New Public Policy Required Around Retirement

One of the most negative consequences of the current financial collapse is the effect on pensioners who live off savings. Their portfolios have collapsed. Government regulation forces them to remove a certain percentage of their savings every year, so they are forced to sell assets that have dropped greatly in value - resulting in an unfortunate forced situation of “buy high sell low”.

Now, back when I studied financial management, the rule of thumb was that you should have the percentage represented by your age in non-risky savings. If you’re 60, then only 40% of your savings should be in risky assets, with the rest in fixed return assets. It is obvious from the plight of seniors that this rule of thumb is no longer followed.

The reason, I imagine, is that it is not possible to get a high enough return on secure assets. The Rule of 25 tells us that to live off investment income, you need to save 25 times your desired income. To retire with $50,000/year income, you need to save $1.25M. This rule is based on a return of 4%. Where do people get a 4% real return (return above inflation)? Not from anywhere safe, certainly. That makes us have to contemplate a Rule of 50: to get $50K, you need to save $2.5M.... that kind of saving is simply beyond the ability of most people. (It also requires a higher interest rate while saving, which entails more risk.) If we moved to a Rule of 50 paradigm, we would need to rethink RRSP limits, which currently have an upper ceiling of $20K/year. But even that doesn't help when we have the severe business cycles of the last ten years, during which we have had two catastrophic market events (the tech bubble and subprime meltdown) that wiped out much of people’s savings.

Government bureaucrats and educators all have pensions and benefits till death, and many of them don’t seem to comprehend that most of us don’t have that security, and must finance our retirements through savings. That’s not the hard part though. The hard part is managing the savings so that we can actually retire on them. We are pressured to find investments with decent returns. Most of us aren’t gamblers – we try to find mutual funds that balance risk and return in a responsible way – but we’ve still lost our shirts twice in the past decade. The market bounced back after the tech bubble, but many investments were lost forever, whether we sold or not.

What is needed is a new approach to public policy around retirement savings that is based on the reality of most people. We have a crisis coming with the aging population, and it is a crisis of poverty. Affluent, hard-working people are facing a retirement in poverty – through no fault of their own. We saved, but the unavailability of appropriate savings options and the severity of business cycles have meant that we will have inadequate funds to live on. Sure, we can downsize and cut back, but how will we pay for our prescriptions, walkers and home care? The current system, designed by bureaucrats who have lifetime benefits attached to their pensions, is simply inadequate.

As the "bulge" of the baby boom is 10-15 years away from retirement, we need to make some changes to avoid human catastrophe. As we reregulate the financial industry we need to ensure the following:

* Citizens have appropriate places to invest retirement savings.
* Business cycles are less severe.
* There is more public education about investment, and better regulation of claims made by banks.

In addition, I think we need to consider some more dramatic and controversial ideas:

* Health benefits for seniors need to be improved, including prescriptions and prosthetics.
* Public service pensions should be scaled back and CPP/SocSec should be scaled up, resulting in a more equitable treatment for citizens.

Update: Funny that I wrote this just before things started to really get bad.###

The Secret of Google

It's the holidays, so I find myself reading online stuff that really is of no interest to me, but sometimes there are gems in them thar hills, or at least bits of gems.

In an article about rumors about Marissa Mayer quitting Google, I came on this line: "she won promotions first to director and then to vice president mostly by dint of a schedule of robotic overwork and an obsession with keeping the search engine's homepage sparse and free of clutter."

That's it, though: that is 99.99% of why Google triumphed in the late-90s search engine wars. It was sparse, so it loaded faster. Back when we all had dial-up, who wanted to wait for a Yahoo portal to open full of crap ads? Later, in the annoying flicker of popup ads and flash animation and other assaults on our senses, that lovely white Google page became a sort of haven. (Remember when they tried releasing a black version? Ee-yuck!)

If Google has a problem, it's that the Results page is becoming too cluttered with ads - a fault not shared by Clusty. I guess the day of Marissa Mayer is over before she is.

Comment Moderation Woes Continue

A few weeks ago, blogger stopped sending me notification that I had comments to moderate, resulting in several days where comments didn't appear (until I figured out what was going on). Now I check my blogger dashboard comment moderation page instead of waiting for notification. But as of a few days ago, comments stopped even going to comment moderation... they just disappeared into the ether. I just figured that out and have now turned off comment moderation, so now some comments are getting through - but not all. Damn. Blogger says this is a known bug and they are working on it.

Please know that unless a comment is really offensive, I never reject comments... but I seem to be getting what I paid for with blogger's free software.

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As a Candidate, Kennedy Is, You Know, but Elusive

On December 28, the New York Times front page included an article entitled "As a Candidate, Kennedy is Eloquent but Elusive". The online article linked to a 49-second audio clip in which Caroline Kennedy used the phrase "you know" 12 times. (Here's the complete transcript of the interview.) Later, the NYT quietly changed the online headline to "Forceful but Elusive". They also changed the word "eloquent" in the text of the article to "forceful" (link to altered article).

There is so much to say about this: What is the NYT doing changing the substance of articles without a correction notice? How in the world can this inexperienced society person be a serious contender for the US senate without an election? Are the authors and editors at the NYT in the pockets of the Kennedys?

