I my last episode, I tried to establish an historical rationale for Alberta's current deficit. In sum, I had tried to make the case that our deficit is largely the result of the historical neglect of government investment. I have since realised I needed go deeper into certain areas of Alberta's history to increase the strength of my argument, and this post is such an attempt. I feel that the finances of the Alberta government demand more scrutiny; so too does an examination of the Alberta government from the day it paid off the debt to its defeat in May 2015. We'll leave the latter for later, and dive into Alberta's crappy fiscal situation - one the NDP inherited, rather than created.
Alberta's Deficit History
It may be popularly believed that deficits started with the NDP, but a quick examination of budget tables (like this one: http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/prov_fiscal.pdf) reveal the provincial government had only run a single budget surplus since 2008. That, of course, was the year of the likely misnamed "Great Recession." Is the Great Recession wholly to blame for Alberta's running deficits from 2008 to the present?
Alberta Government Priorities
During the 1990s, Alberta had cut the budgets of its services both broadly and deeply in the name of fighting a "debt crisis." The revival in the price of both Oil and Natural Gas in the mid-1990s allowed the government of Alberta to defeat this boogeyman in no time once-soever - this partially because the debt was never that big to begin with.
Having eliminated the provincial debt, the government was faced with two courses of action. It could either play catch up in its massive infrastructure deficit, which I discussed earlier, or it could use its fiscal wiggle room to cut taxes. Of course there were other possibilities, like investing surpluses into the Heritage Fund - but I doubt this was ever a serious priority. Using debt to finance the "catch up" was totally out of the question, so budget surpluses would have to provide the funding for Alberta's myriad issues, something even the great surplus of 2007 was likely inadequate.
It should be remembered the make-up of the Alberta government in the later Klein years, and before the rise of the Wildrose Party. The PCs were the dominant political party in Alberta, but they dominated the over-represented countryside, while the cities were more of a competition with the Liberals and NDP (and later, Alberta Party). So while the PC Association was as big a tent as one could imagine, the center of gravity for the government actually lay in its rural representatives - who would one day be replaced by Wildrose MLAs.
It is probably not surprising then that the Alberta government, having defeated the debt, listed through a series of tax cuts, as this was most agreeable to the future Wildrose heartland. Alberta was a cheap place to have a business, and be rich. Money was indeed invested in infrastructure - but a drive across the province will reveal where most of the money went: rural ridings, with hospitals, airports, paved roads and new schools, while cities languished. The tax cuts did come at a steep price: billions of dollars in stable revenue each year, lost; and Alberta made itself more vulnerable to a danger looming on the horizon.
The Transition to Oil Sands Oil
Revenue from oil royalties, land sales and leases began to make up more and more of Alberta's government revenue. The rise in oil prices to record highs in 2008 masked a great transition underway in the province. Natural gas revenue had already disappeared with the cratering of its international price - and now oil was going the same way. Obviously, not because oil was worthless, but because of the royalty rules the government had established in the past.
To encourage development in the Oil Sands, the government had granted very generous concessions to oil companies investing in the province. These concessions allowed companies to recoup 100% of their investments before the Alberta government would begin to receive a share of the investment, a share that was considerably lower than the royalty levied on "conventional" oil.
Around 2007, the new Premier, Stelmach, was faced with a dilemma. In our rush to exploit our resources as rapidly as possible, we had exhausted the majority of our conventional oil reserves. As most of Alberta's oil production now came from the unconventional oil sands, the province was poised to lose billions of dollars in revenue as oil royalties disappeared in the short term. Accordingly, he began a royalty review. The result was no increase in oil royalties, but a whole lot of corporate support going behind the Wildrose Party.
So Alberta began a series of deficits. These were masked by the global economic crisis - but I encourage you to examine the graph I linked to above. You will see other oil exported provinces were running surpluses while Alberta was mired in deficits. Something uniquely Albertan was occurring.
The Latest Collapse
When Jim Prentice became the Premier of Alberta, he too was faced with a dilemma. The price of oil was imploding, thanks to price manipulation out of the Middle East and the American Shale boom. The Shale boom had done Alberta a massive disservice by eliminating our only real customer: the United States. Alberta had all this oil, and nowhere to sell it.
Investment was already plummeting and people were being laid off when he admitted that his government was going to have to raise taxes, cut services, and still run a deficit over $5 billion. He acknowledged the province was on a "resource roller coaster" (viewable here http://www.macleans.ca/wp-content/uploads/2016/04/fig1-1.png) and it needed to get off. Then he lost the election and disappeared.
A Downturn Like No Other, or where we are today
The NDP inherited a massive mess when it took office. The tax increases they effected did little to fight the size of the deficit, as the hole left by cratering royalties and leases destroyed any chance they had of balancing the budget. Further, they realised they did have to spend money in order to prevent the damage from spreading from the oil sands and overwhelming the rest of the provincial economy. Cutting provincial employees and services would not only stress communities further, but would also encourage the spread of the oil collapse throughout the province.
The largest employer in Alberta was not the natural resources industries, but construction. The decline in oil sands in activity had already put tens of thousands of workers out of work, but as many were "fly-out" workers from elsewhere, their absence was mostly felt in Alberta's busting hotel industry. There was a significant danger to the province if more of these people lost their jobs. Their unemployment would lead to a bigger housing bust, bigger out migration, increased government costs, and likely more crime (as was experienced in Edmonton). The bad wave coming from the oil sands would only get bigger as it picked up construction workers and laid them off.
It wasn't that long ago that the heads of Alberta's construction industry stated they would be out of work to do by this year. Fortuitously, there is a government willing to spend to keep these people working. As I've argued elsewhere, the government is leading a charge on infrastructure that should have been done decades ago. So, while the recession is the worst since the 1980s - the province is experiencing, in contrast, a lower unemployment rate and a lower emigration rate. As an added bonus, that debt the government is raising is cheaper than the debt it was being burdened with in the 1980s by several orders of magnitude.
There was simply no way of avoiding a budget deficit. Past inaction had cursed the Alberta government, regardless of who is premier, with one. Albertans elected the party that promised to do the most to get Alberta off the "resource roller coaster," and the party that promised to rebuild the province. They are trying to that - we shouldn't be surprised it comes with a price.
Thanks for reading.
A discussion of politics, science, emerging technology, and international affairs all centred on Alberta.
Tuesday, 30 August 2016
Monday, 29 August 2016
An Historical Argument for a Deficit
When I was a younger man, I did the first part of my teacher training at a High School in North Calgary. During our orientation we were told not to go into a certain room while a certain class was in session. To do so would be to break the fire code: the room was already so crowded students were sharing desks, and just one of us would push things over the edge. During my brief stay, I also learned that almost none of the students - this in a residential neighbourhood - could not walk there; the school's placings where reserved for the students who lived further to the north. Local students would also have to be bussed south, to the schools closer to downtown, as nothing existed to serve the city past this place. I commented that it seemed like Calgary was built like a refugee camp - all houses, with services to follow. The professor who I addressed could only mumble in agreement.
That was only a few years ago. Alison Redford was premier; then Dave Hancock, and then Jim Prentice. During the latter's short term as premier designate he had to admit, that due to the low price of oil, the province would have to make cuts and raise taxes - which is interesting, as the province had been in deficit for several years already. He even briefly proposed a sales tax - one of those famous "trial balloons" of which he was so fond. An election was called, and he, and the PCs, lost, and lost badly. They also lost in the most unexpected of ways - to an NDP that promised no cuts to essential services and to raise taxes higher than the PCs were comfortable.
So far, the NDP have done as promised. There have been cuts - especially to the gargantuan piggy trough the PCs had installed across the province. As promised, there were no cuts to essential services, though they didn't greatly increase spending in these areas, either. The tax raises were large by the standards of the Alberta legislature, but it must be acknowledged that taxes on almost everything are lower today than they were under Ralph Klein, sin taxes excepted. The only new tax of any significance was the Carbon Tax - which has yet to go into effect.
But, there is the elephant in the room: there is not just a deficit. It is a relatively big deficit. So in spite of the tax increases, the deficit went up, too. However, this is reflective of two things: one, that Alberta was excruciatingly dependent on oil revenue (not just royalties, but land sales and leases), and secondly, taxes are still too low to provide the acceptable minimum of services to the population.
There is a third major factor in the "massive" deficit the NDP is running at the moment. That factor is history.
After the downturn of the 1980s, Alberta was, as one book had it, "the Second Promised Land." The population of the province almost doubled in the time that I have been alive. Though our high birth rate is part of the story, the majority of the increase was from immigration, from Canada and abroad.
Arguably, having children is less of a fiduciary burden on society than immigration. While a newborn requires hospital services (sometimes a lot of them), and will one day come to engage in our 15+ year education system, a newborn does not require its own home. It does not require new roads. It does not require the infrastructure a mature adult immigrant requires immediately upon arrival in a given place. Further, immigrants come with their own families too - so much of the services a newborn would receive are received by an immigrating family, too. Go anywhere in the East of Canada and you realise the people who came here were the young - in some cases, all the youth and young families of some communities moved here.
