Relevant and even prescient commentary on news, politics and the economy.

Cultural Appropriation

From the Canadian Broadcasting Corporation:

Indigenous advocates from around the world are calling on a UN committee to make appropriating Indigenous cultures illegal — and to do it quickly.

Delegates from 189 countries, including Canada, are in Geneva this week as part of a specialized international committee within the World Intellectual Property Organization (WIPO), a United Nations agency.

Here’s more:

Speaking to the committee Monday, James Anaya, dean of law at the University of Colorado, said the UN’s negotiated document should “obligate states to create effective criminal and civil enforcement procedures to recognize and prevent the non-consensual taking and illegitimate possession, sale and export of traditional cultural expressions.”

Anaya said the document should also look at products that are falsely advertised as Indigenous made or endorsed by Indigenous groups.

Canadians often aggravate peaceful and reasonable people all over the world. Because of that, it is no surprise to find Canada among the worst offenders when it comes to abuse of the indigenous population:

There are Indigenous groups from around the world taking part in this round of negotiations, including groups from New Zealand, Kenya, Mexico, Colombia and the United States.
There is no Indigenous representation in the Canadian delegation.

Officials with Global Affairs Canada, Innovation, Science and Economic Development Canada and Canadian Heritage are taking part in this round of negotiations, but the lack of Canadian Indigenous representatives is drawing criticism from the Assembly of First Nations.

In any scenario in which property rights are being assigned, there are always eager claimants. Fortunately, when it comes to the Canadian First Nations, one of the tribal elders and knowledge keepers can tell us precisely who are the authorities who should oversee the creation of guidelines and a process for utilizing Indigenous knowledge in any activities:

“The elders and knowledge keepers are the authorities who should oversee the creation of guidelines and a process for utilizing Indigenous knowledge in any activities,” Assembly of First Nations national chief Perry Bellegarde told CBC in a written statement.

But once again there is the issue of the exploitative nature of the Canadians:

There was no word on whether the federal government plans to consult with the AFN after this round of negotiations wraps up on Friday.

Now, I am not an attorney, but I cannot understand how this could work separately from the copyright and patent process. And to my knowledge, copyrights and patents don’t touch on culture. Nor to my knowledge do they get assigned to large groups of people and administered by a council of elders.

Culture, from what I can tell, is a tough thing to assign. For example, the Navajo (mentioned in the CBC article) are well known for their blankets, suggesting that production of anything resembling such blankets and their design should involve royalties paid to the Navajo. And for a new design, copyright laws work fine. But my reading of the UN’s intent is that older designs (say those that have been in use for a long time) or even the very concept of a “Navajo design” rate protection and payment to the Navajo tribe.

However, there is some evidence that the creation of those blankets is a recent phenomenon. It may be that a Spanish trader came up with the whole idea. It hasn’t, so far, been in anyone’s interest to dig very deeply into the issue. But, if it turned out that the concept of Navajo blankets is, in fact, the brainchild of some unwashed and forgotten Spaniard of a few centuries back, what then? Would the Navajo owe the Spanish three hundred years worth of royalties? And which Spanish people are owed? No doubt among the various claimants to the Spanish empire, a council of elders could be assembled. And of course, the council of elders would decide that the council of elders should decide.

If the UN goes the route it’s headed, someone will have to tackle problems like these. Plus, it isn’t going to stop with the rights of what tend to be called indigenous people. After all, the First People seem to actually be the second people, having mostly wiped the actual first people out. That, of course, is a sadly consistent feature of human history. With the possible exception of the San, every one of us descend from butchers who engaged in genocide and other atrocities.

In a world where “indigenous” seems to simply mean “former conquerors who have since been vanquished” here’s the sort of issue that will eventually come up: is it cultural appropriation for non Jews to treat Jerusalem as a Holy City? Even accounting for the UN’s anti-Semitism, that question alone will result in quite a show. So when it comes, get comfortable. Take out your mouth-plate, loosen up your piu piu, adjust your koteka, kick off your moccasins, put up your feet and enjoy.

Wait. Canadians make more money than Americans? Yep.

David Zetland passes along some income figures via Aguanomics (re posted).  (Dan here…There are more American billionaires and millionaires, so not to worry) :

Cornelia and I were discussing household income and living standards, and I mentioned that median wages in the US were around $35,000.* She was shocked, saying that they were much higher in Canada.
Wait. Canadians make more money than Americans? Yep.