The ever-delightful commenters at Gawker decided to start a game of MadLibs: Fill in the blank in "As a Candidate, Caroline Kennedy is ______ but Elusive." Some of the suggestions to date:

Inescapable
As a Candidate, Kennedy is Famous but Elusive
As a candidate, Kennedy is a frackin' actual living Kennedy and that should be enough, right? but elusive
Unavoidable
Caught-in-the-Headlights
Blonde
Intrusive
Shallow
As a Candidate, Kennedy Is, You Know, but Elusive
As a Candidate, Kennedy is Imperial and Eager to Ignore Your Questions (To Be Submitted In Writing 4 Weeks Prior) but Elusive
Toothy
Anything
Elitist but Elusive
Incoherent but Elusive
Bland but Elusive
Well-Funded but Elusive
Inexperienced but Elusive
Parochial but Elusive
As a Candidate, Kennedy Is Confused and Off-putting
As a Candidate, Kennedy Is Incoherent and Elusive
As a Candidate, Kennedy Is Snarky and Elusive
As a Candidate, Kennedy Is Verbose but Elusive
As a Candidate, Kennedy Is Arrogant but Elusive
As a Candidate, Kennedy Is Obtrusive but Elusive
Her eloquence is elusive.
Strangely Palin-esque but elusive.

Canada and the Arctic

In his latest book, A Fair Country, John Ralston Saul argues that Canadian culture is fundamentally different from US or European culture because of the strong influence of aboriginal civilizations on all aspects of Canada - our art, history, constitution, justice system, government, foreign affairs and collective unconscious.

I was thinking about Saul's thesis while reading about the recent European Union attempts to usurp Canadian sovereignty on issues of traditional hunting and fishing.

In November the EU released a report called The European Union and the Arctic Region. The report has some troubling aspects. As a recent CBC article put it, "the EU says it supports indigenous populations — except where their activities give offence to Europeans concerned about animal welfare." In particular, the EU report targets Inuit whale hunting as an area where Europe may try to impose restrictions. The report also proposes a ban on imports of seal products from Canada. While the affected sealers would not be aboriginal, Canadian sealers are following a traditional lifestyle that their ancestors have lived for 500 years.

To put all this in context, the EU doesn't protest Alaskans who hunt wolves from helicopters with machine guns. They don't protest slaughterhouses that hang pigs by their back legs and bleed them to death. They don't protest German commercial kills of wild boar and deer for restaurants and butcher shops. Yet they are absolutely up in arms about seal hunters who use the traditional hakapik to kill seals, and now they have aimed their sights at Inuit who hunt caribou, whales and other animals.

Harper is failing us in a number of ways. The CBC article says that under Harper, "Canada is being slowly pushed aside as the rest of the world sets the agenda for opening up the rapidly melting Arctic." Harper seems interested in only two aspects of the arctic: building up our military presence so we can patrol the newly opened northern passage, and extracting resources.

By not dealing with climate change, pollution, sustainable development and healthy aboriginal communities, Canada leaves the door open to groups like the EU to try to set the policy. Further, by giving in to EU pressure over the traditional use of the hakapik, he deserts traditional ways of life when he should be protecting them.

The Canadian arctic has a permanent indigenous population. The Inuit know more about arctic ecology and wildlife than anyone else. We should be working with the Inuit to create Arctic policy, not giving in to ignorant far-away protestors who are squeamish rather than rational. We should be doing much more to improve living conditions in the north to create more sustainable communities. We should be preparing for the changes to Inuit lifestyle that will come with global warming. Over all else, we need a Canadian policy on the arctic that includes a vision of the arctic as a fundamental part of Canada, not a little-populated place with diamonds that might make some southerners rich.

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More Bad News Predictions for 2009 and Beyond

Canada is still weathering the storm pretty well, but that's probably because the US downturn hasn't fully hit us yet. It will. There have been small US economic downturns that didn't hit Canada, but there is no way that a major recession in the US is going to leave Canada unscathed. Our economy is just too dependent on the US: not just exports (US exports comprise 25% of our GDP), but also US corporations operating in Canada that lay off Canadians when their US operations suffer; consumer confidence affected by the US (consumer spending is 55% of GDP); and tightening credit conditions. If the US dollar falls relative to the Canadian dollar, we will be in even more trouble.

A typical recession in Canada starts a bit after a US recession and is much longer. The US bottoms out and bounces back pretty quickly, while we continue to have high unemployment for a couple of years. The Report on Business and its ilk downplay the importance of this post-recession hardship because they're more concerned with the stock market, but working Canadians feel the pinch for a long time.

At this point, a recession with two or three years of layoffs is the "Good News" scenario. The US government is throwing trillions at the economy because they are in very great danger of a much worse situation than a recession. We are all teetering on the brink of a cliff and there may be no precedent for what happens next. Whole industries may shut down. We could be facing massive failures of banks, investment companies, manufacturers, retailers - even states and provinces. Every investment not protected by deposit insurance could be in jeopardy. We could enter a period of high inflation that would not only erode wealth, but undermine the efficieny of every aspect of the economy.

The economic downturn in China is particularly troubling. Just one small effect: if Chinese demand for oil declines, the Alberta oil industry could conceivably collapse. Similar shocks to other sectors that are affected by Chinese demand could be felt all over the world. The Chinese economy is vulnerable because it is still a very poor country with huge exports: it doesn't have domestic demand to cushion its vulnerability to global conditions. If it falters, it could fall hard.

The impending collapse of countries on the periphery of Europe will send shock waves around the world as they default on loans, and it's not clear (despite overwhelming evidence) that global economic leaders are preparing for it. World governments and economic organizations seem to be too much in reaction mode, and aren't being proactive enough.

If this great depression occurs - and at this point it's still just a possibility, not a certainty - then who knows what horrible political movements may grow. Hitler had his roots in the great depression of the 1930s. What might be the equivalent in a 2009 depression? Who might be the next great fascist state? Russia... China... the USA?