This is not necessarily a bad thing. I am a firm believer that we can do as much as we wish to do; only a lack of ambition really holds us back. The Alberta these people came to in the 1990s had no other ambition than to pay off the provinces debt. Nothing else mattered, and herein lay the problem.
The population of Calgary almost doubled in the past 30 years. However, in that time, almost nothing was done to accommodate all these people - except build wasteful suburbs. Calgarians could look back and remember a city with the highest homeless population in the country; a city with no new schools; a city with its own "highway of death" (the 22X if you didn't know); a city with a massive poverty problem (in 2005 about 40% of adult Calgarians lived at, below, or just above the Canadian government's Low Income Cut-Off). But at least here you could find work.
Consider the school question. No high schools were opened in Calgary between 1991 and 2005, when Bishop O'Byrne and Centennial opened. Lord Beaverbrook High School had the highest student population of any in Canada - over 3000 - making it larger than many of Canada's universities at the time. Since those two schools opened, only two more have opened, with another opening this fall. In that time the population of the city grew by a half-million. High Schools are not cheap - they require a lot of land, technical engineering, and investments in technology, not to mention upkeep. So we just didn't bother. When one friend ran in the provincial election in Northwest Calgary, we discovered his constituency - a very new one - had only six schools for a population of 55,000, equal to the population of Medicine Hat. Promises made for schools in the early 1990s were simply never honoured. All over Calgary, and I would imagine, Alberta, there were hundreds of fields in residential neighbourhoods that were meant to house schools. Those schools never came, at least until the NDP were elected. The irony was delicious when one PC MLA was quoted in April 2015 talking about how ridiculous it was that his daughter's kindergarten class had 30 pupils. If only there was something he could have done about it.
Ralph Klein famously had blown up half the hospitals in Calgary during the 1990s. The situation in Edmonton was no better. Again - with a booming population, but also with a population with some abnormally high levels of obesity and drug use, among other ailments. There was a persistent shortage of doctors and nurses, and I'm sure many people remember the difficulty in finding a family doctor ten years ago. Health Care services were increasingly privatised - which served to drive up health care costs, in all areas studied, while the cost of dentistry skyrocketed relative to neighbouring provinces.
Infrastructure was - and remains - far behind the needs of the province. With support from the Federal government, the LRTs in Calgary and Edmonton were expanded. Consider the case of the ring road in Calgary - its development has literally taken half a century. Some progress was made - we no longer have "highways of death" south of Calgary and from Edmonton to Fort McMurray; but much of Calgary remains in gridlock due to a combination of poor planning, poor development, and a historical lack of leadership.
The PC government of Alberta was caught in a bind. They had paid off the province's debt - but had lowered taxes too much. When oil royalties started drying up in the mid-2000s, thanks to the transition from "conventional" to "unconventional" oil, the government preferred to do nothing than either raise taxes or debt finance - such was the power of Alberta's low tax, no debt myth. Well, that myth has cost us. Jim Prentice at least had some bravery to confront the power of that myth and accept reality, but his steps were too few, too short, and too late. He did acknowledge something else though: the downturn had brought with it decreased cost of business and lower interest rates. Government spending had not been so cheap in years.
We now have a government willing to raise revenue and use debt finance, and they are doing it. There is much dismay about the size of the deficit - but all people can criticize is the amount civil servants get paid. Apparently, the government isn't blowing this money on unnecessary crap - I am sure we would know about it by now. They are doing what had to be done ten and twenty years ago, today. Perhaps we should be thankful.
Thanks for reading.
That was only a few years ago. Alison Redford was premier; then Dave Hancock, and then Jim Prentice. During the latter's short term as premier designate he had to admit, that due to the low price of oil, the province would have to make cuts and raise taxes - which is interesting, as the province had been in deficit for several years already. He even briefly proposed a sales tax - one of those famous "trial balloons" of which he was so fond. An election was called, and he, and the PCs, lost, and lost badly. They also lost in the most unexpected of ways - to an NDP that promised no cuts to essential services and to raise taxes higher than the PCs were comfortable.
So far, the NDP have done as promised. There have been cuts - especially to the gargantuan piggy trough the PCs had installed across the province. As promised, there were no cuts to essential services, though they didn't greatly increase spending in these areas, either. The tax raises were large by the standards of the Alberta legislature, but it must be acknowledged that taxes on almost everything are lower today than they were under Ralph Klein, sin taxes excepted. The only new tax of any significance was the Carbon Tax - which has yet to go into effect.
But, there is the elephant in the room: there is not just a deficit. It is a relatively big deficit. So in spite of the tax increases, the deficit went up, too. However, this is reflective of two things: one, that Alberta was excruciatingly dependent on oil revenue (not just royalties, but land sales and leases), and secondly, taxes are still too low to provide the acceptable minimum of services to the population.
There is a third major factor in the "massive" deficit the NDP is running at the moment. That factor is history.
After the downturn of the 1980s, Alberta was, as one book had it, "the Second Promised Land." The population of the province almost doubled in the time that I have been alive. Though our high birth rate is part of the story, the majority of the increase was from immigration, from Canada and abroad.
Arguably, having children is less of a fiduciary burden on society than immigration. While a newborn requires hospital services (sometimes a lot of them), and will one day come to engage in our 15+ year education system, a newborn does not require its own home. It does not require new roads. It does not require the infrastructure a mature adult immigrant requires immediately upon arrival in a given place. Further, immigrants come with their own families too - so much of the services a newborn would receive are received by an immigrating family, too. Go anywhere in the East of Canada and you realise the people who came here were the young - in some cases, all the youth and young families of some communities moved here.
This is not necessarily a bad thing. I am a firm believer that we can do as much as we wish to do; only a lack of ambition really holds us back. The Alberta these people came to in the 1990s had no other ambition than to pay off the provinces debt. Nothing else mattered, and herein lay the problem.
The population of Calgary almost doubled in the past 30 years. However, in that time, almost nothing was done to accommodate all these people - except build wasteful suburbs. Calgarians could look back and remember a city with the highest homeless population in the country; a city with no new schools; a city with its own "highway of death" (the 22X if you didn't know); a city with a massive poverty problem (in 2005 about 40% of adult Calgarians lived at, below, or just above the Canadian government's Low Income Cut-Off). But at least here you could find work.
Consider the school question. No high schools were opened in Calgary between 1991 and 2005, when Bishop O'Byrne and Centennial opened. Lord Beaverbrook High School had the highest student population of any in Canada - over 3000 - making it larger than many of Canada's universities at the time. Since those two schools opened, only two more have opened, with another opening this fall. In that time the population of the city grew by a half-million. High Schools are not cheap - they require a lot of land, technical engineering, and investments in technology, not to mention upkeep. So we just didn't bother. When one friend ran in the provincial election in Northwest Calgary, we discovered his constituency - a very new one - had only six schools for a population of 55,000, equal to the population of Medicine Hat. Promises made for schools in the early 1990s were simply never honoured. All over Calgary, and I would imagine, Alberta, there were hundreds of fields in residential neighbourhoods that were meant to house schools. Those schools never came, at least until the NDP were elected. The irony was delicious when one PC MLA was quoted in April 2015 talking about how ridiculous it was that his daughter's kindergarten class had 30 pupils. If only there was something he could have done about it.
Ralph Klein famously had blown up half the hospitals in Calgary during the 1990s. The situation in Edmonton was no better. Again - with a booming population, but also with a population with some abnormally high levels of obesity and drug use, among other ailments. There was a persistent shortage of doctors and nurses, and I'm sure many people remember the difficulty in finding a family doctor ten years ago. Health Care services were increasingly privatised - which served to drive up health care costs, in all areas studied, while the cost of dentistry skyrocketed relative to neighbouring provinces.
Infrastructure was - and remains - far behind the needs of the province. With support from the Federal government, the LRTs in Calgary and Edmonton were expanded. Consider the case of the ring road in Calgary - its development has literally taken half a century. Some progress was made - we no longer have "highways of death" south of Calgary and from Edmonton to Fort McMurray; but much of Calgary remains in gridlock due to a combination of poor planning, poor development, and a historical lack of leadership.
The PC government of Alberta was caught in a bind. They had paid off the province's debt - but had lowered taxes too much. When oil royalties started drying up in the mid-2000s, thanks to the transition from "conventional" to "unconventional" oil, the government preferred to do nothing than either raise taxes or debt finance - such was the power of Alberta's low tax, no debt myth. Well, that myth has cost us. Jim Prentice at least had some bravery to confront the power of that myth and accept reality, but his steps were too few, too short, and too late. He did acknowledge something else though: the downturn had brought with it decreased cost of business and lower interest rates. Government spending had not been so cheap in years.
We now have a government willing to raise revenue and use debt finance, and they are doing it. There is much dismay about the size of the deficit - but all people can criticize is the amount civil servants get paid. Apparently, the government isn't blowing this money on unnecessary crap - I am sure we would know about it by now. They are doing what had to be done ten and twenty years ago, today. Perhaps we should be thankful.
Thanks for reading.
