Only idiots start wars they can't win.

So Jack Layton is idiot du jour:

Canada should pursue 'Buy Canadian' strategy: Layton:  Canada should adopt a "Buy Canadian" strategy in response to the "Buy American" clause included in the proposed U.S. stimulus package, NDP Leader Jack Layton urged Tuesday.

During question period in the House of Commons, Layton said that there's a "golden opportunity" to boost slumping domestic sales with a "perfectly legal and appropriately designed 'Buy Canadian' strategy."

I understand that being a politician requires you to be stupid from time to time (and time and time again...), but this is far beyond the call of duty. Even if you're willing to be dumb enough to be indifferent to the gains from trade, this makes no sense even by the criteria of mercantilism: Canada runs a ginormous trade surplus with the US. There is no way that Canada's interests will be well-served by this.

Will Canadians ever be offered the chance to vote for an intelligent, progressive party?

Comments

[seaandthemountains]

mmm, perhaps we ought t just start with an intelligent party period... we can into preferences after that.

[Adam]

"intelligent, progressive"

Make up your mind!

[Nick Rowe]

Oh dear! Unless it was a bargaining position? Probably not, given the surplus. It was US$62.3 billion Jan-Sept 2008 by the way. Not a credible threat.

[Declan]

We had the chance to vote for an intelligent progressive party, but it spoke with a French accent so we turned it down.

[Nick Rowe]

Thinking about it some more: Canada is in relatively good fiscal shape. We are one of the last countries to have any excuse for trying to divert demand away from other countries towards our own, even if it did work (which it wouldn't given flexible exchange rates), even if it didn't invite retaliation (which it would). We should be leading the defence of international relations, not leading the attack. I can almost hear Lester Pearson berating Jack Layton from his grave (a beautiful spot on a hill overlooking Wakefield Quebec, by the way). It's not just idiotic; it's shameful.

[Andrew]

Granted, this is only about -government- spending - not all trade.

But government spending is the use of tax dollars to buy stuff Canadians need (hospitals, railways, bridges, etc.). Presumably, if Canadian goods were either superior or cheaper, all of this would be unnecessary - we would obviously buy them and the point would be moot. So the point of this is to use either inferior or more expensive Canadian-made products while government tries to accomplish its objectives.

The result is fewer projects are built (sorry, the budget only allowed us to build half a hospital after we bought the more expensive [whatever]), or crappier projects are built.

[Patrick]

The NDP is stuck in the Marxist mindset; business is evil, workers are good.

As someone who led a union drive at a tech company in Alberta (yeah, I'm a sucker for punishment - but it was one of the most interesting things I've ever done), I can say with some authority that breathing new life into the labour movement is not going to be easy. I worked with very committed people from a well run union (i.e. not the CAW), it was VERY difficult to get them to understand that while we wanted to level the playing field with collective bargaining, we didn't want a lot of the old school union nonsense. For example: the union people where all about seniority and we had a really hard time making them understand that we wanted nothing to do with it. We *wanted* a meritocracy and incentives. The problem was that management didn't. We wanted to use collective bargaining to make sure the meritocracy applied to everyone (including management!) and incentives were real (i.e. money, not coffee mugs and stickers), fair, transparent, and a contractual obligation.

Another example: I spent hours trying to convince them that in many circumstances the interests of labour and shareholders are actually much better aligned than management and shareholder interests. Given the typical compensation structure, management of a public company typically has incentives like a day trader. They want a short-term pop in the stock price so they can cash in their options or gifted shares and retire to the Caribbean. Whether that pop happens because of some real business coup or because of fraudulent accounting doesn't much matter. Labour, on the other hand, wants a company managed for the long term: steady real growth to fully fund the pension, plan for the bad times so people don't get laid off, etc. Well, many types of investors - especially value investors like Warren Buffer - like option number #2 also! It is much less risky, you get capital appreciating, and a nice stream of dividends. Well, the very idea that shareholders might actually be labours natural ally was pure heresy.