If we go into a depression and if it results in another world war, how will that affect the environment? Wars cause enormous environmental damage, with all the burning and sinking of ships and aramament manufacture and so on, while the environment is increasingly shaky. We could hasten the melting of the global ice caps, resulting in flooding of coastal areas and the displacement of hundreds of millions of people, just when international organizations that deal with disasters are too broke to operate in the way they were designed.

It would be comforting to know that there were people thinking about what may come and planning for it as best they could. In the short term we need to figure out what to do when the IMF runs out of money. But we also need to rethink everything we do in light of possible global economic collapse. It might not be a likely scenario, but there is a growing possibility that we're in for dark times ahead.

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A Glimpse of the Bad News Coming in 2009

The countries at the periphery of Europe are beginning to collapse economically - from Latvia to Spain.

Some of these countries are fragile young democracies that may become destabilized by the collapse of their economies.

Some of the governments in the young democracies are inexperienced, inept or even corrupt. Some may react in ways that threaten global stability. For example, Ukraine recently joined the WTO, but after its dramatic Q4 descent into Depression it has slapped a 13% tax on all imports. Since protectionist moves invite retaliation, this isn't a good omen.

Some of the European periphery countries are vulnerable to threats from other states - notably Russia, but the US is not averse to making power grabs where oil is produced or transported.

All of these countries have enormous foreign debt, much of which is not going to be repaid, which will cause another major hit to the global financial system and economy. Paul Krugman says that the epicenter of the world economic crisis has moved from the US housing market to the periphery of Europe. If we knew which banks and countries hold a lot of eastern European debt, we might be able to predict the next round of disasters.

Many of these countries are recent members of the EU, and many use the euro, resulting in who-knows-what down the road for Europe. The euro, which recently looked like a contender to knock the US dollar off its perch as world currency, already took a blow in this economic crisis when the failure of coordination among European central banks meant the exchange rate plummeted. More trouble is in the future for the euro and EU.

Many of these economies are highly integrated with their neighbors. For example, Latvia is going down, and is expected to take Estonia and Lithuania with it - even though Lithuania has a strong economy.

The IMF is already starting to inject money into these countries, but the collapse has just begun, and the IMF has limited funds.

Update: Latvia debt rating cut to junk

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A Personal Account of the Rwanda War Crimes Tribunal

A week ago today, the International Criminal Tribunal for Rwanda convicted Theoneste Bagosora, who is widely seen as the mastermind of the 1994 Rwanda genocide, on eleven counts of genocide, war crimes and crimes against humanity.

I was a spectator in the court on the day Bagosora was indicted, back in 1997. I happened to be in Arusha several times during the first few months of the tribunal and went to the court whenever I could. I saw the indictments of Bagosora, who ran the army, and Jean-Paul Akayesu, the mayor of a small town called Taba, and I heard a fair bit of testimony.

To imagine the court, think of a large rectangular room that is divided long-way down the middle, creating two long, thin rooms. The rooms were divided by a large glass window. One side of the window was the spectator area and had bleacher-type seating with about four or five long rows. Each chair had headphones so we could hear simultaneous translations of the proceedings. In the court area there was a long high bench in the middle, facing us, at which the half-dozen judges sat, with the chief judge in the center. To our right was a table at right angles to us with prosecution lawyers (who rarely seemed to be there), and behind them were places for a number of clerks, who were always busily doing things. To our left was an area for the accused and their lawyers.

There were never very many spectators when I was there (I don't think there were ever as many as ten) and they mostly seemed to be, like me, aid workers who had dropped in. The day that Bagosora was indicted we had a celebrity in the spectator room: Philip Gourevitch, a writer for the New Yorker. He carried a big stack of black and white photocopies of the cover of a New Yorker that identified him as the author of an article on Rwanda; this apparently is how he establishes his bona fides. He sat in the front row chatting with people nearby, to the annoyance of those of us who were trying to listen to the court. The event seemed to call for a more respectful, somber attitude than he displayed.

The Rwandans in the court spoke in Kinyarwanda, which sounded to me like a mix of French and Swahili. I mostly used the headphones but could follow along pretty well without, and did that from time to time to get a sense of the speakers' emotions. Everyone was quite dispassionate: very articulate, respectful, not nervous, not sounding at all upset - even those who described watching their families get hacked up.

The initial phase of the court seemed a bit jumbled to a spectator. Testimony came from survivors of the massacres, but also from Human Rights Watch workers and journalists who were there during and after the genocide. There was a mix of first and second hand information, some of which would not be admissible in a regular criminal court. I assumed that they were trying to get every bit of information into the record.

My overwhelming reaction was utter incomprehension. I heard one journalist describe standing at a bus stop shortly after the genocide ended. She was eavesdropping on some Rwandan housewives who were holding groceries and waiting for the bus. As the journalist described it, they were perfectly ordinary middle-class women with homes and children, but they were calmly discussing their part in hacking up their neighbors.

The eeriest moment was during the indictment of the mayor, Akeyesu. A young man testified that Akeyesu came to his neighborhood with a gang of killers and he, his family and neighbors all fled to the crop fields behind their houses. The young man climbed a tree but most people hid in the crops. He described watching the killers fan out through the crops, finding and killing the people hiding there. He described Akeyesu hacking his little sister and mother to death with a machete. Then the judge asked the young man to show where this took place. A big blown-up map was brought in on an easel, and the man stood in front of it and pointed to the various killing spots. The judge then asked Akeyesu to indicate where something happened, so the mayor went up and stood next to the young man to point at the map. The two men stood so close that they were touching, and the young man didn't flinch at all, or even seem uncomfortable.