Friday, 26 August 2016
The Failures of Modern Economics
Of all the humanities, the most respected field today is economics. Much of this respect is well deserved - as the whole field has contributed a great deal to our understanding of the world. Unfortunately, this is a big mistake. For, as I shall argue, popular modern economics rests on many bad assumptions that lead us astray, and ignores many things which it has no business ignoring. Without acknowledging the limitations of this discipline, the public, especially in this province is ill-equipped to anticipate and evaluate change.
So, definitions. "Economics," as I shall hereafter refer to it, means the "classical" school, which I will argue should better now be known as "common" economics. As the term Classical should suggest, this discipline was the product of the European enlightenment. Accordingly, it makes some very positive, and implausible, claims about human nature.
The greatest sin of Classical economics is its law which claims that the average human - the economic actor - is a rational being, capable both of finding evidence and evaluating it, being aware of their own biases, and making their decisions based upon that evidence, regardless of those biases. I am going to assume that you, dear reader, have probably already noticed that this is simply not the case.
In Behavioural Economics, a new field pioneered in very recent history, humans are irrational. They find evidence and evaluate it based on their biases. I would say all of us are guilty of this. According to Behavioural Economics, your economic actor makes decisions based on what is most comfortable to them; basically, human beings are inclined to accept the status quo, regardless to the evidence against it, which they discount.
Alberta currently provides us a great deal of situations to evaluate these basic summations of both schools of economics.
Our current government, for example, is operating under a massive, $11B deficit. This is indeed a scary number. If you are a Keynesian, which few are today, operating such a big deficit is essential to raising your jurisdiction out of an economic recession, as the NDP are arguably trying. However, Keynesianism has not been in vogue since its spectacular failure to deal with the stagflation of the 1970s; so maybe the NDP is mistaken in its approach. As an historian, I must add that this deficit is also reflective of the "infrastructure deficit" left to the present government by its predecessor. Some of this money would have to be spent at some time; whether this much is necessary now or later is another story.
However, the zeitgeist in Alberta - that mindset which governs people's beliefs, anticipations and biases is much more flawed. There is a belief that low taxes ensure economic growth; therefore the NDP is mistaken. There is a belief that environmental regulation is harmful to the economy; therefore the NDP is mistaken. There is a belief that public investment is bad for the economy; therefore the NDP is mistaken. There is much reason to believe the average Albertan, is in fact, the one mistaken, but it isn't really their fault.
The three beliefs outlined in short above are believed because they are believed to have worked in the past. Albertans are simply more confident of the status quo that they once enjoyed. Unfortunately for the average Albertan, the status quo was simply untenable. The change of government is a sign of some acceptance of that fact, but this change can be reversed.
Why is the status quo untenable? Why doesn't the population notice?
Basically, the things that made us wealthy are expected to continue to do so. Oil and Gas was so central to the prosperity of the province that a future without it is unthinkable to people who made their living from it. People who made money off of real estate cannot imagine a future where real estate is no longer a great money maker. People who made money cannot imagine a future where construction is no longer a big player in the economy. Weigh the evidence - not just from here, but around the world, too, and Alberta has a very big problem on its hands.
Take oil and gas, for starters. Albertans are ill-equipped to think that there are parts of the world that literally hate the stuff. These places, more often than not, are locales without local sources of either. They have many reasons not to like oil and gas: it makes them dependent on foreign, and sometimes hostile governments; it causes money to leave the country; it pollutes the air and water. It is not surprising to know that the first big pushes for renewable energy were made following the "Oil Shock" of 1973; but Albertans know 1973 for the good it did the province, not the damage it did to the rest of the world (and continues to do). In sum, you have two different status quos confronting each other.
Another way of looking at things is through the prism of "recency bias," wherein a human being views the near and far futures as obeying the patterns they see today or in recent history. The housing market in Canada reflects recency bias in a massive way. The values of housing around Canada have escalated to historic highs, and mostly in the last ten years. What goes without saying is the historical reasons for the flight in housing costs: first massive inflation (1973-1993), then government policy (1990-2010), and now record low interest rates (2010-present). Without these three factors working on the population, it is doubtful housing in Calgary, where ten years ago a new house in Mackenzie was going for about $175,000, would be worth the $400,000 it is likely evaluated today.
Huge amount of biases and conceit flow forth in defence of what should be shockingly high prices. Canada is different, when remembering the disaster of the USA in 2008. Interest rates can never go up again - it would bankrupt the country (they don't have to, by the by). Worst is the belief that housing simply "always goes up." Would that you have told that to one of Calgary's many suicides of the 1980s.
At its very worst, one can consider my favourite bumper sticker: "dear God, let there be another boom. I promise not to piss it all away next time." Alberta's great prosperity from 1995 to 2014 blinded people to the possibility that our boom could indeed end, and would. Throughout the province, people still believe taxes can be cut, the deficit eliminated, oil brought back up to $150US a barrel, and for everyone to be restored to work. All of these things are possible - but probably only simultaneously. Failing that, we have a continued failure on our hands.
The last great sin of common economics is the Externality - or rather the ignorance of it. This is not a theory of behaviour, but rather a means of measuring the true cost of a product or service. Opportunity cost can be considered a part of an externality, which can lead to massive variance in the "real cost" of a good. Take for example a McDonald's Big Mac. Price: $5; with externalities, the real cost is anywhere from $15 to $200. How in God's name does that happen?
Consider the cost to society by raising cattle. Cattle consume copious amounts of water and land. Huge amounts of rainforest have been eliminated to make way for cows. The cattle industry is also one of the world's greatest polluters, both in solid waste and in greenhouse gas emissions. Cows must be moved, slaughtered, processed, moved again, refrigerated, transported, and on and on before even being consumed. Trucks, trains, ships, stores, warehouses; all these require energy, usually "dirty," require infrastructure, and require capital. All emit pollution. Through the marvel of a "globalized" economic system, these costs to society are hidden and have no effect on the price of the good. But the costs are real - they are just paid for elsewhere, or later, and more likely by different people.
Here are two great big externalities ignored in the province of Alberta: premature deaths caused by motor vehicles and coal plants. Years ago, economists judged the value of one Canadian life at $4,000,000. Coal plants in this province are responsible, it is believed, for the deaths of roughly 100 Albertans every single year. That is not a big number - but their deaths alone cost the province the equivalent in $400,000,000 in economic and community activity. Wow. What about cars? Well, Alberta has to the highest motor vehicle fatality rate in Canada: about 500 people die in Alberta due to car accidents every year. The cost? $2,000,000,000.
So just in terms of death the province's economy loses over $2.4B in economic potential every single year just to car accidents and coal plants. Conventional GDP would record this real loss as a gain - just think of the insurance, the legal work, the funeral arrangements; death is big business, but death costs a good deal more than it gives. Also, consider that in the above calculation there was nowhere considered the cost of injury or illness - things which affect thousands more people all year, every year, which are, in all honesty, preventable.
Without pricing in externalities, we ignore at our own risk behaviours that damage us more than they give. The car was a great invention, to be sure. But there has probably come a line, which we have subsequently crossed, where they do more damage to society than they contribute. They have allowed us to build cities in the most unhealthy and expensive way possible; they are probably responsible for much of the obesity phenomenon in North America, and the isolation they bring is likely a factor in mental illness rates in North America that are triple what they are in a less car-dependent Europe; and of course they pollute like a God damn. Yet, I would bet you most people consider car ownership not a privilege, but a right.
Alberta has followed in the wake of another major oil producer, Norway, by pricing externalities. This is our new Carbon Tax. It is deeply unpopular - viewed as both a tax grab and an assault on the oil industry. The carbon tax is nothing more than a small attempt to factor in real costs Albertans do and will pay because of their fossil fuel habits. Think of it as a more indirect version of the health care premiums Albertans once suffered.
In summary, the popular conception of economics has served to deceive the public as to their long term interests. People have been blinded to the nature of their present economic predicament. Much worse, the common man has little idea of the future costs of our present actions. Some years ago, the federal government spent more than half a billion dollars cleaning up the abandoned Giant Mine outside of Yellowknife. One can only imagine what the hidden costs of our oil sands really are. I'm certain its shocking.
Thanks for reading.
So, definitions. "Economics," as I shall hereafter refer to it, means the "classical" school, which I will argue should better now be known as "common" economics. As the term Classical should suggest, this discipline was the product of the European enlightenment. Accordingly, it makes some very positive, and implausible, claims about human nature.
The greatest sin of Classical economics is its law which claims that the average human - the economic actor - is a rational being, capable both of finding evidence and evaluating it, being aware of their own biases, and making their decisions based upon that evidence, regardless of those biases. I am going to assume that you, dear reader, have probably already noticed that this is simply not the case.
In Behavioural Economics, a new field pioneered in very recent history, humans are irrational. They find evidence and evaluate it based on their biases. I would say all of us are guilty of this. According to Behavioural Economics, your economic actor makes decisions based on what is most comfortable to them; basically, human beings are inclined to accept the status quo, regardless to the evidence against it, which they discount.
Alberta currently provides us a great deal of situations to evaluate these basic summations of both schools of economics.
