I little industry news this morning to share with you. Now, think about it critically, and avoid the rather partisan result of the tables in judging a six month government inheriting a time of extreme fiscal crisis and simply look at the graphs without the colouring. What do you see that’s odd?

The History of Alberta’s Debt Position in Charts

I see a few. One, the current graph is basically exactly the inverse of oil prices. That would say for a province where only 25% of our GDP is tied directly or indirectly to oil, the vast bulk of the public services are funded by energy royalties. That’s not a stretch. The shortfall is very much a result of decreased royalties alone. Thus, no heritage fund, we were spending the variable income on our operational day-to-day costs. All so we had lower taxes. Our oil paid for our schools and health care.

Now, it can’t. so either we have to pay right now, go without them, or shift the operational costs, and find another way forward, or a mix.

Another item. Lougheed ran a pretty even keel. He had a net negative debt contribution, was in power for a very long time though some of the hardest times, and created what was once a huge heritage trust fund with our oil and gas royalties. That is what Notley plans to do with any additional royalties resulting from the current (and overdue) review. We are shifting, under the current government, some of our operational expenses back onto the tax base directly, and off the royalty base. That’s more sustainable, and more even keel over the long term. More what Lougheed was doing.  

Further, Klein is absolutely lionized by the fiscal hawks in Alberta.   The graph further lionizes him at a  glance and demonizes Notley.  But Klein absolutely hammered down the spending back then because, as is happening, our debt rating was downgraded.  There is merit to getting it under control and having a plan, but Klein also gutted our services that we pay for and rely on as citizens of this amazing province.   It wasn’t all wine and roses.   If you were in the queue for health care, it was a long suffering mess.   But why did he have to cut so extremely deep when Lougheed only had a net NEGATIVE effect on the debt for the many years previous to him?  And why are we lionizing the PCs when their last run of Premiers were in power only slightly longer than our latest new government and ran the debt up proportionally at a time of the highest oil prices in history?  Keynesian economics says you pay DOWN the debt in GOOD times and spend on stimulus and responsibly in the slow times as a government.   Both to even out the cycle and kickstart the next growth phase.   We are inherently poor at doing the former, only Finance Minister and PM Martin being one I recall doing so successfully and in a balanced manner.

I’m not one to give public services a free pass.  We need to help them and incentivize them to find ways to be better, and more efficient, whilst delivering higher quality services year over year.   That’s how a company runs, and is geared to run.   But it serves the people.   Not the economic cycle.   It needs to be there for everyone in good times and bad, not just when the oil prices are up.   That was what I consider to be a fatal flaw (in retrospect, unfortunately) of the thinking that has been prevalent in our province for the last few decades.   Short-term, immediate-gratification thinking.   I want lower taxes when times are good.   Don’t bother we with your “what happens if….?” questions.   It’s my money.   I want all of it.   Tax somebody else for my schools and roads and health care and….

Look at it another way.  We all want lower taxes.   Most of us have realistic views that a civilized and advanced society such as we live in has a significant infrastructure and operational foundation that needs to be funded, and isn’t really a money maker.   It’s an enabler for all of us for our business, pleasure, and lifestyles.   So we know there has to be some taxes there to have all this.   Otherwise everything just gears only to the wealthy, and society stratifies and stagnates.  It’s a common good.   So we pay, but we complain, and we watch to try to keep an eye on it when we can, and pressure the government on it.

Then we fall victim to populism, in that a government can “play the system” and give us what we want (Klein) as we love him, but we have painted ourselves into a corner.   The debt is there to be paid on our infrastructure, and we had to pay it in all the post-Klein years.   And we still don’t have a really efficient public services model.   The hyper-reorganization of the Alberta Health Board has been a fiscal and organizational disaster from the first one, and they just kept coming under the later conservatives.   There was no goal other than “consolidate”.  I always found that odd, as businesses have branch offices and divisions to more efficiently manage larger organizations, not a concentration of functions across groups in all cases.   There’s a balance, but these reorgs have been top-down bureaucratic disasters spawned, it seems, from management consultants with little vision, unclear goals and no parameters.