[1] USD** Median household income
50,050  USA
71,300 Canada
Household size
2.6  USA
2.5 Canada
[2] USD GDP per capita (2011 nominal)
48,400 USA
50,400 Canada
USD GDP per capita (2011 Purchasing-power-parity)
48,400 USA
40,500 Canada
[3] Gini Coefficient (CIA, 100 = most unequal)
45 USA
32 Canada
So here’s how I reconcile these numbers:

  1. Median household income is nearly 40 percent higher in Canada, even after adjusting for the number of people in the household.
  2. PPP GDP per capita is higher in the US by nearly 25 percent. This number, mind you, refers to total economic activity and cost of living, not income to individuals.
  3. These numbers are reconciled via inequality: Canada is more egalitarian (similar to Spain and Italy) than the US (similar to Bulgaria and Iran), circa 2005-2007. I reckon that inequality has recently worsened in the US.

So it seems that the income derived from economic activities in the US is skewed in distribution — with more going to rich people than the average person — compared to Canada.**

Bottom Line: Canadians are well known for their higher levels of social harmony. This harmony may be due to a fairer distribution of income, but it’s also accompanied by a higher average incomes.*** Americans are both poorer AND less equal than their neighbors.

* Average wages in 2011 are $42,000 in the US and $32,600 in Canada, but those numbers do not account for employment (66.7% and 71.5%, respectively) or the distribution of wages/capital gains. Right, Mitt?
** Gross income is not the same as income net of taxes, and total taxes are 27% of GDP in the US and 32% of GDP in Canada, but those rates ALSO do not take the distribution of the tax burden into account.
*** My definition of the American Dream — “being able to do what you want” — does not match common definitions that include upward mobility. That dream is — relative to the past and relative to other countries — more dream than reality [pdf].

Worthwhile British Initiative

Today’s FT (front page, below the fold*) declares that Mark Carney “has been informally approached as a candidate” to head the Bank of England “in June next year.” He is currently governor of the Bank of Canada.

It would be a good choice. As the speeches at the link above note, Carney is no fool, which often seems rather more than one can say for many members of David Cameron’s Administration.**

Of course, the BoE already has one foreigner who should be considered as Merwyn King’s successor—but Adam Posen is American. As the FT anonymously notes:

Naming a foreigner as Governor…would break with tradition, although Mr. Carney has a British wife, studied at Oxford university [sic] and worked at [The Giant Vampire Squid] in London early in his career.

“As a Canadian national, he is a subject of the Queen,” said one supporter. “That is important.”

I’m now waiting for Felix Salmon to start a “Posen for the BoE Governorship” campaign which, sadly, is likely to be about as successful as his “Ngozi Okonjo-Iweala for the World Bank Presidency” campaign.

*no link–being a print subscriber, online access is limited to PDFs, and the website is quite unfriendly to non-online subscribers

**Cameron’s choices remind one that however pathetic Tim Geithner is, it is possible to do worse. I mean, really, George Effing Osborne? A man who supposedly prepared for five years in the “Shadow” role and came up with this shite?

The Euro Area Precedent for Policy Failure

by Rebecca Wilder

The Euro Area Precedent for Policy Failure

Last weekend, a leaked Troika report (Troika = ECB + EC + IMF) revealed that European policy makers now comprehend that the Greek policy prescription is not working (bold by yours truly):

The growth and fiscal policy adjustments assumed under the program individually have precedent in other countries’ experience, but experience to date under the program suggests that Greece will not be able to set a new precedent by realizing at the same time and from very weak initial conditions a large internal devaluation, fiscal adjustment, and privatization program.

Rob Parenteau and Marshall Auerback sum up the implications of this point (1 A.):

On the first page of the document is not only a pretty open and blatant admission that expansionary fiscal consolidation (EFC) has proven to be a contradiction in terms, at least in Greece, but there is also a serious policy incompatibility problem, at least over the intermediate term horizon, with efforts at internal devaluation (ID) – that is, attempting nominal domestic private income deflation in order to improve trade prospects when one has a fixed exchange rate constraint.

I agree with Rob and Marshall – the grand plan does not work. Greece will (of course) not be able to set a new precedent of public sector and private sector deleveraging amid weakening external demand and a fixed exchange rate. However, I’d like to focus here on the ‘precedent in other countries’ experience’. What precedent?

One might point to Canada’s mid-1990s budget initiative that dropped program spending from 16.8% of GDP in 1993-1994 to 12.1% in 1999-2000 as a candidate for precedent. Marshall Auerback and Stephen Gordon refuted this claim as applicable to current conditions. However, we now have economic data available with which to compare the Canadian austerity experience to that of the Euro area.