Anyway, we lost the vote, and I quit. The company eventually got into a death spiral financing loop by issuing convertible debt to hedge funds who used it to cover their shorts in a self-reinforcing race to zero. In they end they had an IP firesale and merged with another company. Of course management paid themselves huge salaries all the way down, all the workers lost their jobs, and regular shareholders where left holding the bag. I'm not sure that collective bargaining could have stopped this insanity, but it would have been worth a try anyway. At the very least, a union shop would have be anathema to hedgies looking for easy victims.

All this just to illustrate that, unfortunately, an intelligent progressive movement in Canada is a LONG way off. They are up against the best and brightest the business and finance schools can produce, and they're 60 years behind the times.

[Mandos]

The point is to reduce our dependence on trade with one country. Remember that the Canadian left opposed NAFTA and by and large what it predicted would happen, did and will. Eventually the long-term processes that are impoverishing the American worker will impoverish us, exporting oil or not. The whole point is to create a global underclass of labour that is paid at Indian wages.

It's not mercantilism that's guiding Jack Layton, it's about controlled autarky, and hence the sovereignty of politics over wealth.

[zero]

So why is "buy Canadian" starting a war? Buying locally makes complete and total sense - which is why the Economics profession is so against it.

Nick - guys like you have been pretty much wrong and our existing policies have gotten us into this mess. One of our existing policies is free trade for some but not all. The some includes things made by blue collar workers. Since our existing policies have been wrong, time to try new policies.

How about protection for things like steel and lets open up professional markets like law, and service markets like our mutual fund industry?

[Mandos]

Great ideas, zero. Why don't we outsource economists? I work with people who've graduated from prestigious Chinese universities. I have no idea why they can't do what Stephen Gordon or Nick Rowe do, and they'll work for cheaper, under harsher conditions. Seen it first-hand. Some of them even speak English well enough to teach, and teach well.

[Nick Rowe]

Most economists I know do support outsourcing economists. For example, we argue against restrictions on hiring non-Canadians to positions in economics departments. The drive to restrict hiring foreigners to teach in Canadian universities, in the 1970's, IIRC, was led by profs of English, and opposed by profs of Economics. They won; we lost. But we are slowly winning it back.

[brendon]

hopeless - do the NDP even have economic advisers?

[Mandos]

No, the point is to outsource them to China, at Chinese wages and living conditions, not at Canadian ones. I know that Stephen has kids. Would he be willing to compete with Chinese wages and feed and house his kids at those wages, in Canada? If so, I will call him a saint, but I wouldn't want to be his child. I don't have kids but I would not be willing to feed and house any kids I might have at those wages. I imagine I would want my kids to have the same or better than I had, and I didn't grow up suffering.

[Mandos]

Of course profs of English opposed hiring foreigners. WHY should they suffer through a low-paid PhD program and not have at least preferential access to jobs near where they started and raised families? Why should economics PhD students for that matter?

[Andrew F]

Ummm. Doesn't that 'out-sourcing' happen, now? There are many foreign-born professors teaching in this country. Unless you mean we should out-source the universities. Of course it would be cheaper/better to ship millions of students to China than thousands of professors to Canada.

Patrick: I have no problem with the idea of unions, per se. My issue is that unions more or less invariably oppose meritocracy, performance incentives, and freedom to terminate underproductive employees. All of these things help the profitability of their employer, better enabling it to pay higher wages. Instead, unions seem to be more about bringing every employee down to the level of the worst, and driving their employers out of business. This is a cultural problem, as far as I can tell, but then I don't know if it is an inevitable consequence of unionization.

[Mandos]

Ummm. Doesn't that 'out-sourcing' happen, now? There are many foreign-born professors teaching in this country. Unless you mean we should out-source the universities. Of course it would be cheaper/better to ship millions of students to China than thousands of professors to Canada.

Tele/videoconferencing. Done well, it's good enough, and we have the tools. Have the econ profs in Chine, and the students here. Of course, why the students would bother is beyond me, I mean, the jobs they're training for can usually be done in China.