So, we want services, and we let the populist governments, the neoliberal governments, pay for it all via royalties and lower taxes.   First for everyone to a flat tax, then primarily on businesses over the last little while, expecting more…. what?   Jobs?   We had the lowest unemployment rate in the country by almost a factor of two.   So why were we going after jobs?   The surplus, if there was one (there wasn’t, according to the graph) should have gone into the Trust Fund.   The royalties should be going into a trust fund.   We should be paying for our services and working to make them better, and cheaper per person, learning from the best public health systems in the world and then applying Alberta know-how to get even better.   To lead.  But instead it’s all about taxes, and royalties, and investment, and jobs.

What about fiscal sustainability?   Do you get the impression we left that by the wayside when Peter Lougheed stepped down?   Klein brought in chequebook sustainability, but that was small-town economics.   Not three million people economics with a diversified economy.  It wasn’t a growth for the future.   It was a fiscal minimalism.   It has appeal, don’t get me wrong.   Small government can be a good thing.  In many ways we want them to provide public services, and only incentivize or deincentivize otherwise.   Protect the public and common good.   Provide the services for everyone, and put the fiscal parameters around the rest so industry can solve and come up with the best solutions.   Remembering the industry has a goal of profit only.   Not whatever the people or government may have in mind.   To make the profit align with the results we want as a society as much as possible.   And let them build the solution.

Now, I think our new government is scrambling a bit.   The oil price has fallen twice as far as even our flash premier Prentice had forecast in his doom-and-gloom disastrous early election.   I don’t care WHO was in power right now, Klein, Lougheed, Notley, Prentice, or the best financial or managerial wizard you could conceive of.   This is going to be a very hard situation to work through and improve.   If we can get past the blame and inference, and learn from the simple facts that are there in history, maybe we can get out of this partisan, nonsensical bickering, and get back to building a great province for everyone.  

Some food for thought.   Remember, comments are moderated, but if you post something meaningful, not spam, you will get whitelisted.   Otherwise we would all be reading trackback spam for the next great online business opportunity marketing viagra funded from Nigerian inheritances and government interact refunds.

Reading an NYT article http://www.nytimes.com/2016/01/09/business/dealbook/asia-china-renminbi-currency-devaluation.html?&moduleDetail=section-news-0&action=click&contentCollection=International%20Business&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article

There seems to be an oddity that I haven’t figured out yet.   Later in the article, it talks of a front of worry for global investors:   A potential wave of currency devaluations among… South Korea, Singapore and Taiwan.   This would, for ForEx specialists say, put a damper on global growth expectations.   

This doesn’t add up entirely.   If these are primarily export-driven economies, and their currency devalues (I will put aside the fact they control the exchange rates, which is a distortion itself), should this not, as general macroeconomic theory would have it, encourage two behaviours?  Those being:

1. Make their goods less expensive for export, in other countries with stronger currencies, thereby shifting demand towards those goods and increasing the export volumes and thereby incoming revenue in trade
2. Make their domestic goods more attractive to their citizens, thereby encouraging domestic investment, domestic consumption and domestic growth, and discouraging imports, thereby strengthening the value of their currency over time?

It strikes me that this is how the market is supposed to work when it comes to ForEx effects on supply and demand, but the commentary of these investors seems to state that it either won’t, or it affects things in ways they don’t believe have value.

Assets would be CHEAPER in these countries with devalued currencies, which I would think would herald a buy opportunity for such globally exposed investors, if they are value investors looking at the long term.   The article goes on to say these countries “… have some of the most overvalued exchange rates on the planet…” which says this would be a natural, free-market rebalancing that these global investors should welcome unless they are ALREADY invested heavily in these countries, and such a move towards free market exchange rates or at least a rebalancing would damage their holdings.   

Given that, it would seem the commentary is out of self interest, and has little to no bearing on the actual global growth expectations, except that these people would be taking an on-paper haircut, and only based on the valuation of these assets in say US dollars.  This may lessen investment as they have lower asset values to spend and invest, but then, if the prices go down in these markets, doesn’t that then encourage the investment?   Isn’t this the tenet of microeconomics that gets applied to investment and market justifications ad infinitum?   It is a gross simplification and market inelasticities also distort the effects, but the fundamental theory is supposed to still apply, or these investors are selling us a bill of goods that includes various bridges over deserts when these mantras get imbued into populist thought and political policy.