Our current government, for example, is operating under a massive, $11B deficit. This is indeed a scary number. If you are a Keynesian, which few are today, operating such a big deficit is essential to raising your jurisdiction out of an economic recession, as the NDP are arguably trying. However, Keynesianism has not been in vogue since its spectacular failure to deal with the stagflation of the 1970s; so maybe the NDP is mistaken in its approach. As an historian, I must add that this deficit is also reflective of the "infrastructure deficit" left to the present government by its predecessor. Some of this money would have to be spent at some time; whether this much is necessary now or later is another story.
However, the zeitgeist in Alberta - that mindset which governs people's beliefs, anticipations and biases is much more flawed. There is a belief that low taxes ensure economic growth; therefore the NDP is mistaken. There is a belief that environmental regulation is harmful to the economy; therefore the NDP is mistaken. There is a belief that public investment is bad for the economy; therefore the NDP is mistaken. There is much reason to believe the average Albertan, is in fact, the one mistaken, but it isn't really their fault.
The three beliefs outlined in short above are believed because they are believed to have worked in the past. Albertans are simply more confident of the status quo that they once enjoyed. Unfortunately for the average Albertan, the status quo was simply untenable. The change of government is a sign of some acceptance of that fact, but this change can be reversed.
Why is the status quo untenable? Why doesn't the population notice?
Basically, the things that made us wealthy are expected to continue to do so. Oil and Gas was so central to the prosperity of the province that a future without it is unthinkable to people who made their living from it. People who made money off of real estate cannot imagine a future where real estate is no longer a great money maker. People who made money cannot imagine a future where construction is no longer a big player in the economy. Weigh the evidence - not just from here, but around the world, too, and Alberta has a very big problem on its hands.
Take oil and gas, for starters. Albertans are ill-equipped to think that there are parts of the world that literally hate the stuff. These places, more often than not, are locales without local sources of either. They have many reasons not to like oil and gas: it makes them dependent on foreign, and sometimes hostile governments; it causes money to leave the country; it pollutes the air and water. It is not surprising to know that the first big pushes for renewable energy were made following the "Oil Shock" of 1973; but Albertans know 1973 for the good it did the province, not the damage it did to the rest of the world (and continues to do). In sum, you have two different status quos confronting each other.
Another way of looking at things is through the prism of "recency bias," wherein a human being views the near and far futures as obeying the patterns they see today or in recent history. The housing market in Canada reflects recency bias in a massive way. The values of housing around Canada have escalated to historic highs, and mostly in the last ten years. What goes without saying is the historical reasons for the flight in housing costs: first massive inflation (1973-1993), then government policy (1990-2010), and now record low interest rates (2010-present). Without these three factors working on the population, it is doubtful housing in Calgary, where ten years ago a new house in Mackenzie was going for about $175,000, would be worth the $400,000 it is likely evaluated today.
Huge amount of biases and conceit flow forth in defence of what should be shockingly high prices. Canada is different, when remembering the disaster of the USA in 2008. Interest rates can never go up again - it would bankrupt the country (they don't have to, by the by). Worst is the belief that housing simply "always goes up." Would that you have told that to one of Calgary's many suicides of the 1980s.
At its very worst, one can consider my favourite bumper sticker: "dear God, let there be another boom. I promise not to piss it all away next time." Alberta's great prosperity from 1995 to 2014 blinded people to the possibility that our boom could indeed end, and would. Throughout the province, people still believe taxes can be cut, the deficit eliminated, oil brought back up to $150US a barrel, and for everyone to be restored to work. All of these things are possible - but probably only simultaneously. Failing that, we have a continued failure on our hands.
The last great sin of common economics is the Externality - or rather the ignorance of it. This is not a theory of behaviour, but rather a means of measuring the true cost of a product or service. Opportunity cost can be considered a part of an externality, which can lead to massive variance in the "real cost" of a good. Take for example a McDonald's Big Mac. Price: $5; with externalities, the real cost is anywhere from $15 to $200. How in God's name does that happen?
Consider the cost to society by raising cattle. Cattle consume copious amounts of water and land. Huge amounts of rainforest have been eliminated to make way for cows. The cattle industry is also one of the world's greatest polluters, both in solid waste and in greenhouse gas emissions. Cows must be moved, slaughtered, processed, moved again, refrigerated, transported, and on and on before even being consumed. Trucks, trains, ships, stores, warehouses; all these require energy, usually "dirty," require infrastructure, and require capital. All emit pollution. Through the marvel of a "globalized" economic system, these costs to society are hidden and have no effect on the price of the good. But the costs are real - they are just paid for elsewhere, or later, and more likely by different people.
Here are two great big externalities ignored in the province of Alberta: premature deaths caused by motor vehicles and coal plants. Years ago, economists judged the value of one Canadian life at $4,000,000. Coal plants in this province are responsible, it is believed, for the deaths of roughly 100 Albertans every single year. That is not a big number - but their deaths alone cost the province the equivalent in $400,000,000 in economic and community activity. Wow. What about cars? Well, Alberta has to the highest motor vehicle fatality rate in Canada: about 500 people die in Alberta due to car accidents every year. The cost? $2,000,000,000.
So just in terms of death the province's economy loses over $2.4B in economic potential every single year just to car accidents and coal plants. Conventional GDP would record this real loss as a gain - just think of the insurance, the legal work, the funeral arrangements; death is big business, but death costs a good deal more than it gives. Also, consider that in the above calculation there was nowhere considered the cost of injury or illness - things which affect thousands more people all year, every year, which are, in all honesty, preventable.
Without pricing in externalities, we ignore at our own risk behaviours that damage us more than they give. The car was a great invention, to be sure. But there has probably come a line, which we have subsequently crossed, where they do more damage to society than they contribute. They have allowed us to build cities in the most unhealthy and expensive way possible; they are probably responsible for much of the obesity phenomenon in North America, and the isolation they bring is likely a factor in mental illness rates in North America that are triple what they are in a less car-dependent Europe; and of course they pollute like a God damn. Yet, I would bet you most people consider car ownership not a privilege, but a right.
Alberta has followed in the wake of another major oil producer, Norway, by pricing externalities. This is our new Carbon Tax. It is deeply unpopular - viewed as both a tax grab and an assault on the oil industry. The carbon tax is nothing more than a small attempt to factor in real costs Albertans do and will pay because of their fossil fuel habits. Think of it as a more indirect version of the health care premiums Albertans once suffered.
In summary, the popular conception of economics has served to deceive the public as to their long term interests. People have been blinded to the nature of their present economic predicament. Much worse, the common man has little idea of the future costs of our present actions. Some years ago, the federal government spent more than half a billion dollars cleaning up the abandoned Giant Mine outside of Yellowknife. One can only imagine what the hidden costs of our oil sands really are. I'm certain its shocking.
Thanks for reading.
Wednesday, 24 August 2016
It Could Be Worse
Today, our good friends from the Fraser Institute launched a volley of propaganda into Alberta's newspapers. Mark Milke, as usual, defied sense, logic and facts to talk about how undemocratic it is to ban large donations and put spending caps on elections. Less silly was the piece in the Financial Post about Alberta's woeful budgetary situation.
Yeah, it really is woeful. I do agree. You might remember me saying before that the government of Alberta was in a horrible fiscal situation years before the price of oil collapsed and these deficits started appearing. Or, I am crazy.
I must be, really, because I am here to tell you that all in all, our situation in Alberta isn't all that bad.
$11B is a scary large number. I would rather we didn't have a deficit at all - but as I've implied elsewhere, I don't believe it was avoidable this time. In fact there's good reason to believe it is better spending that money now and paying for it later than doing both in the future - which is exactly what we would one day be doing. That is another story though. Today let's focus on what matters. Let us call it:
The Oil Crash Misery Tour.
Like a chilly cruise, let's start off with what the Americans sometimes call the "great State of Alaska." Here we have an oil rich location that stole Alberta's heritage fund idea and ran with it. In no time at all they saved tens of billions of dollars more money than Alberta ever did, eliminated all forms of income and business taxes, and provided annual stipends to their population for many years in a row from their accumulated largesse. So what could have gone wrong?
Alaska's state budget is the princely sum of $6B US a year - adjusting for the exchange rate and Alberta's significantly greater population, they spend more money on government services than we do - and it was sustainable, but only if oil remained pricey and pivotal. Well, as we all know, it sure isn't these days. Bereft of oil revenue, the state accumulated a whopping $5.5B deficit in 2014 alone. Again, adjusting for the exchange rate and our population differences, ultra-conservative Alaska's per capita deficit was (and likely still is) an eye-popping $10,000 (American) per person. So only five times the deficit the Fraser Institute is complaining about in Alberta. Ouch.
Moving to gentler climes, South America has two incredible cases of oil's good graces to present us with. The one everyone is familiar with is Venezuela, a state now verging on utter political and economic collapse. The other is Brazil. It's economic and political crises of the past few years are all directly tied to the drop in the price of oil. Brazil's ambitious offshore oil developments - ones that exceed Alberta's in size, scope, and worst of all, newness, have laid a rotten egg on the Brazilian balance sheet. I can't say I'm much of an expert on either country, but it's hard to say if Venezuela was ever worse off than they are today; as for Brazil, they haven't had such a disaster on their hands since the 1980s, I would guess.