What’s happened in Europe over the last year: Divergence. Since the middle of 2010, fiscal austerity and a drive for internal devaluation to ‘increase competitiveness (whatever that is) slashed GDP growth on a quarterly basis for all countries under the European Financial Stability Facility (EFSF) program – Greece, Ireland, and Portugal – while nonprogram countries enjoyed the economic benefits associated with a robust global recovery (through 2010). Note: fiscal austerity and ‘reform’ are pre-conditions to accessing funding at the EFSF. Not coincidentally, since Q1 2010, no Euro area countries have contracted except program countries (rounding to the nearest tenth) through Q2 2011.

The chart above illustrates the major Euro area (EA) economic (EA 12 less Luxembourg) recoveries since the peak in EA real GDP, Q1 2008. The legend lists the latest Q2 2011 reading as an index to the Q1 2008 EA peak – the difference over 100 represents the accumulated growth in real GDP. Only Belgium, Austria, and Germany retraced, or fully recovered, the lost EA real GDP. EA economic activity is 2% below pre-recession levels. Notably, Ireland, Greece, and Portugal are struggling amid tight financial conditions and the crimping of domestic demand (internal devaluation).

Since austerity and raising the primary balance is a  condition for EFSF funding access, a contracting economy is to be expected, right?

Wrong – in fact, the Canadian economy experienced no real GDP contraction spanning the years 1994-2000 when the structural fiscal balance turned from a 6.9% deficit to a 1.5% surplus. All the while, GDP maintained a 4% average annual growth rate and did not contract on a quarterly basis (after revisions). Admittedly, the Canadian economy did not grow in Q2 1995 and Q3 1995, but improved smartly thereafter.

I point you again to Marshall Auerback and Stephen Gordon for the whys. But basically, easy monetary policy, depreciation of the currency, and robust US demand fostered the fiscal shift in Canada. None of these conditions exist in the Euro area, so those program (austerity) countries – Ireland, Greece, and Portugal – suffer contraction.

As an aside, some may point to Ireland as a success story, since it posted two consecutive quarters of reasonably strong growth in the first half of 2011. Sure, Ireland eventually grew – it is a very open economy, so has an innate ability to generate net export income. But importantly, look how far the economy fell (see first chart). The economy saw 10.7% in accumulated contraction spanning Q1 2008 to Q4 2010 – the 3.5% rebound spanning the first half of 2011 pales in magnitude. I point you to Edward Hugh’s commentary for a sobering read on Ireland.

Finally, I leave you with a potent illustration of what not to do when it comes to fiscal austerity: Portugal vs. France.

Portugal was doing all right – better than France, even – until they ran into 2010 financial stability problems that forced the government to start ‘cutting’. Portugal started to contract in Q4 2010, applied for funding in April 2011, and contracted thereafter. Economic Intelligence Unit sees Portugal contracting throughout 2012 (no link). The Euro area prescription for austerity is tantamount to economic collapse amid a fixed exchange rate and meager global growth prospects.

The EA policy plan for fiscal austerity is setting a precedent, all right, a precedent for policy failure.

Originally published atThe Wilder View…Economonitors

A Caesura in Canadian Opposition

[Expletive Deleted].

It will be interesting to see whether the Libya of Brad DeLong and Juan Cole’s beliefs produces a respectable opposition leader—one of the surer signs of rule by the people—before Canada does.*

UPDATE: Via Amy Wilkins Twitter feed, Layton’s final words. Can anyone imagine the 2011 Obama** being able to say this:

You decided that the way to replace Canada’s Conservative federal government with something better was by working together in partnership with progressive-minded Canadians across the country. You made the right decision then; it is still the right decision today; and it will be the right decision right through to the next election, when we will succeed, together…

All my life I have worked to make things better. Hope and optimism have defined my political career, and I continue to be hopeful and optimistic about Canada….More and more, you are engaging in politics because you want to change things for the better. Many of you have placed your trust in our party. As my time in political life draws to a close I want to share with you my belief in your power to change this country and this world. There are great challenges before you, from the overwhelming nature of climate change to the unfairness of an economy that excludes so many from our collective wealth, and the changes necessary to build a more inclusive and generous Canada. I believe in you. Your energy, your vision, your passion for justice are exactly what this country needs today. You need to be at the heart of our economy, our political life, and our plans for the present and the future. [emphasis mine]

*I said “respectable.” This does not include the Liberal Party for as long as they are led by Michael Ignatieff, to whom this post was Far Too Nice.