The later notes by actual analysts makes sense to me.   The slowdown in China is not so much a cause as an indicator that the global economy has cooled.   I think a segmented comparison would be more useful and attempting to correlate the exports to the segments in the north american and world markets that are slowed as drivers (retail, probably many others) and which are not, as the American economy is in the lead again, so it would seem some of it is driving forward and perhaps it’s not all based on consumerism Wal*mart type expenditure?   There’s a gap there that isn’t, as usual, being examined by any mainstream media I’ve seen so far.

So, over-globalized?

This gives rise to a somewhat follow-on thought that is related, but not directly to the NYT article that formed the trigger for the post.

Is the push over the last thirty plus years for increasing globalization and the concurrent hyper-focus on that created a brittleness and over-exposure akin to the 2008 financial crisis, which, from a certain perspective, was created by chasing higher returns in a saturated market and creating value where there was none, and getting investment into that non-value to the point that when actual value needed to be realized, the chain collapsed on itself, also happened in global trade? 

Basically, the extreme rush to offshore in the late 90s and much of the 2000s most likely, given the speed of investment and information now, overshot the balance point, and probably by more than a little.   It was aided in overshooting the mark by these export economies, which includes India and others beyond the SE Asia PacRim countries, not having their exchange rates actually react to the growing costs and standards of living in at least some of their populace, and concurrently in the value of commerce going on in their GDPs vs. the rest of the world.  Thus when their currencies should have appreciated given a free exchange rate (something China should have experienced over a decade ago, not only recently), caused the value in these economies to be grossly distorted downwards and thus create an artificial value in offshoring to the point that the actual realization of that value isn’t there anymore.  Simply put, I am proposing that it should not cost as little as it does to manufacture in these countries, because their GDPs grew to the point that their exchange rates should have made their currencies stronger and investment in them less attractive.   

This presents a conundrum in my thinking though, as it is the investments already in place that are out of alignment.  They were bought at certain values, hypothetically, and have grown as the currencies were pegged to the dollar and they appreciated in value.   But the exports were buoyed along by the fact the Chinese renminbi was also pegged artificially, and thus the real market valuation was absent from influencing the economies.   

So now you have the renminbi, which was artificially low due to zealous and continuous capital spending in China, now facing a devaluation as an unintended consequence.   The economy is in a state of over-investment due to very loose capital management by China and the bank(s) there.   So investments have been made that really should not have been as there was no realistic possibility to have it paid back (sound like a mortgage-backed security parallel to you as much as it does to me?), so there are billions of dollars of companies, jobs, and exports that simply don’t make enough money to pay their loans or stay afloat.   So they should have gradually died off over the years as the costs went up in China.  But with the pegged exchange rate, they didn’t.  And if they all do now, you will have civil unrest the level which would make Tiananmen Square look like a church group picnic.  So China is stuck, and all those that ran headlong into the China craze rush are also, indirectly, stuck in very poor investment positions, as the renminbi now has to reflect the global economy and the Chinese economy, and in doing so, devalue the crap out of itself, the investments in China, and consequently take all these other export economies which were defended by the distortion in a counter-intuitive way down with it.

This is where I have more thinking to do unless someone can point me the way forward, as all of these economies should have their exports made more attractive by devaluation, but the global nature of investment has made it so ForEx exposure is now distorting the market adjustments because the money is coming from the stronger economies, and they don’t want those previous investments dropping in value, and do not have the same interest in new investments.   

Of course, if there were enough freedom and diversification in the investment market, what should happen is that NEW investors come in at these lower prices to buy in, and the existing investors either ride it out, average down by investing more, or take the loss and get out as the devaluation occurs (or in advance if they can, and sell to markets where their currency will not devalue in relation to the one in question).