Moving east, we come to the great fiasco-states of the Middle East. Saudi Arabia is getting by by burning through an estimated $200B US a year. It instituted cuts to the allowances it pays it citizens, leading its citizens to jettison their servants onto the streets. Tens of thousands of migrant workers were laid off with no pay, no savings, no shelter, and no aid. This resulted in the baffling situation of India leading a humanitarian intervention in Saudi Arabia to keep these people from literally dying.
Of course, Saudi Arabia isn't just spending this $200B US on themselves. Egypt has been dependent on financial support from the wider Arab world going back years. The events of the Arab Spring amplified this need, to the tune of roughly $30B US in aid each year, of which two-thirds comes from Saudi Arabia. It is joined in its welfare status by neighbour Sudan, which has resorted to selling its soldiers to Arab states to serve in their military interventions. Nobody thinks either state could last longnwithout the billions of dollars they receive.
This is a short survey. I promise you that if you looked broadly enough, you would see similar stresses in every single oil exporting nation, province or territory. Saskatchewan and Newfoundland are suffering; so too is Texas, while Louisiana is even worse off. Alberta's fiscal situation needs to be placed in context, and in that context we're actually doing not good, but not bad either. So don't take the Fraser Institute at their word. Things aren't quite as bad as they would like.
Thanks for reading.
Yeah, it really is woeful. I do agree. You might remember me saying before that the government of Alberta was in a horrible fiscal situation years before the price of oil collapsed and these deficits started appearing. Or, I am crazy.
I must be, really, because I am here to tell you that all in all, our situation in Alberta isn't all that bad.
$11B is a scary large number. I would rather we didn't have a deficit at all - but as I've implied elsewhere, I don't believe it was avoidable this time. In fact there's good reason to believe it is better spending that money now and paying for it later than doing both in the future - which is exactly what we would one day be doing. That is another story though. Today let's focus on what matters. Let us call it:
The Oil Crash Misery Tour.
Like a chilly cruise, let's start off with what the Americans sometimes call the "great State of Alaska." Here we have an oil rich location that stole Alberta's heritage fund idea and ran with it. In no time at all they saved tens of billions of dollars more money than Alberta ever did, eliminated all forms of income and business taxes, and provided annual stipends to their population for many years in a row from their accumulated largesse. So what could have gone wrong?
Alaska's state budget is the princely sum of $6B US a year - adjusting for the exchange rate and Alberta's significantly greater population, they spend more money on government services than we do - and it was sustainable, but only if oil remained pricey and pivotal. Well, as we all know, it sure isn't these days. Bereft of oil revenue, the state accumulated a whopping $5.5B deficit in 2014 alone. Again, adjusting for the exchange rate and our population differences, ultra-conservative Alaska's per capita deficit was (and likely still is) an eye-popping $10,000 (American) per person. So only five times the deficit the Fraser Institute is complaining about in Alberta. Ouch.
Moving to gentler climes, South America has two incredible cases of oil's good graces to present us with. The one everyone is familiar with is Venezuela, a state now verging on utter political and economic collapse. The other is Brazil. It's economic and political crises of the past few years are all directly tied to the drop in the price of oil. Brazil's ambitious offshore oil developments - ones that exceed Alberta's in size, scope, and worst of all, newness, have laid a rotten egg on the Brazilian balance sheet. I can't say I'm much of an expert on either country, but it's hard to say if Venezuela was ever worse off than they are today; as for Brazil, they haven't had such a disaster on their hands since the 1980s, I would guess.
Moving east, we come to the great fiasco-states of the Middle East. Saudi Arabia is getting by by burning through an estimated $200B US a year. It instituted cuts to the allowances it pays it citizens, leading its citizens to jettison their servants onto the streets. Tens of thousands of migrant workers were laid off with no pay, no savings, no shelter, and no aid. This resulted in the baffling situation of India leading a humanitarian intervention in Saudi Arabia to keep these people from literally dying.
Of course, Saudi Arabia isn't just spending this $200B US on themselves. Egypt has been dependent on financial support from the wider Arab world going back years. The events of the Arab Spring amplified this need, to the tune of roughly $30B US in aid each year, of which two-thirds comes from Saudi Arabia. It is joined in its welfare status by neighbour Sudan, which has resorted to selling its soldiers to Arab states to serve in their military interventions. Nobody thinks either state could last longnwithout the billions of dollars they receive.
This is a short survey. I promise you that if you looked broadly enough, you would see similar stresses in every single oil exporting nation, province or territory. Saskatchewan and Newfoundland are suffering; so too is Texas, while Louisiana is even worse off. Alberta's fiscal situation needs to be placed in context, and in that context we're actually doing not good, but not bad either. So don't take the Fraser Institute at their word. Things aren't quite as bad as they would like.
Thanks for reading.
Monday, 8 August 2016
The Perfect Storm, part 4: Good News for Once
Well, Alberta certainly is in a pickle. Without massive resource revenues to finance the province's "rich government" the whole system was set to collapse like Russia's odds in the Paralympics. Tens of thousands were laid off; thousands moved away, and the province elected to government the party that promised to raise taxes the most. I call it making the best of a bad situation.
You'll be forgiven to think that it's only been bad news since then. Alberta's news company has certainly done its best to make it seem like the NDP have been doing nothing but screw up for a year and a half, but that simply isn't so. So, it's time to look at where we are, and more than that, identify the things that should give us hope. So together, let us stop bellyaching and whining, and realize that good things are indeed just around the corner, so long as we don't scare them off.
First of all, we need address the dreaded T: taxes. Are they so high they are crushing business? Are they so high they are crushing entrepreneurship? Are they so high they are hurting the people of Alberta? We must be honest and conclude, no, they most certainly are not. Dealing with these questions in reverse order, we must first concede that income taxes were raised solely on the province's very wealthy, otherwise known as people who can afford to pay it. The people who lost their jobs, or just their overtime, will see no increase in their taxes - which would not have been the case if a PST was initiated. Therefore, there is no more suffering for them. Indeed, the government's defence of its civil service has probably helped people more than a tax cut would. Just consider the refugees from Fort McMurray, who received aid from the province as fast as could be, including in the guise of schools for their children. Are the new taxes stifling entrepreneurship? I'm sure we all see new businesses in our neighbourhoods; at least I do. And lastly, slightly increasing corporate tax rates (which apply to profits alone) can literally in no way drive a company unprofitable. That is just not how corporate taxes work. So, we can conclude that the NDP has in fact done more to fight the deficit, and act responsibly, than any of its opposition parties offered or seem willing to do.
So, having dispelled the boogeyman of taxes away, we need to consider just all the advantages Alberta still has. Yes, oil is gone; if it comes back at all, it's return will likely to be brief, so let's move on in life. Free money is over, but we have a lot more to offer than no taxes, no oversight, and no regulations.
Probably the most important thing going on in Canada right now is not the fall in oil, but a massive housing bubble. While it affected Alberta greatly, it has reached truly lunatic proportions in Canada's first and third cities, Toronto and Vancouver. Why is this a good thing? Well, it isn't ,but it is an opportunity for Alberta. Simply put, people are losing the ability to live and work in those cities. Businesses are becoming restricted in their pools of talent as fewer and fewer people can get by in such crazy environments. We also have something that few cities in the world have: skylines filling up with empty buildings. With corporate leases reaching lows not seen since the 1980s, Alberta is rapidly assembling all the factors a business could possibly need to thrive into the future. Consider: our taxes are lower than BC's or Ontario's, largely thanks to the absence of a PST. Our electricity rates are among the lowest in the country, thanks to the collapse of fossil fuel prices. Our corporate real estate is practically free, and we have a relatively low cost of living and a well-educated, hard working population.
The only thing that could work against this favourable situation is the outrageously crazy criticism of the government. Criticism of a government is always necessary, but in Alberta it has truly reached new lows. My only fear is that our outspoken neighbours, the haters, will terrify potential businesses, either from their bad behaviour or their bad mouths. Luckily, things are just as bad in Ontario for the Wynne government, if not worse; so maybe we will dodge the bullets we fire at ourselves.
But last month De Beers relocated it's head office from Toronto to Calgary. Will they be the last? I highly doubt it. Alberta is simply too good to be true. I anticipate we will be seeing more and more companies relocate from Toronto to Calgary and Edmonton as business environment for employers and employees continues to erode there. Our skyline will fill up with the offices of Canada's biggest corporations, our economy will diversify, and people will be happier and more hopeful from it. We just have to get through this. We can do it!
You'll be forgiven to think that it's only been bad news since then. Alberta's news company has certainly done its best to make it seem like the NDP have been doing nothing but screw up for a year and a half, but that simply isn't so. So, it's time to look at where we are, and more than that, identify the things that should give us hope. So together, let us stop bellyaching and whining, and realize that good things are indeed just around the corner, so long as we don't scare them off.