I have read about the Rwandan genocide but I have never heard anyone explain the emotional response of the victims and killers. I can't explain it. I can think of possible explanations for the reactions of the victims - life is cheap in Africa, or the victims were so traumatized they were numb, or the victims share the emotions of the killers and so understand why they did it - but none of those seem right. Likewise, I can think of explanations for the killers - they were riled up by the Interahamwe, they believed they were acting in self-defence - but those don't seem sufficient for the frenzy of killing by perfectly ordinary people. If it were not for the ID cards that identified people as Tutsi or Hutu, it would have been difficult to even distinguish the two, as there is no ethnic or linguistic difference and they lived together in the same neighborhoods.

The court is now done - its prosecution phase ends next week, although it will hear appeals for at least two more years. In its 12 years of operation, the court convicted 30 people and acquitted five. It also amassed a record of what went on during those fateful 100 days in 1994.

Note: I took extensive notes while watching the proceedings but have lost them, so all of this is from my memory of events 12 years ago, and I may have mixed up some of the details. It would be great if anyone else who was there could correct or augment these recollections.


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Commerical Bloggerism

In my right margin, just below my email address and profile, I have a temporary section of links that I change with the times. Most recently it concerned the Canadian election. Now I'm starting a collection of links to recession-related blogs. To make this collection I've done a lot of trolling around the blogosphere, looking at blogs devoted to lifestyle, savings, poverty, finances, etc. This activity had an unexpected result: I've discovered some interesting things about the business of making money on the web.

I stumbled across blogs that are devoted to how to make money with blogging. One woman claims she made nearly $3K in one month with her blog ads and by posting on eHow, Bukisa, Commission Junction, and similar sites. Commenters on her site don't seem to be doing so well: typical commenters report making under $10 in total, ever, by following her advice (and yet they still seem positive about their future, based on that tantalizing $3,000 claim). It's a bit like those ads you used to see in the back of comic books: "Make money at home! Send $2 to find out how!" and what you get back is a piece of paper telling you to put an ad in a comic book asking people to send you $2.

Most blogs with ads are fairly benign: the blogger is writing things of interest to him or herself, and happens to have ads. But there is another category of blogs that is seriously trying to make money. These blogs seem to have a number of tricks for increasing their ad income. There are the usual ones like using words or phrases that are popular in Google searches (references to porn, health care, etc). But the trick that really got me is the attempt to attract people to the site who are more likely to click ads - gullible, unsophisticated or just plain desperate - by using ridiculous headlines like "How to spend zero dollars on groceries in 2009". There are tons of blogs devoted to this style of writing, plastered with ads.

I am disgusted by these blogs, but then I am not the desired demographic because I don't click on ads. It's like what happened to a TV show a couple of years ago called Commander in Chief, starring Gina Davis. The show was a critical success and had high ratings. But it appealed to women over 25 (like me), and that is not a demographic that advertisers pay top dollar for, so it was bounced around from night to night and finally cancelled after about 16 episodes.

Sites like eHow have a lot of truly awful posts: the goal seems to be to expend as little effort as possible writing a post, or perhaps to divide up a set of information into multiple posts to maximize revenue. The result is generally facile, contentless pages of "information". The problem with this, if there is a problem, is the proliferation of junk that makes it harder and harder to find quality writing. I don't usually run into this problem but my search for blogs of interest during the recession was really bogged down by silly sites, desperately trying to generate some income, that probably aren't. The only people getting rich are at Google.

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Rot in the Apple

René-Thierry Magon de la Villehuchet, founder of investment fund Access International, committed suicide last night after learning that his firm had lost the $1.4B it had entrusted to scam artist Bernard Madoff.

Some wit in the Globe's comments page wrote, "suicide is the sincerest form of self-criticism." In this case, there's some sense to that.

The problem seems to be that the investment community has sliced and diced risk in more ways than creating new financial instruments. Another way the rich got richer in the last ten years was to form investment companies that out-sourced investment analysis. Someone well-connected like Villehuchet could gain the confidence of wealthy people and convince them to entrust him with their money, but then he could minimize his costs by sub-contracting to someone like Madoff. I read recently about Wall Street investment companies that have no software for analysing risk or optimizing portfolios; they're essentially dumb fronts - and the people who invest with them don't know it.

Villehuchet probably justified the scam to himself as just being good capitalism: maximizing profit by minimizing costs. Free market capitalism isn't good at drawing a line between smart business and gross negligence.

The recent Globe article on Lehman Brothers had this to say about financial deregulation:

...in 1999 [the subprime sector] received another boost. On the last day before the Christmas holidays that year, U.S. law makers led by Senator Phil Gramm – a champion of deregulation – proposed an 11th-hour bill known as the Commodities Futures Modernization Act.

The 262-page bill, tucked into an 11,000-page government reauthorization bill, largely escaped the attention of Congress. But it contained a crucial change. Credit default swaps, those complex insurance products that protected investors in CDOs and other securities, would not only be legal under the proposed law – they would be allowed to trade off of exchanges and thus beyond regulatory scrutiny.

...The writeoffs for the banking industry are now expected to ultimately top $1-trillion. Economists are forecasting the worst global recession since at least the Second World War, and possibly since the Depression.

