines except in the top rack with the photographs hidden. The pop bottling industry used to have to offer a certain percentage of bottles that were refillable. Planes weren't allowed to land or take off between 11 PM and 7 AM. Magazines couldn't run liquor ads. Billboards were almost completely outlawed in Ontario.

Sweden is known as a highly regulated country. Their agricultural sector didn't collapse when they created stringent regulations governing treatment of animals. Europe in general has been much more progressive in forcing money-making interests to adhere to community standards.

France isn't doing so well economically so their employment regulations are a bit of a tough sell, and anyway I think they probably go too far, but the French show that a country can give some teeth to employee protection. In France, federal employee laws surpass the protection of the strongest unions in North America. It's very difficult to fire a French worker, workers can take their employer to court over all sorts of issues, they get lots of holidays and so on. I think it is also France that has extremely strong regulations in favor of renters. You see the pattern here: citizens are forcing their government to give citizens more power in their relationships with employers and landlords. Hmmm... we could do that.

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