First of all, we need address the dreaded T: taxes. Are they so high they are crushing business? Are they so high they are crushing entrepreneurship? Are they so high they are hurting the people of Alberta? We must be honest and conclude, no, they most certainly are not. Dealing with these questions in reverse order, we must first concede that income taxes were raised solely on the province's very wealthy, otherwise known as people who can afford to pay it. The people who lost their jobs, or just their overtime, will see no increase in their taxes - which would not have been the case if a PST was initiated. Therefore, there is no more suffering for them. Indeed, the government's defence of its civil service has probably helped people more than a tax cut would. Just consider the refugees from Fort McMurray, who received aid from the province as fast as could be, including in the guise of schools for their children. Are the new taxes stifling entrepreneurship? I'm sure we all see new businesses in our neighbourhoods; at least I do. And lastly, slightly increasing corporate tax rates (which apply to profits alone) can literally in no way drive a company unprofitable. That is just not how corporate taxes work. So, we can conclude that the NDP has in fact done more to fight the deficit, and act responsibly, than any of its opposition parties offered or seem willing to do.
So, having dispelled the boogeyman of taxes away, we need to consider just all the advantages Alberta still has. Yes, oil is gone; if it comes back at all, it's return will likely to be brief, so let's move on in life. Free money is over, but we have a lot more to offer than no taxes, no oversight, and no regulations.
Probably the most important thing going on in Canada right now is not the fall in oil, but a massive housing bubble. While it affected Alberta greatly, it has reached truly lunatic proportions in Canada's first and third cities, Toronto and Vancouver. Why is this a good thing? Well, it isn't ,but it is an opportunity for Alberta. Simply put, people are losing the ability to live and work in those cities. Businesses are becoming restricted in their pools of talent as fewer and fewer people can get by in such crazy environments. We also have something that few cities in the world have: skylines filling up with empty buildings. With corporate leases reaching lows not seen since the 1980s, Alberta is rapidly assembling all the factors a business could possibly need to thrive into the future. Consider: our taxes are lower than BC's or Ontario's, largely thanks to the absence of a PST. Our electricity rates are among the lowest in the country, thanks to the collapse of fossil fuel prices. Our corporate real estate is practically free, and we have a relatively low cost of living and a well-educated, hard working population.
The only thing that could work against this favourable situation is the outrageously crazy criticism of the government. Criticism of a government is always necessary, but in Alberta it has truly reached new lows. My only fear is that our outspoken neighbours, the haters, will terrify potential businesses, either from their bad behaviour or their bad mouths. Luckily, things are just as bad in Ontario for the Wynne government, if not worse; so maybe we will dodge the bullets we fire at ourselves.
But last month De Beers relocated it's head office from Toronto to Calgary. Will they be the last? I highly doubt it. Alberta is simply too good to be true. I anticipate we will be seeing more and more companies relocate from Toronto to Calgary and Edmonton as business environment for employers and employees continues to erode there. Our skyline will fill up with the offices of Canada's biggest corporations, our economy will diversify, and people will be happier and more hopeful from it. We just have to get through this. We can do it!
Saturday, 6 August 2016
July's Poor Unemployment Numbers
Well, another whopper is in the books. Canada's economy continues to hold together like dinner in the dishwasher. The shocking number isn't 31,000 - the net number of jobs lost; the shocker 71,000, the number of full time jobs lost. As has often been the case the past several years, part-time work is replacing full time - a very bad trend, indeed. Was all this a surprise though?
The only part I can find surprising is that, after yet another record trade deficit, manufacturing hired more people than not. This is good news. Hopefully it keeps up.
The biggest sector to lose last month was "public employment." What ended last month? The Federal Census. This huge, nationwide effort was forever destined to disappear, so you'd think that fact would merit a mention in the papers.
The second non-surprise was the loss of 9,000 construction jobs. Given Canada's now ending housing bubble, this is not only unsurprising, but is a trend in itself. People looking for work in this field are going to be competing for less and less all over the country as we deal with the facts that the country is overbuilt, oversold, and grotesquely indebted.
Altogether, those two categories account for the majority of the job losses. It was horrible on paper, but not at all a surprise. Next month should yield more interesting numbers.
The only part I can find surprising is that, after yet another record trade deficit, manufacturing hired more people than not. This is good news. Hopefully it keeps up.
The biggest sector to lose last month was "public employment." What ended last month? The Federal Census. This huge, nationwide effort was forever destined to disappear, so you'd think that fact would merit a mention in the papers.
The second non-surprise was the loss of 9,000 construction jobs. Given Canada's now ending housing bubble, this is not only unsurprising, but is a trend in itself. People looking for work in this field are going to be competing for less and less all over the country as we deal with the facts that the country is overbuilt, oversold, and grotesquely indebted.
Altogether, those two categories account for the majority of the job losses. It was horrible on paper, but not at all a surprise. Next month should yield more interesting numbers.
The Perfect Storm, Part 3 - More bad stuff
Some Final Remarks on our Shite Situation
Alberta, if you believe the news, is now going through its worst recession since the Second World War. Our unemployment rate is not the highest in the nation, but it continues to rise while the insolvency rate goes up. Before I get to the things I see that give me hope, I need a last post to bitch and complain some more. Enjoy.
To review this recession was largely the result of two things: the fossil fuel industry going bust, and (piss)poor government policy.
Regarding the first, the collapse in world oil prices has hurt, but probably the worst thing to happen to us was our losing the USA as a customer thanks to fracking. In China we lost as a potential customer not because of Aboriginal people holding up the Northern Gateway (though it helped), but because international isolation forced Russia to sell itself out to them. The low oil prices might hurt greatest long term because they've made the Energy East pipeline irrelevant, or rather, a complete waste of money. In a laissez-faire economic system, the rest of Canada will simply buy what's better - and that isn't our oil, it's the better quality stuff from overseas.
There certainly is not much consideration, in the news, or even in more reputable places, about the effects any of these international events or their results have on the province. Years ago, prior to the recession, I asked a fairly well-connected fellow who worked downtown about the effect fracking in the USA would have on the Albertan economy. He simply replied that "the Americans wouldn't do that to us." I left the conversation at that and moved on, but I still wonder incredulously how he could have been ignorant that the USA was becoming self sufficient, but also that self-sufficiency in energy has been an American goal since Nixon was president. The Americans had only fought a pile of wars for oil. And then the Americans stopped buying it from us. Big surprise.
Thanks to our piss-poor media, there is no public discussion of the international events that shape the price and future of the oil industry. Its importance has been continuously betrayed by a negligence to actually report outside of a purely domestic lens what shapes the industry. This media "blackout" is all the more reckless, lazy and damaging once you consider there is probably no oil-producing territory on Earth more in tune with international events than the province of Alberta. Practically every single oil company is foreign owned at this point, and usually by national governments. Hell, the People's Republic of China was probably the single largest "private employer" in Alberta back in 2013; it probably still is. Therefore, the national policies of countries that own our resource should perhaps be granted the smallest importance. As just one example, Albertans should probably know that their largest employer is the world's leading investor in renewable energy; that should have people worried, I would think. Instread, tens of thousands of Albertans are so ignorant as to blame the NDP for what has happened to oil. They are no more responsible for what happened than the Liberal Party is for the oil strike in Turner Valley 100 years ago; probably less.
Albertans require a pretty broad understanding of international politics, new technology, and basic science (sorry Climate Change is real and all), but all these three are blatantly lacking. When the epitaph of the Albertan Oil industry is written, it will surely say that we blundered from one accident to the next. Hopefully we didn't piss it all away.
But of course there is also the problems caused by poor government policy. My God, there are simply so many I couldn't even fit half of them in the previous post.
Take the free-market philosophy that has guided Canada going back to the 1980s now. I feel bad telling students that the USA is more "market" than Canada, because in some cases we sure as hell beat them, usually to our detriment. The privatization of oil companies has to be a high ranking blunder. If it was such a good idea, why is it almost no other country on Earth even allows it? I do realize the Canadian oil industry is capital intensive; but so is Norway's, and it is a smaller country with less money than us; well, not anymore. Now Statoil owns a part of the oil sands, while Canada and Alberta sold off their shares years ago for now other reason than "public ownership is bad." Yet it's not private Canadian citizens who own the companies; it's foreign governments. Way to get colonized. Our oil companies were for many years the most profitable in Canada, and we taxed them a pittance (if we enforced it at all), and where did all the money go, exactly? It sure as hell didn't stay here.
I'm hardly a "nationalize everything" kind of guy, but there is a damn good reason countries don't let private interests own their oil supplies - it's too damn important. If you realize the Americans blew trillions of dollars (not mention probably killed over a million people) just to secure supplies in the Middle East, you'd think we'd have treated the world's single most strategic resource with a bit more respect and awe. Maybe the Americans would have spent more if we hadn't sold out to everyone so readily.
Anyway, I can't keep going on about the government's (Federal and provincial) ignorance and mismanagement of our resource. If you would like a good read (since you won't find it here), I recommend reading Jeff Rubin's "The Carbon Bubble." Yeah, he screwed up with peak oil (mostly), but he logically dismantles the former Prime Minister's "energy superpower" ambitions.
Thanks for reading.
Alberta, if you believe the news, is now going through its worst recession since the Second World War. Our unemployment rate is not the highest in the nation, but it continues to rise while the insolvency rate goes up. Before I get to the things I see that give me hope, I need a last post to bitch and complain some more. Enjoy.