Canada During the Suspension of Democracy

The online publication of Osgoode Hall law school (The Court) wrote last July, "Canada's tradition of mostly centrist jurisprudence at the Supreme Court level seems, by comparison [to the US], to be much more levelheaded, and this is a result largely attributable to a selection process that, whatever its flaws, has tended in the past to be primarily apolitical and most concerned with good jurisprudence rather than with ideological conformity."

Yesterday's appointment of Thomas Cromwell to the Supreme Court was not an apolitical process and the appointee is not centrist. The Globe says that "Judge Cromwell... can be expected to use the Charter of Rights and Freedoms sparingly to strike down legislation, and generally place the interests of policing ahead of the rights of the accused." In other words, he's a thoroughly Conservative appointment, chosen by Harper to further Harper's pro-jail approach to justice.

Harper's activities during prorogation are scandalously undemocratic. He suspended parliament because he doesn't have the confidence of the majority of MPs and was about to be booted out of office. Now he's thumbing his nose at democracy even more thoroughly by making senate appointments and bypassing the advisory committee on supreme court appointments.

Why are we not crying foul? Far from complaining about prorogation, most of the media has taken to calling it a "time out", as if MPs were naughty school children who need to sit in the corner for a while. Lawrence Martin is one of the few media figures to write seriously about the prorogation, and he makes an excellent case that Michaele Jean should explain her decision to Canadians. He quotes political pundits who describe Canada as "Zimbabwe run by the Queen" and "a banana republic."

People may complain about the senate, but senators serve important functions: on a daily basis they sit on parliamentary committees, but more importantly, from time to time they are required to be our chamber of "sober second thought." The Governor General, or at least this Governor General, has not undertaken the serious responsibility of being Canada's representative of our head of state. She has been unable or unwilling to put any reins on the undemocratic tendencies of our corrupt prime minister, and he is riding roughshod over our democratic traditions. Docile, obedient Canadians are just letting it happen.

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Moribund

We had our local riding association AGM this week. My riding has a dynamic president who I like a lot. The candidate, who recently lost his seat, has a solid record but is less than insprirational.

This was the first AGM in this riding in 30 months. (No kidding: the last one was April 9, 2006.) When I moved to the riding I tried to volunteer, but was told that the candidate has his own group and doesn't want anyone else to be involved. I thought about running for the board but I heard from a board member that they don't meet and are never consulted. I was told I could join the women's group. The riding has a women's group that organizes a dinner dance every fall. I'm not a dinner dance kinda gal. Our candidate has a web site promoting himself but there's no riding site. I volunteered in the election and attended the one local election event I heard about, but other than that, the two AGMs and the occasional dinner dance, I have not heard of one Liberal event in this riding in the three and a half years I've lived here.

The AGM was in a legion hall and about 75 people attended. About 15% were women. There was a smattering of young people, but the room was mostly populated by old men. We had a surprise guest speaker and he spoke slower than anyone I have ever heard. He gave us 17 reasons to support our local candidate, and as far as I could tell, all of them were achievements from ten years ago or before. Our local candidate spoke and said "Brian Mulroney" when he meant "Stephen Harper."

At the meeting we heard that we have very little cash and need to raise a lot fast in case there's an election. I'm usually a pretty solid supporter but I don't know, I'm feeling sort of uninterested right now. It feels like throwing good money after bad. Sure I don't want Harper to win a majority but, truth be told, I don't like my local Liberal candidate and I don't feel any connection to the riding association. I wasn't wild about our leader in the last election and I didn't agree with his main platform policy. Meanwhile, I'm not hearing anything inspirational from the national president or the new leader. I get a lot of emails but they all just ask me for money. I just sent them more money during the coalition debacle; it seems the more I send the more emails I get asking for more.

Before the commenters start with the usual litany of "Why are you in Liblogs?", let me add that 16,000 local Liberal supporters either stayed home on October 14 or voted Green. I am not the only disheartened Liberal in Kitchener-Waterloo. Here's an equation that the Liberal leadership should think about:


Energize the base and the money will come. I'm just sayin'. We have a problem here.

See also: Anatomy of a Defeat

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Environmental Policy

Stephane Dion provided a poor vision for a number of reasons. One was that he posited that environmental policy should be a third pillar of the Liberal ethos, along with social justice and economic prosperity. In fact, it should not. It is important to elevate environmental policy only so long as we have a government that is not acting on it. After that, environmental policy is just another important policy among many. It does not have the stature of social justice or economic prosperity.

Secondly, the Green Shift was bad policy. Its justification, "Pay what you burn not what you earn" is wrong. Taxation cannot be shaped by one policy arm. Taxation must remain progressive, which means that it is based on income. The Green Shift (and the more radical all-consumption tax platform of the Green Party) can only approximate progressivity by building in a whole bunch of subsidies and exemptions that overly distort our society. For example, they propose that people who live in the country should get rebates or tax deductions for gasoline usage (to support good old country livin') but not provide any help for people living in subdivisions (who are by definition bad). As someone who has lived in the country, I can tell you that the majority of country dwellers live in subdivisions in small towns - so then, presumably, we encourage far-flung subdivisions but not close-in ones.

The Green Shift was also ass-backwards in taxing heating fuel but not gasoline. We need to increase the tax of gas at the pump, as Europe has done. That leads to smaller cars, less lengthy commutes, denser housing, more and better public transit, and - most importantly - more consciousness of the environment. It also gives us some protection from massive increases in oil costs, as we can alter the tax but not the price of a barrel of oil.

By putting forward an overly ambitious and fundamentally flawed environmental policy, Stephane Dion set back the cause of environmentalism: he let the PM win an election on an anti-environmental platform, thus giving him a sort of mandate to ignore environmental concerns. He also made it less likely that future campaigns will risk fighting for the environment.