They should all get vasectomies and hysterectomies and stick to the booze and partying and drugs, as most of them (us) are to be made redundant people.

Patrick: I have no problem with the idea of unions, per se. My issue is that unions more or less invariably oppose meritocracy, performance incentives, and freedom to terminate underproductive employees. All of these things help the profitability of their employer, better enabling it to pay higher wages. Instead, unions seem to be more about bringing every employee down to the level of the worst, and driving their employers out of business. This is a cultural problem, as far as I can tell, but then I don't know if it is an inevitable consequence of unionization.

This is a cultural problem caused by the sectors in which the union movement formed more than anything else. And yes, part of a union's mandate is necessarily to protect underproductive employees, because if the management's definition of productivity were accepted, then many workers would work inhuman hours and efforts that other workers shouldn't have to in order to maintain the numbers and maintain their jobs.

Or the government will have to legislate shorter legal working hours.

[Patrick]

Andrew F:

My position is that organized labour should be about leveling the playing field. Large corporations obviously organize to promote their interests. They deploy huge amounts of money to influence law makers and regulators and they have very successfully manipulated public perceptions of organized labour because they view organized labour as being against their interests. To be fair, organized labour hasn't done itself any favours, but it is flat out wrong to claim that individuals have any ability to promote their interests in the face of the money, power, organization, and influence wielded by corporate interests.

On your specific complaint about terminating employees: in my experience very very few people wake-up in the morning and go to work with the goal of being incompetent. I think it's far more common for companies to perform poorly because they are run by incompetent or corrupt managers, not because they hire unwilling workers. The work of Dr. Deming supports my position.

[Mandos]

Actually, even better, since economists are so confident about their value in policy discussions, we could actually have the policy discussions and decisions made in China by Chinese economists, and cut the Canadian education part out of it entirely.

After all, science is science, whether it be done in Canada or China the laws of the universe and, in particular, the immutable laws of economy are still the same.

[Nick Rowe]

Last I heard, salaries offered by Chinese universities to Western economics profs were decidedly competitive.

General point though: wages will eventually equalise. But Chinese wages will rise to Canadian levels, rather than Canadian wages falling to Chinese levels. China is becoming like us; we aren't becoming like them. Same thing happened with Japan, and every country which belatedly followed the industrial revolution.

[Mandos]

No, they'll meet at a low midpoint. Which is what is happening in the USA. Japan despite its efforts is being immiserated, at least as a population.

You have to follow the story through.

The end result of this is a small global overclass and a giant, homogeneous global underclass, spanning continents. And then revolutions and world wars.

[Nick Rowe]

In the very long run, wages are determined primarily by technology. That's the main reason we are richer now than a century or two ago. If we adopted a midpoint in technology, we would get a midpoint in wages. But China is adopting the technology of richer countries, not vice versa. That's the main reason why I think their wages will approach ours, rather than ours approaching theirs.

[Mandos]

It's not just technology, it's access to the kinds of technology that make life easier and the ability to pay for it. It's possible for a would-be feudal overclass to hoard the benefits of the technology, because they hoard the wealth. That's why revolutions happen. The part you are missing is about the distribution of wealth within national economies.

It's clear that trade arrangements, at least for the USA, have been designed to immiserate certain large classes of people by destroying their bargaining powers as workers. As long as that is the case, wages will meet at a low midpoint, and eventually popular access to technology will be limited. And then people will start building guillotines.

I commented a long time ago (in blog time) that I thought that economists didn't pay enough attention to income and wealth inequality. This is why.

[Patrick]

Mandos:

Trade is not the problem. Corporatism is. The US has inflicted income inequality on itself with lots of bad domestic policies, most of which have nothing to do with trade.

In the international case, corporate interests have tried to short circuit the economic forces that tend to raise wages and standard of living, both of which tend to level the playing field over time. Example of this actually working: Indian IT.

There is also an unfortunate confluence of events at work: the US entered a period of credit and fiscal insanity at the same time that China and India entered a phase of massive industrial expansion. Had this not happened, the growth probably would have been in domestic demand in these countries rather than being wasted in filling a stock of worthless houses in the Nevada desert with junk.