**I’ll be nice to those of you who thought that Obama was anything other than a Corporatist from the start.

Hoocoodanode, Great White North edition

Hoocoodanode that replacing someone described as “too Professorial” with someone whose concept of True Patriot Love was to spend the time of the Life of Legendary Jesus out of the country (being a Torture Apologist from the comfort of Cambridge, Mass while Maher Arar traveled different roads) and then act upon his return as if he were the Second Coming could have negative consequences with the electorate?

The glory for the Conservative Party for the past twenty years has been that the ABC vote would split between the Liberals and the NDP and the PQ would distract enough people in the non-oil-producing East to keep them in power. So in some small way, we should credit Ignatieff for doing the impossible—uniting the Canadian center-left.

Update: CT has a post from Tom Slee that discusses everyone except the elephant in the room, with more joie de vivre than I did (but less surety).

Canadian economic growth is about two percentage points higher under Liberal governments

by Mike Kimel

Canadian economic growth is about two percentage points higher under Liberal governments
Cross posted at the Presimetrics blog.

Frances Woolley has a piece in Worthwhile Canadian Initiatives that begins like this:

Canadian economic growth is about two percentage points higher under Liberal governments. At least, that’s what my colleagues Stephen Ferris and Marcel Voia found in their recent article in the Canadian Journal of Economics (earlier ungated version here).

This is a large impact. For example, if the economy was growing at 1 percent under a Conservative government, switching to a Liberal government would increase the predicted GDP growth rate to around 3 percent.

If you’ve been reading my blog posts, or Presimetrics, the book I co-authored with Michael Kanell, you’ll recognize this is about the same conclusion that can be drawn about the United States.

Because of the similarity in outcomes for Canada and the US, its worth considering whether the drivers are the same. Woolley suggests two explanations for the Canadian results. The first:

One hypothesis begins with the observation that the Liberals are Canada’s natural governing party – they have been in office more often, and for longer, than any other political party. Temporary interruptions to their rule, for example, the election of R.B. Bennett, occur when something goes seriously wrong.

This explanation doesn’t work for the US. Democrats have outperformed Republicans from 1929 (the first year for which data is available from the BEA) to the present. That’s 81 years, and Republicans have had the Oval Office for 39 of them – just slightly less than half. In the period from 1953 to the 2008 the period we focus on in our book, Democrats still easily outperform Republicans, there are a total of 56 years, and Republicans have been President for 36 of them.

The second explanation:

A second hypothesis is that Liberals pursue pro-poor policies and Conservatives don’t. This means that Liberals will tend to be elected when people are feeling poor, that is, at the bottom of the business cycle, whereas Conservatives will tend to be elected at the top.

This one also doesn’t work in the US. Yes, FDR and Obama were elected when economic disasters were underway, but malaise was the word of the day when Reagan was elected. (And leaving out FDR and Obama doesn’t change results.) On the other hand, JFK was elected and both Truman and LBJ became President when the country’s mood was exceptionally strong. (Growth under LBJ was second only to FDR, and Truman turned in the worst performance among Democrats thus far.)

Frankly, I think the first sentence of the second hypothesis may have some juice to it, but you have to divorce it from the sentence that follows it:

A second hypothesis is that Liberals pursue pro-poor policies and Conservatives don’t.

The difference in “pro-poor” versus not “pro-poor” explains tax policy, and tax policy correlates with growth in the US. The difference in “pro-poor” versus not “pro-poor” explains tax policy, and tax policy correlates with growth in the US. I suspect, but I haven’t checked yet, that there are two other differences between Democrats and Republicans in the US, and Liberals and Conservatives that matter:

1. Where the money gets spent. (i.e., “pro-poor” spending v. not “pro-poor” spending)
2. Regulation of externalities

Which country prints more and runs bigger government deficits: Canada or the US?

Even though Europe is on the forefront of global bond news these days, I’d like to revisit the US Treasury market. Specifically, I’ll look at the Canadian-US bond spreads, which tell an interesting tale of Fed purchases and US deficit fears.

First, the Canadian over US government bond spreads for two longer term issues, 10yr and 30yr in chart below, have been falling for some time. Today (Jan. 10, 2011), the 10-yr Canadian Treasury over the 10-yr Treasury spread is around -12 basis points (bps), i.e., the Canadian 10-yr bond is 12 bps lower than the US 10-yr. The 30-yr spread is roughly -86 bps.