Environmental policy should use the standard three areas of government muscle: taxation, regulation, and public education. Environmental taxation should take the form of "sin taxes," which are consumption taxes on things we want to discourage, such as cigarettes and booze. It shouldn't be a blunt sword but a scalpel, hitting specific activities, and the revenue should be used for providing alternatives to those activities, such as public transit. (Dion's approach of creating a revenue-neutral environmental tax was a sop to the old, flawed vision of "small government good, big government bad" that will be replaced very soon by the new vision of an active state).

The "Green Shift" is regressive taxation because the poor use a higher percentage of their income on consumption, and thus (under a consumption tax scheme) pay a higher percentage of their income in taxes. We should be moving in exactly the opposite direction: we should be increasing the progressivity of taxation by adding tax brackets at the upper end. Currently, the highest tax bracket starts at about $122,000, which is woefully out of date.

The fact that consumption taxes have become a mainstay of green parties around the world is further evidence that the environmental movement is being overly influenced by the right. The environmental movement has historically been in opposition to movements that promote social justice because there is a split between using public funds for the environment or to combat poverty. Both should be treated as valid and important interest groups, but neither should gain iconic status as a pillar of Liberalism.

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Towards Creating the Active State

Buried in a New Yorker profile of Naomi Klein (Outside Agitator, December 8, 2008) is a quote from Stephen Lewis: "I'm more fundamentalist now. I have no patience for capitalism at all. I see now that there is almost nothing that is positive in this ugly international system, and that's why I embrace Naomi's view of the way the world works. I'm actually tired of my rhetorical outburts - I'd like to engage in physical aggression."

I was more taken by one quote from Stephen Lewis than an entire article about his daughter-in-law because Stephen Lewis was an influence on my early political formation. I grew up supporting him as head of the Ontario New Democratic Party, arguing with my friends about his expulsion of the "waffle" (a left-wing group) from the NDP, listening to him being a pundit on CBC radio, reading his memoirs about growing up in Uganda. His influence was reinforced by my admiration of the newspaper columns of his wife, Michele Landsberg.

To see Lewis's change in viewpoint is not exactly shocking - while UN special envoy for HIV/AIDS in Africa his speeches grew increasingly angry - but it is important to me, especially at this time when the world is poised to change the nature of capitalism.

The current economic collapse has both necessitated a fundamental change in our economic worldview and created a climate in which it is possible to achieve change. The questions for us now are: how will it come about, who will bring it about, and what will the new economics be?

It is tempting to wait for Barack Obama to provide the new vision, just as the current/old vision was (arguably) created by Margaret Thatcher, Ronald Reagan and Milton Friedman. That's not such a good idea. Barack Obama used "change" as a slogan, but he's fundamentally a right-wing hawk, at least by Canadian or European standards. He doesn't even propose true universal health care. We can hope that he will offer a new, fair, sustainable vision of capitalism with which to continue, but chances are slim that he will. Bill Clinton truly wanted to bring about change but was able to do no more than improve management processes, and that was because of the right wing nature of the American populace.

Unless we get serious about defining a vision and popularizing it, change may very well be determined in the board rooms of international organizations that create regulatory standards for international financial transactions. Those bureaucrats may be well-equipped to implement the details of someone else's vision, but they should not define the vision.

In terms of creating a vision, the adage "think globally, act locally" is very apt. We need to create a new vision for Canada, and spread it through our influence as a G8 economy. Stephen Harper is an anacronism: he can't even get his head out of the 1980s long enough to cope with the idea of fiscal stimulus. He's still trying to deregulate in a world that requires more - and more creative - regulation. Harper may seem important now, but he's not. It is the next Liberal leader who will be the important historical figure for Canada.

Criticism of corporations (such as Naomi Klein's) is important groundwork for proving why we need to change to an "active state" framework, but it's not helpful to forming the vision. Our new economy must respect the fact that prosperity comes from business, and must understand that regulation can hinder and distort business operations. For example, our current financial regulations are both too weak and distorting: they don't protect against failure that requires bailouts, and they increase the chances of failure by implicitly promoting the severity of business cycles. Thus we live in a world of booms and busts: booms where the rich get richer, busts where the non-rich bail out the rich.

It's important to become more environmentally responsible, but the environment is not a fundamental part of the new economy: it is just a policy detail. The new economy must be based on a recognition that the state shapes economic activity - necessarily, and because it should. Our main problem in the last 25 years is that we tried to convince ourselves that the state doesn't necessarily have this role, and then we chipped away at a few regulations, distorting the overall operations of the economy in a way designed to concentrate wealth in the hands of the already wealthy. Likewise, we pretended that taxes were unnecessary and bad, even though our entire society is based on taxation, and we let governments reduce certain taxes in distorting ways.

Once we all come to the realization that regulation and taxes are both necessary and good, then we can start to create regulatory and tax systems that not only work for everyone, but that enhance our lives. We can reduce the severity of business cycles so that millions aren't plunged into unemployment by recessions every 5-10 years. We can fund education so that we have enough doctors and nurses, and so that we can compete with India in the world of software.

The active state that we create should be bigger government. We need more regulation and higher taxation. It must also be smarter government, with less corruption, less waste, and less acceptance of the ruling class paying itself off.

In a sense we all, along with Stephen Harper, live in the 1980s. As a society we haven't completely emerged from the Cold War. We fear big government as some sort of Soviet mass repression, with inefficient factories and few personal freedoms. In fact, the Active State should be just the opposite: it should free us from oppression by the economic elites.