[Zero]

Nick - I ask you a serious question. The economics profession has been wrong about this crisis. Why should we listen to any of you?

I enjoy reading you and Krugman and Thoma, but man you guys really don't get it. And the scary thing is you guys get it mare than most of your profession.

You seem to forget countries like S Korea and China are making aggressive policy decisions concerning industrial subsidies. This is working and is successful. What is wrong with Canada and the US copying these successful policies? I do not have the macro expertise you do or I would challenge you - but I do have experience in industry and can challenge you on things like industrial policy.

The classic example is immigration. Tell you what Nick - go to McMurray and go to Arizona. See how unlimited immigration drives down wages. I'm sure guys like you and Krugman and Thoma can show me that I am wrong mathematically, but who should I believe, you and your profession or my lying eyes? I can give you more examples, but you guys really don't have an understanding of where trade is good or bad as this decision becomes political in nature. On the example of immigration, you guys have made a political decision and are couching it in nonsense.

The point of Layton is we need to use the stimulus to create jobs in Canada, not China. What is wrong with this?

[Mandos]

Corporatism and trade are connected. Put limits on trade/investment and you also limit the extent of corporatism. There's a reason why they all clamor for "free trade."

[Nick Rowe]

Zero: financial crises happen. They have happened many times in the past, and will happen again in the future. We are not very good at predicting them. (Some did, but maybe they were just lucky? Who knows.) Maybe (like when will a bubble burst) they are just inherently unpredictable. Maybe, since financial crises always involve some new financial phenomenon, we can never develop the experience, and are always fighting the last war. Maybe, each of us was watching our own little bit of the economy, and nobody knew enough to watch and figure out how all the parts would fit together to cause the crisis. And maybe, most of all, we just don't know enough.

Sometimes, on that latter point, I despair of economics. But one thing always restores my faith: the other guys know even less than we do. So I keep plugging away, trying to learn what I can from other economists, and non-economists, and trying to let them try to learn from me, and, most of all, trying to get my head around things that I know my head is just not clear on.

I'm going to stay off immigration and industrial policy: not areas where I have thought or read a lot. Except to make one comment: if the government forces people to save and invest more, the country can (usually) get richer quicker. But do we want that, if it means less consumption today? And one's eyes alone can never tell you the truth, because your eyes can never tell you what would have happened otherwise. Everybody has got a theory, whether they admit it or not, whether it's in maths, graphs, words, pictures, stories, whatever.

On Layton: would protection help create jobs in Canada? I say it wouldn't. I can explain why I believe that (see my other recent posts). I might be wrong of course. I might have missed steps three, four, or five. But Layton never even thought past step one. That's what restores my faith in economists, relatively speaking.

[Peter]

It seems to me that "Buying Canadian" is not a strategy at all. There aren't that many of us. What we should be doing is making ourselves more flexible. We should be building capabilities that allow us to redirect our resources rapidly. I suggest we build pipelines able to take all Canadian oil production to either coast. That should give us more negotiating power in the future. We do, after all, have a more direct shipping route to China and Europe than Saudi Arabia does. Of course, there would be some sense to a "Buy Canadian" policy for the steel for this particular infrastructure spending, targeted as it is to increasing Canadian employment in these difficult times, particularly if this behaviour is the norm within our free trade zone.

[Mandos]

Shipping oil in tankers is environmentally unsound. Better to ship finished goods.

Oh wait, can we deliberately plan to do either under NAFTA?

[Patrick]

Mandos: Guilt by association is unsound reasoning, and your argument is thus false. Trade can and does occur in the absence of Corporatism, and vice-versa. Corporatism is a political problem with economic consequences, not the other way around.

[Mandos]

Economics (and economic policy) has political consequences.

Trade does occur in the absence of corporatism, but certain kinds of trade policy arrangements unleash the corporatist beast to the point that it is extremely difficult to cage it again.