The more this gets exposed, the less I think most people, and even investment analysts, understand the intricacies of an integrated global economy.   It’s not all wine and roses, and will not be without a world government and unified economic policy, which would be horrendous and inflexible, and evolve to be very inefficient.   The diversity is the value, and the pain.   it’s what drives things forward and makes it robust.  But when you bank on a current state and bet it all and do everything in your power to enhance and propagate it, you distort it, and its relationship to other states.   

Then you get a collapse rather than a gradual shift.   It’s the difference between investment bankers, and biological systems.   Biological systems are not fully optimized and efficient.   They are robust, inefficient, and most important of all, fault-tolerant.   That’s why species survive most catastrophes, and grievous injury and disruption, and our economic systems increasingly don’t.  They have the robustness optimized out.   That’s the risk that the investors want legislated away and bailed out, but it can’t be without creating new inefficiencies.  

Back to the article, as sums up at the end though, many of those investors were dollar-based, which supports my theory and they are looking to get out before it devalues any further, or starts to devalue rapidly.   The pegged currencies created a fragile, distorted exchange rate and concurrent investment environment.   Unwinding those situations at this point looks like it will be very painful for the emerging economies.   

We’re officially an environmental “fossil” according to the Globe and Mail today. What is it going to take for Canada, land of vast expanse of beautiful wilderness and landscapes, of bountiful natural resources, quits squandering our heritage and our future and wakes up and takes some initiative?

Canada has the ultimate opportunity to vault into the future and be the next supplier of tomorrow’s energy capabilities as well. We currently export oil, gas, uranium, generated power and refined petroleum in large quantities. We are reaping a very healthy profit from current high energy prices. The world has started to shift towards more alternative energy. It is currently an emerging market, one that will ultimately in various forms displace the current energy systems. Not immediately, and possibly not in our lifetimes even, but it will happen. Our current systems are inefficient and damaging. There is no reason to preserve them if better alternatives present themselves.

Those alternatives are presenting themselves. Not just solar, geothermal, biofuels, wind and tidal power. Leaps in efficiency and distributed generation. Better ways to use current energy sources more efficiently and less polluting in operation. Those are being pioneered in many places, and deployed aggressively in many nations, while Canada sits idly by, resting on our profitable laurels rather than investing those profits to lead the way into the future.

I’ve written to the Alberta government as noted before in this blog, and I’ve written to our environment minister, Rona Ambrose, asking that we lead environmentally and technologically into a cleaner future. The idea that doing so in any way undermines our current resource industries, especially in Alberta, is naive in the extreme. The growth curve on these technologies, and the time to mature them, is far beyond any reasonable business outlook on our current corporations and industries. US demand for our energy products will not disappear in a decade, but there will be increasing demand, some of which will not be fuelled by our current energy systems. It is this new, emerging market of both conscience and efficiency that will be high margin and growing as we move forward, and right now that market will be served by companies in the US, Israel, China and other nations in the Europe and throughout the world.

Canada is not encouraging the deployment or creation of these companies in our borders, so we will be importing the technologies and expertise, and we will lose our lead in energy supply and technology.

I had thought companies like Shell and BP were leading the thoughts in having solar divisions (the largest in the world, in addition to Sharp) and biofuels, but now they have divested those companies into spin-offs and divestitures to better reflect a profitable business to wall street. Short term gain for long term sacrifice. If you’re a shareholder, congratulations, but remember to sell. Consumers are finally forcing the car companies to get efficient-minded rather than having 8000 pounds of material driven by in excess of 350 horsepower. To move a single individual to and from work. A bit of a waste. Europe is leading the way in forcing the efficiency. And low and behold, the car companies CAN indeed make an efficient car, far superior to the offerings most of us use for transportation today.

I resent being labelled a fossil of the environment in this wonderful country of Canada. Mr. Harper and our government (and that ALSO includes the Liberal government that likewise did nothing for Kyoto or alternative energy industries) must take some initiative and get their corporate supporters to realize that the government pushing the regulations in will create a global opportunity more than it will cause any real damage. The other nations of the world are moving to better products and more efficient systems, and we are left, here in the past, slowly turning into an archaeologic dig of the future.