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Needed: Steady Hand on the Tiller

At the APEC meeting in Peru on November 23, Stephen Harper said "it may well be necessary to take unprecedented fiscal stimulus." This seemed to signal a change from his repeated statements that the economy was fine and a stimulus was not needed. Then on November 28, in the economic update, he did an about-face and said that stimulus was not needed; avoiding a deficit was all-important; and he was announcing $4.3B in cutbacks for 2009. That statement also made the bizarre and surely unsupportable prediction that the government would have a surplus in 2008 and 2009.

In the week following the economic update, Canada's non-partisan pre-eminent political news outlet, the Hill Times, speculated whether Harper was mentally unbalanced.

The erratic behavior of our government is not easing. Today our prime minister said on TV that we may be heading into a depression (not just a recession), and he promised a huge fiscal stimulus. Meanwhile, cabinet ministers are all over the map giving confusing and confused signals. Industry Minister Tony Clement said it was important to move fast. Finance Minister Jim Flaherty said it was important to move slow.

As any first year Economics student should know, economic behavior is based on expectations, and expectations depend on confidence. Particularly in times of economic vulnerability, we need confidence that the government knows what it's doing and is on the right track. These flipflops and wild-ass statements are hurting the economy, and so are jeopardizing the lives and prosperity of Canadians.

It's not just that there is no consistency in policy. It's also that the government is exposing its fundamental ignorance of how the economy works. In times of recession when interest rates are already low, a fiscal stimulus package reduces the budget deficit while budget cutbacks increase the deficit. This is a well-known phenomenon (link, link).

To be effective, the fiscal stimulus must start early in the downturn. The longer the government delays, the worse the recession will be.

Furthermore, during a downturn you can't hurt by over-stimulating. You can only hurt by under-stimulating. As Nobel laureate Paul Krugman says, "if fiscal expansion is too little, that’s the end of the story. If it’s too much, the Fed can head off inflation by raising rates. ...we should err on the side of too much." (In another post, he gives back-of-envelope math for how to calculate how big the stimulus should be.) After the economic downturn, we need to worry about inflation: not now. Now we need fiscal stimulus: a lot, and quickly.

There are all kinds of arguments for and against every type of stimulus. Some arguments are valid and some are disingenuous. It's valid to worry about infrastructure projects that have a long lag time: they won't provide stimulus when it's needed and may even cause inflation after the downturn. But it's not so valid to worry about whether consumers spend or save a cash rebate. If they save it, the stimulus effect is not not negated but merely delayed (if they pay off credit card debt today, they'll be freer to spend in a month or two), and since rebates are a very fast stimulus method, even a delay might still be faster than other sorts of spending.

None of this is rocket science. Every international economic organization and every western country has figured it out and has implemented stimulus packages: every country but Canada. Harper and Flaherty, with their vast civil service full of economists, could surely create a coherent economic policy. The fact that they're not doing that seems to be due to the PM's obsession with political one-upmanship and ideology. He's so busy trying to bankrupt the Liberal party that he's bankrupting Canada. And maybe there's something to the notion that he's mentally unbalanced, too.

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Challenge to Coalition Objectors

If you disapprove of the coalition and think the Liberal leadership was wrong to have been involved in it, please tell me what you think they should have done. Their options were:

1. Support the government by voting in favor of the economic update and all its components (abolishing public financing for political parties, asserting that there would be no fiscal stimulus for the economy, suspension of civil service strikes, cessation of negotiation over pay equity).

2. Bring down the government, triggering another election (barely seven weeks after the last election, which would have been political suicide).

3. Exert pressure on the government with the credible threat of a coalition.

Keep in mind:

* The coalition has never been more than a threat.
* It was impossible to have a coalition threat without involving the Bloc.
* Harper has still not backed down on any of the economic update's components. He has carefully worded his comments to say things may be off the table for now, but made no commitment to keep them off the table.

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The Coalition Was Necessary... Period

What Canadians seem to be forgetting is that the coalition was necessary. Stephen Harper, after three years of bullying, disrespecting and riding roughshod over the majority of MPs in parliament, went way way too far in his November 28 economic update. Had the opposition parties continued to play along, the fabric of democracy would have been torn asunder; the statement that the economy does not need fiscal stimulus would have been allowed to stand; the government would have been allowed to give the finger to women and unions. The opposition parties would have been completely irresponsible and spineless if they hadn't said No to Harper on the economic update.

Saying No meant voting against the economic update, and since it was a confidence vote, that meant voting out the Conservative minority government. There is no other way to do it. But instead of just waiting till the vote and kicking out the government, thus triggering a second election in less than two months, they did the responsible thing and decided to exert pressure. They (1) announced in advance that they wouldn't agree to the update, giving the PM time to back down; and they (2) said they would form a coalition government so that an election would not be needed.

Talking about this as Liberal opportunism and Dion making a power grab is nonsense. Dion had announced just weeks before that he didn't want to be part of a coalition. It did not provide any benefits for the Liberal party and it was full of risk. The Liberal party took on the challenge of a coalition because it was the only responsible reaction to Stephen Harper's economic update.

Michael Ignatieff has never been a proponent of the coalition and now appears to be backing off. The question is whether he has other means to keep the PM in line, especially in his January budget. Is the threat of a coalition enough, or have the public opinion polls removed that means for exerting pressure?

Harper's current appointment of senators is puzzling and I haven't found any commentator who understands what he's up to. The most obvious explanation, which may or may not be true, is that he's playing his favorite game, "Dominant Dog," and letting everyone know that he won the scrimmage. Sort of like, after emerging victorious from a fight, the top dog pees on the loser. By doing something that constitutional scholars think is suspect during this sort of prorogation, he is demonstrating his power.