To review this recession was largely the result of two things: the fossil fuel industry going bust, and (piss)poor government policy.
Regarding the first, the collapse in world oil prices has hurt, but probably the worst thing to happen to us was our losing the USA as a customer thanks to fracking. In China we lost as a potential customer not because of Aboriginal people holding up the Northern Gateway (though it helped), but because international isolation forced Russia to sell itself out to them. The low oil prices might hurt greatest long term because they've made the Energy East pipeline irrelevant, or rather, a complete waste of money. In a laissez-faire economic system, the rest of Canada will simply buy what's better - and that isn't our oil, it's the better quality stuff from overseas.
There certainly is not much consideration, in the news, or even in more reputable places, about the effects any of these international events or their results have on the province. Years ago, prior to the recession, I asked a fairly well-connected fellow who worked downtown about the effect fracking in the USA would have on the Albertan economy. He simply replied that "the Americans wouldn't do that to us." I left the conversation at that and moved on, but I still wonder incredulously how he could have been ignorant that the USA was becoming self sufficient, but also that self-sufficiency in energy has been an American goal since Nixon was president. The Americans had only fought a pile of wars for oil. And then the Americans stopped buying it from us. Big surprise.
Thanks to our piss-poor media, there is no public discussion of the international events that shape the price and future of the oil industry. Its importance has been continuously betrayed by a negligence to actually report outside of a purely domestic lens what shapes the industry. This media "blackout" is all the more reckless, lazy and damaging once you consider there is probably no oil-producing territory on Earth more in tune with international events than the province of Alberta. Practically every single oil company is foreign owned at this point, and usually by national governments. Hell, the People's Republic of China was probably the single largest "private employer" in Alberta back in 2013; it probably still is. Therefore, the national policies of countries that own our resource should perhaps be granted the smallest importance. As just one example, Albertans should probably know that their largest employer is the world's leading investor in renewable energy; that should have people worried, I would think. Instread, tens of thousands of Albertans are so ignorant as to blame the NDP for what has happened to oil. They are no more responsible for what happened than the Liberal Party is for the oil strike in Turner Valley 100 years ago; probably less.
Albertans require a pretty broad understanding of international politics, new technology, and basic science (sorry Climate Change is real and all), but all these three are blatantly lacking. When the epitaph of the Albertan Oil industry is written, it will surely say that we blundered from one accident to the next. Hopefully we didn't piss it all away.
But of course there is also the problems caused by poor government policy. My God, there are simply so many I couldn't even fit half of them in the previous post.
Take the free-market philosophy that has guided Canada going back to the 1980s now. I feel bad telling students that the USA is more "market" than Canada, because in some cases we sure as hell beat them, usually to our detriment. The privatization of oil companies has to be a high ranking blunder. If it was such a good idea, why is it almost no other country on Earth even allows it? I do realize the Canadian oil industry is capital intensive; but so is Norway's, and it is a smaller country with less money than us; well, not anymore. Now Statoil owns a part of the oil sands, while Canada and Alberta sold off their shares years ago for now other reason than "public ownership is bad." Yet it's not private Canadian citizens who own the companies; it's foreign governments. Way to get colonized. Our oil companies were for many years the most profitable in Canada, and we taxed them a pittance (if we enforced it at all), and where did all the money go, exactly? It sure as hell didn't stay here.
I'm hardly a "nationalize everything" kind of guy, but there is a damn good reason countries don't let private interests own their oil supplies - it's too damn important. If you realize the Americans blew trillions of dollars (not mention probably killed over a million people) just to secure supplies in the Middle East, you'd think we'd have treated the world's single most strategic resource with a bit more respect and awe. Maybe the Americans would have spent more if we hadn't sold out to everyone so readily.
Anyway, I can't keep going on about the government's (Federal and provincial) ignorance and mismanagement of our resource. If you would like a good read (since you won't find it here), I recommend reading Jeff Rubin's "The Carbon Bubble." Yeah, he screwed up with peak oil (mostly), but he logically dismantles the former Prime Minister's "energy superpower" ambitions.
Thanks for reading.
Wednesday, 3 August 2016
Alberta Media and Politics
Historically, it is not unusual for provinces to be governed by a single party for decades at a time. Some of these dynastic governments delivered great and positive change not just to their province, but the country itself. Saskatchewan's NDP dynasty inspired our modern health care system. Ontario's Conservative dynasty of the 19th century established the power of the provinces over the federal government. Many others had delivered good economic and social growth. They won elections because they were good governments.
Alberta's 44 year PC government (1971-2015) was not of the same calibre. I have already castigated this government on previous posts, but I think its impossible to say that the PCs ever inspired a wise action inside or outside the province, at least after Lougheed. So, that said, I do not believe that the PC dynasty started off badly. Peter Lougheed was probably the best premier the province had. Conveniently, he left government during the depths of Alberta's 1980s recession; the premiership was then picked up by fellow Edmonton Eskimos alumni Don Getty. Lougheed died only a few years ago, his funeral attended by all his successors who had made a living ignoring his advice on development.
Now, by 1993 it was not clear that the PC dynasty would survive. Alberta, like the rest of Canada, became terrified of its debt levels. The Liberals looked like they could win the election that year, promising deep cuts to the budget, but were narrowly defeated by Ralph Klein's PC team. His first four years were hardly free of scandal, but Klein's 1997 victory, I believe, can be considered the beginning of the end for the PC dynasty. In the absence of a real opposition, poor government and corruption became hallmarks of his administration; however, not only did people not care, he became the evermore popular "King Ralph."
Why was this?
My family has lived in Alberta for over 100 years. From them, and from my own experience, I can speak to one alarming phenomenon: the monopoly of mass-market media by right wing interests. This monopoly began, at least in Calgary, in 1980 with the demise of The Albertan newspaper. I would say this monopoly has only ended recently thanks to online citizen journalism, and in a physical sense, by the publishing of the Metro by the Toronto Star and Albertaviews magazine. These things have only had an effect in the past 10 years at most, so we can say that the Right dominated Alberta's mass media from 1980 to around 2005/2010.
This domination was embodied in the newspapers, in the talk radio stations, in local TV, and in magazines like Alberta Report and later, the Western Standard. In cities with more than one newspaper, the editorial angle ranged from soft-right to far-right (in both Edmonton and Calgary, represented by the Sun). Even the Universities, contrary to popular belief, presented a right-wing perspective, as they continue to do today, with various representatives of the "Calgary School" presenting their dubious arguments in favour of the neoconservative perspective. The disreputable Fraser Institute and its supply of titled minions is usually a conspicuously regular presence in the media, and so merits my honourable mention as a source of right-wing claptrap. Alternate views were limited, if at all, to the letters to the editor.
The only alternative to the mountain of neoconservative rhetoric that dominated the province for a quarter century lay in the province's publishing industry. There are many titles published during this period which illuminate the dubious successes of the province's leadership. However, the market for such books never proved significant enough to affect debate within the province. I suspect some books, like William Marsden's "Stupid to the Last Drop," sold better outside Alberta than within it.
The effect this monolithic media presence in Alberta can be seen in the ways Albertans remember the past. The National Energy Program is a misunderstood boogieman invoked to crush debate and fuel hate towards the East. Ralph Klein squandered the province's wealth, squandered its crown corporations, and acted like a buffoon, but is remembered as our lovable saviour. In contrast, the Federal Liberal government of Chretien is not remembered for slaying the deficit, but is thought to have increased it. Stephen Harper apparently never ran a deficit, either. The Sponsorship Scandal, which cost the country $150M and became another reason to hate the Liberals, had nothing on contemporary provincial scandals. but those remained forgotten or ignored.
Indeed, the province exhibits a memory of events almost totally at variance with history and reality. Why this is so can only be considered a product of the province's partisan press. All media sources slavishly promoted conservative interests and parties, and if it wasn't conservative - it wasn't good. The NDP were blamed for "ruining provinces" even though the Saskatchewan NDP government was probably the most effective in Canada in the 1990s, and almost certainly saved it (after the Conservatives had gone off to jail). The Liberals hated the west. Quebec steals our money. The Atlantic provinces do too. Alberta was the model for the whole country, damn the facts and damn reality! It's just everybody who voted against the Conservatives from 1993 on was too stupid to notice.
A very good example of the provincial media's lingering double standard is blatantly apparent at the moment. First, there is the Purchase Power Agreement scandal. If what the NDP alleges is true, which we have little reason yet to doubt, then the scandal should be yet another example of PC corruption. Instead, we have series after series of articles in all the Alberta papers trying to establish the incompetence, corruption, and bad faith of the current government. The Calgary Sun typically picked and chose its sources quoting people saying the government has little chance to win its lawsuit, when its Siamese twin, the Herald acknowledged other claims that its actually 50-50, or better. I can only assume the papers are looking out for our best interests, and not the interests of their corporate overlords.