The recent divergence of the ‘spread’ between these two spreads presents a bit of a conundrum, since the two have more or less moved in lockstep.

Note: in the chart above, each dotted line represents the period average for the 30 calendar day ( moving average spread of similar color.

The conundrum is this: the 30-yr spread has deviated well below its 2002-2011 average of 8 bps, while the 10-yr spread is sitting roughly at its average, -13 bps. But this is not a conundrum if you consider recent US policy, holding all else equal.

One the one hand, the Federal Reserve is concentrating its bond purchases in the long end of the curve, primarily below the 10-yr maturity. According to the NY Fed, 23% of the $600 bn will be allocated to the 7yr-10yr part of the curve, while just 4% will support the 17yr-30yr end. Therefore, and holding all else equal, the CAN-US spread proxies somewhat the effects of Fed policy in the bond market. The Fed is supporting the 10-yr spread roughly at trend(Section II in chart above), while contemporaneously raising inflation expectations relative to that in Canada.

On the other hand, without Fed support the 30-yr spread is pricing in not only rising inflation expectations but also an increasing US sovereign risk premium relative to that in Canada. This is a similar premium that was attached to Canadian sovereign debt in the early- to mid- 1990s (Section I in the chart above).

Compare the chart below, which illustrates the annual federal deficit in the two countries as a percentage of GDP, to the chart above. Notice how when the red line, (Canadian government deficit) moves aboe the blue line (US government deficit), the average spread drops (Section III in first chart)? That premium is now feeding into the 30-yr spread at an increasing rate (Section II of first chart).

I am in no way suggesting that the US should undergo a similar fiscal austertiy program as that taken in Canada in 1995 (please see Stephen Gordon at Worthwhile Canadian Initiative). What I am demonstrating, though – and rather qualitatively, I might add – is that absent active Fed purchases in the back end of the curve, there is a risk premium emerging in the US bond market relative to that of at least one country with markedly lower government deficits, all else equal, of course.

Rebecca Wilder

Relative employment is shifting

Today Statistics Canada released impressive June employment figures from its Labour Force Survey (LFS). In case you missed it, the April gains, +109,000 new jobs, set a record. And the June gains, +93,000, were nearly as spectacular. (Note: the unemployment rate for Canada in the chart to the left is through May, not June)

Canada’s labor market bounced back fully and then some. Spanning May 2008, when job loss became the norm as the global credit crunch started to take hold, to December 2009, 259k jobs were lost. However, this year through June 2010, the labour market added back 308k jobs, which is +50k new jobs during the expansion or roughly +500k in “US”.

I’m afraid that the US labour market is a far different story. To regain employment lost since June 2008, 6.9 MILLION jobs need to be added back to the employment figures of the current population survey.

I digress. Every time I hear the Canadian statistics, I immediately multiply the statistic by 10 to control for the population differential; thus, +109,000 new jobs in Canada would be equivalent to roughly +1,090,000 in the US, all else equal. In translating the job gains into “U.S”, I understand the magnitude with more clarity – not very different form learning a new language by translating the words in your head.

Is +50k Canadian still equivalent (roughly) to +500k US? The short answer is pretty much – the 2009 US/CAN relative population was just over 9; but in thinking about relative population figures, I stumbled upon a rather remarkable relative employment figure between the US and Canada. The Canadian employment picture has become much much brighter than that in the US over the last decade.

The chart illustrates US employment relative to that in Canada, Germany, and Japan (Germany and Japan are there for comparison). As you can see, employment in the US relative to our neighbor to the North has dropped markedly. There is a secular downward trend in US employment relative to that in Canada.

And it’s not just a population issue. On a population-adjusted basis, the employment figures in Germany, Canada, and Japan are trending upward relative to that in the US – and for Canada, this is a secular trend rather than a cyclical phenomenon.

The US employment picture is fading compared to other developed nations. And remember, Japan and Germany saw near-zero annual population growth spanning the years 2000-2009.

Rebecca Wilder

Corrective Note

A few years ago—probably four, though maybe more—I was doing some research at SIBL when the National Sport of Canada came on the television screens.

It wasn’t that I stopped to watch; that loyalty had been previously established. It was that everyone else who was walking between the floors stopped and watched for at least five minutes, and often longer.

So when the NYT declares that curling “has captivated the Type-A world of Wall Street almost by accident” as if this were news, I can safely state that it has been so for a while.

(h/t the blog of the London Review of Books)