Another explanation for his bizarre behavior is that he is scared he'll lose the budget vote, and is shoring up support - support for his party, his leadership, or maybe even his career post-politics. Neither explanation seems likely. With Harper, we have a national leader whose ego, arrogance and adherence to extremist ideology transcend the rational.

Update: Chantal Hebert explains the senate appointments as being unrelated to the current crisis, and something he signaled he would do prior to this.

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The White Hotel (Review)

I first read DM Thomas’s novel The White Hotel when it was published in the early 80s. I loved it but found it extremely disturbing. It ranked in my mind with Deliverance, 1984 and Jude the Obscure as books that had upset me so much I could never read them a second time.

This week, after 27 years, I read it again. My second reading was profoundly different from the first. It was still rewarding and disturbing. I cried pretty steadily for the last hour of reading and a while after. But the world has changed so much in 27 years that it’s a different book.

The White Hotel (don’t read on if you don’t want to know what happens) is about several things, but is based in Freud’s article Beyond the Pleasure Principle, in which he posits that humans are motivated by the life instinct (creativity, harmony, sexual connection, reproduction, and self-preservation) and the death instinct (destruction, repetition, aggression, compulsion, and self-destruction) – by sex and death.

In the novel, the historical Freud is helping a young woman who has debilitating pain that doctors think is psychosomatic. As part of her treatment she writes Freud a poem, followed by a narrative explaining the events in the poem, in which she describes a passionate tryst she has in a hotel in the Alps (which she calls the White Hotel) with a man she identifies as Freud’s son. She has never met Freud’s son. In this fantasy, while the lovers have sex other guests are killed in all sorts of horrific ways. Bodies fall outside their window.

The poem is meant to be shocking: it’s obscene, erotic, sometimes gross, and jarringly personal in the way she keeps referring to her lover as “your son”. When I read the book in 1981, the sex section at the beginning of the story balanced the shocking death scene at the end. However, in the intervening 27 years our measure of what is sexually shocking has changed markedly. Now the sex can’t provide that ballast, and the brutal violence at the end of the book doesn’t fit as well – it might almost, to a first-time reader, feel a little tacked-on.

The story could be read as a novelization (and hence sort of proof) of Freud’s theory of sex and death as the two great motivating forces. It's also a repudiation of Freud, as in the story Freud has let the young woman read his papers, and then she creates a fantasy (or a free association) that perfectly proves his theory. But also, in the novel the character Freud believes in clairvoyance, by which he means the ability to read minds and see into the future. (I don’t know if the real Freud believed this, but he probably did, given Thomas's scholarship.) Given that Freud believes that, all his explanations for his patients’ problems are turned on their heads, because he was treating mainly young Jewish women 30 years before the Holocaust, which would profoundly affect all of them: if they had any clairvoyance at all, it surely would explain their hysteria.

At the end of the story our heroine is killed, along with thousands of others, by German troops at Babi Yar. Thomas was criticized for lifting some of the description of the massacre directly from the text of a survivor (although he credits him on the copyright page), but I thought it was appropriate. Certain things are so horrific that they shouldn’t be fictionalized. Thomas’ handling of this portion of the book is extraordinarily sensitive.

The book has a coda in which all the characters (Jewish or not) are in heaven, which takes the form of Palestine. I don’t see how the book could exist without this coda. It’s like Thomas is taking the reader by the hand and leading us to the end of the experience, helping us cope, reminding us that although many died, life continued.

In one sense, things feel a little over-explained in the book: explanations are a bit too pat. I think Thomas was trying to write for a wide audience that wouldn’t necessarily be able to fill in gaps. But I also feel after my second reading that I need to read it many more times. I don’t understand the purpose of the various perspectives (different narrators and the disturbing second case in “your son”) or the reason the plot unfolds as it does, or why our heroine spends so much time on trains.

Not that you need to understand any of the mechanics of the novel to feel the emotional impact. In an ironic twist, the book leaves me thinking about Freud’s rival Jung. The novel has added to our collective unconscious this image of a large, stately hotel in the mountains, a place we might unexpectedly find ourselves while on a journey somewhere else. If it hadn’t been for the coda I might have thought of the White Hotel as heaven, but instead I see it as our inner life (maybe the id). The lulling sound and motion of a train might hypnotize us into a visit to the White Hotel, deep in our psyche, where every character is an aspect of ourselves and events show us – well, that’s the mystery.

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Bailout Coordination

Finance Minister Jim Flaherty is quoted in the Globe this morning as saying that "panicking and making the wrong choices would be devastating for the Canadian economy."

There is a lot of irony in Flaherty's timing. The American administration is poised to move ahead with an auto bailout today, even without the support of Congress. In the tightly integrated North American auto industry, Canada's failure to coordinate on the bailout could have devastating effects on manufacturers north of the border. The US is essentially providing a $50B subsidy - and its goal is to protect US jobs. This is not the time for the Canadian government to be frozen in an ideological bullheaded refusal to act, and yet it is. Far from "panicking," Flaherty is lost in some rightist la-la land, hoping that if he can just keep cutting spending everything will somehow work itself out.

Update: Later the same day... the bailout is announced. Thanks goodness. I think in this situation there is really no alternative for Canada, once the US announces a bailout in such an integrated industry.

Look Out Stephen Harper...

... If you keep up with your dirty tricks the Archangel Michael will smite you.