On the other hand, Jason Kenney recently began his travelling tour of the province. His speech from the Legislature grounds was broadcast live across the province, and all the talk was about the possibilities in store for him, us, and ultimately, the defeat of the NDP. In other words, the return of our Golden Future. What went totally unsaid was the question of why a taxpayer paid Member of Parliament is spending all of his time campaigning outside of his riding, outside of election time, and in a different level of government altogether. That this is a basic ethics violation should not come as a surprise to the editors of Alberta's remaining newspapers (which are all basically the same one at this point), but remember, these were the people who endorsed the Wildrose Party and the Conservatives in the last provincial and federal elections, regardless of the effect on their readers.
While I have already mentioned how new forms of media, and new entities like Albertaviews helped break the right-wing monopoly in Alberta, I believe the real nail in the coffin was something much more ironic. While the PCs remained the sole right-wing option (of repute) in the province, there could be no criticism of them. This all changed after Premier Stelmach's royalty review. The province's oil industry turned the Wildrose Alliance from a southern, regional, rural fringe party to competitor. Now that there was a more corporate friendly party on the scene, Alberta's mass media began to do its job and hold the government to account. Stelmach is rather demeaned in provincial memory as an incompetent nincompoop sort of Premier. Alison Redford was basically the Antichrist.
However, the long awaited return to form was not without its issues. I found especially dubious the U of C economics professors using their lectures to tell students to vote Wildrose. But more significantly, Danielle Smith, former leader of the WRP and member of the "Calgary School," was married to the head editor of the Calgary Sun, coincidentally the party's biggest cheerleader. Such a conflict of interest remained unnoted, though I noted that they were the first news source to publicize a Wildrose lead in the 2012 election polls. Following her disastrous decision to abort the WRP in 2014, Danielle Smith found employment as a talk show host on Calgary's QR77. You can imagine her take on events.
During its heyday, the neoconservative leaders of the Province were able to effect a near-total echo chamber in Alberta discourse. Its effect on public memory can still be seen in the bizarre myths that still pervade and pervert the province's population. I do mean pervert: there is ample evidence both on the internet and on people's cars and shirts that don't just reflect a distaste for the new governments, but a vitriolic hate for them, and democracy itself. Unfortunately, it will be a long time indeed before the damage to our consciousness is healed, but I am hopeful. After all, Albertans rejected the "no new tax" and "big cuts" of the Wildrose Party in favour of reasoned answers and acknowledged realities with the NDP. That really is a sign of something to be celebrated.
Now all I can recommend from this point is to go read some history.
Thanks for reading.
Alberta's 44 year PC government (1971-2015) was not of the same calibre. I have already castigated this government on previous posts, but I think its impossible to say that the PCs ever inspired a wise action inside or outside the province, at least after Lougheed. So, that said, I do not believe that the PC dynasty started off badly. Peter Lougheed was probably the best premier the province had. Conveniently, he left government during the depths of Alberta's 1980s recession; the premiership was then picked up by fellow Edmonton Eskimos alumni Don Getty. Lougheed died only a few years ago, his funeral attended by all his successors who had made a living ignoring his advice on development.
Now, by 1993 it was not clear that the PC dynasty would survive. Alberta, like the rest of Canada, became terrified of its debt levels. The Liberals looked like they could win the election that year, promising deep cuts to the budget, but were narrowly defeated by Ralph Klein's PC team. His first four years were hardly free of scandal, but Klein's 1997 victory, I believe, can be considered the beginning of the end for the PC dynasty. In the absence of a real opposition, poor government and corruption became hallmarks of his administration; however, not only did people not care, he became the evermore popular "King Ralph."
Why was this?
My family has lived in Alberta for over 100 years. From them, and from my own experience, I can speak to one alarming phenomenon: the monopoly of mass-market media by right wing interests. This monopoly began, at least in Calgary, in 1980 with the demise of The Albertan newspaper. I would say this monopoly has only ended recently thanks to online citizen journalism, and in a physical sense, by the publishing of the Metro by the Toronto Star and Albertaviews magazine. These things have only had an effect in the past 10 years at most, so we can say that the Right dominated Alberta's mass media from 1980 to around 2005/2010.
This domination was embodied in the newspapers, in the talk radio stations, in local TV, and in magazines like Alberta Report and later, the Western Standard. In cities with more than one newspaper, the editorial angle ranged from soft-right to far-right (in both Edmonton and Calgary, represented by the Sun). Even the Universities, contrary to popular belief, presented a right-wing perspective, as they continue to do today, with various representatives of the "Calgary School" presenting their dubious arguments in favour of the neoconservative perspective. The disreputable Fraser Institute and its supply of titled minions is usually a conspicuously regular presence in the media, and so merits my honourable mention as a source of right-wing claptrap. Alternate views were limited, if at all, to the letters to the editor.
The only alternative to the mountain of neoconservative rhetoric that dominated the province for a quarter century lay in the province's publishing industry. There are many titles published during this period which illuminate the dubious successes of the province's leadership. However, the market for such books never proved significant enough to affect debate within the province. I suspect some books, like William Marsden's "Stupid to the Last Drop," sold better outside Alberta than within it.
The effect this monolithic media presence in Alberta can be seen in the ways Albertans remember the past. The National Energy Program is a misunderstood boogieman invoked to crush debate and fuel hate towards the East. Ralph Klein squandered the province's wealth, squandered its crown corporations, and acted like a buffoon, but is remembered as our lovable saviour. In contrast, the Federal Liberal government of Chretien is not remembered for slaying the deficit, but is thought to have increased it. Stephen Harper apparently never ran a deficit, either. The Sponsorship Scandal, which cost the country $150M and became another reason to hate the Liberals, had nothing on contemporary provincial scandals. but those remained forgotten or ignored.
Indeed, the province exhibits a memory of events almost totally at variance with history and reality. Why this is so can only be considered a product of the province's partisan press. All media sources slavishly promoted conservative interests and parties, and if it wasn't conservative - it wasn't good. The NDP were blamed for "ruining provinces" even though the Saskatchewan NDP government was probably the most effective in Canada in the 1990s, and almost certainly saved it (after the Conservatives had gone off to jail). The Liberals hated the west. Quebec steals our money. The Atlantic provinces do too. Alberta was the model for the whole country, damn the facts and damn reality! It's just everybody who voted against the Conservatives from 1993 on was too stupid to notice.
A very good example of the provincial media's lingering double standard is blatantly apparent at the moment. First, there is the Purchase Power Agreement scandal. If what the NDP alleges is true, which we have little reason yet to doubt, then the scandal should be yet another example of PC corruption. Instead, we have series after series of articles in all the Alberta papers trying to establish the incompetence, corruption, and bad faith of the current government. The Calgary Sun typically picked and chose its sources quoting people saying the government has little chance to win its lawsuit, when its Siamese twin, the Herald acknowledged other claims that its actually 50-50, or better. I can only assume the papers are looking out for our best interests, and not the interests of their corporate overlords.
On the other hand, Jason Kenney recently began his travelling tour of the province. His speech from the Legislature grounds was broadcast live across the province, and all the talk was about the possibilities in store for him, us, and ultimately, the defeat of the NDP. In other words, the return of our Golden Future. What went totally unsaid was the question of why a taxpayer paid Member of Parliament is spending all of his time campaigning outside of his riding, outside of election time, and in a different level of government altogether. That this is a basic ethics violation should not come as a surprise to the editors of Alberta's remaining newspapers (which are all basically the same one at this point), but remember, these were the people who endorsed the Wildrose Party and the Conservatives in the last provincial and federal elections, regardless of the effect on their readers.
While I have already mentioned how new forms of media, and new entities like Albertaviews helped break the right-wing monopoly in Alberta, I believe the real nail in the coffin was something much more ironic. While the PCs remained the sole right-wing option (of repute) in the province, there could be no criticism of them. This all changed after Premier Stelmach's royalty review. The province's oil industry turned the Wildrose Alliance from a southern, regional, rural fringe party to competitor. Now that there was a more corporate friendly party on the scene, Alberta's mass media began to do its job and hold the government to account. Stelmach is rather demeaned in provincial memory as an incompetent nincompoop sort of Premier. Alison Redford was basically the Antichrist.
However, the long awaited return to form was not without its issues. I found especially dubious the U of C economics professors using their lectures to tell students to vote Wildrose. But more significantly, Danielle Smith, former leader of the WRP and member of the "Calgary School," was married to the head editor of the Calgary Sun, coincidentally the party's biggest cheerleader. Such a conflict of interest remained unnoted, though I noted that they were the first news source to publicize a Wildrose lead in the 2012 election polls. Following her disastrous decision to abort the WRP in 2014, Danielle Smith found employment as a talk show host on Calgary's QR77. You can imagine her take on events.
During its heyday, the neoconservative leaders of the Province were able to effect a near-total echo chamber in Alberta discourse. Its effect on public memory can still be seen in the bizarre myths that still pervade and pervert the province's population. I do mean pervert: there is ample evidence both on the internet and on people's cars and shirts that don't just reflect a distaste for the new governments, but a vitriolic hate for them, and democracy itself. Unfortunately, it will be a long time indeed before the damage to our consciousness is healed, but I am hopeful. After all, Albertans rejected the "no new tax" and "big cuts" of the Wildrose Party in favour of reasoned answers and acknowledged realities with the NDP. That really is a sign of something to be celebrated.
Now all I can recommend from this point is to go read some history.
Thanks for reading.
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