Currently playing in iTunes: Summertime Blues (Live at Leeds) by The Who

How tiresome. Followers of this blog know that I’m somewhat conservative in many social viewpoints, but also a believer in Canada’s social pact, health care system and much of our public policy. It’s also no secret that I support the Green Party openly, and am an energy efficiency enthusiast, but by no means an activist or radical. “Green Conservativism” might be applicable, but that label is kind of slippery, as I believe it is with any thinking voter in Canada.

Jack Layton has been in the press running down Harper on a number of notes while he rallies his radical-left caucus and faithful. He runs down taking action in Afghanistan. Why would he do that? Does he feel the Taliban should have been left openly repressing people and funding international terrorist organizations? It’s not like there’s a debate that there are other places also deserving of intervention, he’s not arguing that point. Claiming to stand for the poor, and for women’s rights, and for the rights of equality in so many dimensions, but only in Canada will he defend our belief in the charter or even the UN conventions? For that matter, he apparently believes that the Taliban is some legitimate, caring, rational government as he feels we should negotiate a peace with these radicals.

Let me be clear. I fear for our soldiers, and for the aid workers over there, and for the civilians caught in the middle. I wish they didn’t have to be there, but the UN was in favour of this action, and I believe this war has unfortunately some basis for legitimacy. I support our action, and I support our troops most of all, as they have a tough job in trying to stabilize and help that country that the US used as a stepping-off point to an invasion that has proven to have no legal basis whatsoever. [Update] I’d also like to state that those of us that believe in our Armed Forces as I do, be proud of our men and women serving our country, as they are doing so in the best military tradition. I also admire the fact that CBC gives a balanced viewpoint on this. It’s not all roses, but I would note that the “encirclement” tactic has a gap in it until it’s closed. (If the Taliban forces don’t get out, or if they aren’t trying to, which seems the case, they are making a grave tactical error in all likelihood.)

Layton and the NDP continues to be a party of idealists with no plan, no set attainable agenda, and no concept of the real world whatsoever. We’d all like better care for the elderly, lower cost for schooling, better medical care for everyone, but there is this small matter of money, and the NDP has shown eternally that they don’t care about balancing a budget. They would catapult us back to the deficits of Mulroney, Trudeau and countless other short-sighted fools we’ve had at the helm. Martin had a corrupt party, but either by luck, planning or some combination, we at least started to run a surplus, and pay down the debt we stand ready to hand to our children. Layton wants to live as best as he can today, and foist the load of that cost onto our kids. I’m willing to endure some hardship and pain to reduce that debt so our kids have more choices tomorrow.

The labour union in BC has also showed an appalling lack of intelligence recently as the view of Canadian Citenzenship applied to the migrant seasonal workers in the British Columbia agriculture industry. I’m sorry, but as I support our troops, I also believe that being Canadian means a great deal more than holding a job and living the good life. It has a commitment to ideas of fairness, of hard work, of continual improvement, and of not shirking the responsibility for things. If you want to fix the situation of those workers, and I believe that it sounds as though it does need fixing, fix the working regulations and labour laws to give those workers some rights and protection while working in Canada. They don’t need to be Canadian Citizens to do that. If they want to become Canadians, they can pursue that separately. Canadian Citizenship is not a Work Permit Mr. Sinclair, while you would reduce what it means to be Canadian to a question of where you work.

This has me too irritated to even listen to tunes at present. I’m so sick of this complete drivel and nonsense getting press time when the Green Party and other more legitimate viewpoints can be included in national debates or panels.

Apologies for so few links to background, but I’ve been working and thinking this through for a long while. It’s all a miasma of facts condensing to opinion.

I’ve disputed a number of our intellectual property laws and copyright initiatives in the past. It would appear that our “Education Ministers” are heading down a very, very foolish path. Rather than this nonsense, perhaps working to enable a funding model to get our kids more accessible levels of costs for post-secondary education would be a better use of their time and our money.

Michael Geist is a very effective critic and analyst on Canada’s IP law among other things, and raises a very large warning in his recent post of Education Ministers’ Copyright Proposal Needs a Rewrite. It would appear from his analysis that we’re heading down a blind alley that can really only work to make things worse. A bad law is worse than no law. That’s something I believe it would be very useful to teach a course in to new and old legislators.

I’d also encourage you to read Michael’s other posts on DRM. I’m not a total opponent to DRM due to the inability of far too many people to respect the needs and rights and efforts of the artist. I am fine with DRM that allows me to work with the media and material in a fair way in my own uses and environment, which includes ripping to my iPod (I bought the music, but I don’t always agree with the format for playing it) but will not allow me to redistribute it freely without some barrier.

Conversely, being neck-deep in technology for a living, I know what proprietary formats do to really muck up honest people, and it’s just painful. ANY DRM is by definition at this point proprietary, regardless of vendor claims to the contrary. It’s a balance that is very difficult to strike properly because the simple fact that far too many people believe that copying music is OK. This is really inexcusable when the cost for a track is very cheap by any standard. I’m a musician, and though I don’t make a living from it, I respect the time and effort and talent required to create something people really enjoy. Anyone who does should compensate the musician. If an artist chooses â la the Grateful Dead to release recording for free (tape trees) in order to drive people to live performances, and thus to make a living off of performances, that is their choice, not the choice of the listener. Some artists cannot perform their works, or do not choose the lifestyle of the road, and it is not our right via theft to force them to do so or to give up their art. DRM is a pain in the neck to all those honest patrons because too may people lack the respect for the artist to compensate their efforts. I doubt most of those people would be willing to do their job for free in return.

Read up on this copyright issue, and please, get on to your provincial education minister and other government representatives and express the need to strike a fair balance, which the current copyright law does quite well for education, and to understand the environment we’re moving into and look for ways that people are compensated for their time, and fair use is guaranteed. Canada doesn’t need to make the same mistakes other Industrialized nations are with Intellectual Property.

Currently playing in iTunes: Ain’t No Mystery by Smash Mouth

Perhaps the airlines will have to start actually feeding us again as we can’t bring anything on board to counter the altitude-assisted dehydration. The problem is the security measure is a placebo as people who analyse this stuff for a living a quick to point out. Case in point, Bruce Schneier in Schneier on Security: Last Week’s Terrorism Arrests: “http://www.schneier.com/cgi-bin/mt/mt-tb.cgi/1051”

The UK security teams and all assisting them need the real kudos, and it’s the legwork and brainwork that needs the funding, not trying to detect these chemicals and compounds in all these areas. I think Bruce is right in the assessment of too many targets. Tom Clancy wrote about running planes into buildings in the book A Debt Of Honor long before 9/11. He also wrote about terrorists using a nuclear weapon to take out the Superbowl game in Sum of All Fears. The targets will always be there. To stop the madness, there’s two things we need to do.

One is outlined by Bruce. Don’t be terrorized. Easier said than done, but people living in Northern Ireland when the IRA was actively destroying things, in Quebec during the FLQ, and in so many other places in the world continue their lives in the face of these people wantonly destroying lives without communicating their point. It’s too bad that these terrorists feel that their point is better communicated by killing a number of innocent civilians than by writing a blog on the web explaining the issues and the desires of their cause. Alternative media such as Indymedia.orgare trying to show the other side of many of these stories, and a lot of people unconvinced by CNN, BBC, CBC and others are wisely trying to see both sides of the story.

The second task is facilitated by this communication. If rather than raising our defensiveness, our ire, our fear and our aggression they were to engage the western civilizations in understanding what has made them feel so wronged, and what needs to be done to correct these wrongs, then the second task which amounts to “Quit pissing them off if we can” falls into place. Right now, there’s a growing feeling that the foreign policies of the US and other countries in the West have brought about much of this hatred. If that’s correct, then just maybe we cut the dependency on the Middle East for energy by other approaches and get our noses out of their countries until they start behaving reasonably.

Don’t mistake me for some naive optimist on this. I’m slicing some big issues very coarsely, and I know full well that the histories in these issues and the political environments aren’t going to turn on a dime and come up peace lilies tomorrow, but we need to start understanding rather than escalating.

We can’t continue to surrender our freedoms and our way of life so easily. We need to search for a better, more fundamental solution, and to do that we need to dig for the more fundamental causal problem.

Currently playing in iTunes: Simple Gifts by Paul Schwartz