Politicians Are Bad for Your Health

In politics, a classic strategy for dealing with legitimate criticism is to ignore the real issue and just whine about “personal attacks.”

This is a common tactic relied upon by both the right and the left. We see this in the reaction to Conservative Party VP Jordan Lien’s criticism of Alberta Health Minister Sarah Hoffman’s ban of menthol cigarettes.

According to the internet, the following Facebook comment is very bad:

bigboned

The reaction to this was extremely unfavorable to Lien. People called it “dumb,” “sexist,” “insensitive,” “irrelevant,” “misogynistic” (!), and so forth. One PC party drama queen named Warren Mitchell even declared he was ripping up his membership card in disgust. “I’m done with this *$@%^ party.”

Well, it is a *$@%^ party. But seriously, let’s look at this issue in some detail.

Lien actually raises a completely legitimate point that is lost amidst the chorus of inauthentic outrageHere is the issue:

If it is justified to ban menthol cigarettes for the sake of “public health,” shouldn’t we ban other tasty but unhealthy things? Obesity, like smoking, also uses up resources in the health care system. A 2010 report estimated that direct costs of overweight and obesity represented $6 billion — which is 4.1 % of Canada’s total health care budget.

Serious money.

So, following the logic of Health Minister Hoffman and the Alberta government, perhaps things like candy, soda, fast food, and other wonderful treats that make life worth living should be banned as well.

If not, why not?

A wannabe social engineer like Hoffman cannot provide a reasonable answer. The problem with social engineers, whether they are on the left or right, is that there is no limiting principle to their philosophy. Once a person accepts intervention as an acceptable policy, then any limitation to the intervention is essentially arbitrary. So why not ban everything that is unhealthy, and force everyone to be healthy? Wouldn’t that be wonderful?

To be consistent, Sarah Hoffman should want to ban all the things that have made her obese on the same grounds as her ban on menthol cigarettes. Otherwise, we will have a less healthy society.

“Every Albertan should be able to enjoy a life free of preventable tobacco related disease,” Hoffman pontificated as she announced her government’s menthol cigarettes ban.

“Every Albertan should be able to enjoy a life free of preventable tobacco obesity related disease,” she could be saying on the exact same grounds.

“These changes will help make smoking less attractive to youth,” she declared.

“These changes will make smoking eating too much less attractive to youth,” she could have said.

If not, why not?

Most people realize that it is absurd to ban everything that is unhealthy, but they lack principles and are happy to ban things they don’t like — but don’t ban anything unhealthy they like, oh no.

Sarah Hoffman may not smoke menthol cigarettes, but her variety of unhealthy lifestyle is also subsidized by taxpayers and also unpleasant for other people.

The only justified solution to this problem is the government should neither ban menthol cigarettes nor unhealthy foods. This is the only consistent and sane conclusion.

Behavior controls are a type of socialism where the negative effects on society are often neglected. Yet it is irrefutable that such controls lead to economic impoverishment. However, even most economists fail to understand this.

Firstly, behavior controls directly concern the use one can make of his or her own body. If the government imposes restrictions on how one can use one’s body, then one will value one’s body less than otherwise. It is important to understand the incentive here: if the government restricts the ways in which one can use one’s own body, it reduces the degree of ownership one has over oneself. Real ownership means exclusive use and control. One way to think of it is like leasing one’s body from the government, and not owning it oneself. You can use the body for approved activities only.

The actual consequence of this is that people will be less likely to invest in themselves, and they will be more likely to “consume their human capital” — in other words, a person will tend to treat his body less well than if one had “full ownership” of it. It is this economic truth that underlies the idea that giving people freedom makes them more responsible (something many find counter-intuitive).

Secondly, and in a more general sense, as with all forms of political interference, this form of regulation hurts one group and benefits another. The group that can no longer perform certain (non-aggressive) activities is worse off than before, while the group that does not want to tolerate the objectionable behavior (like smoking or eating too much fast food) is better off. More specifically, the producers and users of the things whose consumption is now restricted are the ones who suffer. The ones who benefit are the non-producers and non-users of the goods in question. This encourages people to allocate their efforts towards non-productive activities and discourages productive activities. This makes society poorer.

And it is not a good argument to say we need to ban something because it costs the health care system more money. The very nature of socialized health care is to subsidize unhealthy lifestyles. It is impossible for socialized health care not to do this. So you must either accept that this is an inherent feature of your precious public health care or you must reject public health care. Either way, one must reject banning unhealthy choices for this reason.

At this point, someone might even accept this basic economic argument but protest, “Hey, that’s fine but he shouldn’t have said she was morbidly obese! That’s not nice!”

If a woman said the same thing but health minister was a fat man, the outrage would be virtually nonexistent. People would probably think it was funny. But that’s not the point.

Lien could have made his point with no reference to her physique, that is true. Rhetorically, it was very effective to do so. No one would actually deny that the health minister is obese. Obviously, Sarah Hoffman is a rather large woman. It even seems highly plausible that she is morbidly obese if we use the roughest definition, which is simply 25% above a woman’s “ideal weight.”

His comment simultaneously highlighted the arbitrariness of the law and the hypocrisy of a person with one unhealthy tax-subsidized lifestyle banning someone else’s tax-subsidized unhealthy lifestyle. A reasonable person who is not desperate to be as offended as humanly possible should understand this. So it is good to point out the inconsistent principle to illustrate the point.

It’s like people who like to drink alcohol for whatever reason and want snorting coke to be illegal, or vice versa. Such principles are arbitrary, cruel, and hypocritical. “So let me get this straight,” someone says, “this coke-snorting politician wants to ban alcohol? Give me a break.”

The nature of socialist health care is that it functions as mandatory medical insurance where everyone is pooled together, so people acting in healthy ways will always be pooled with people acting in unhealthy ways. If you want socialist health care, you need to shut up and deal with it.

Anyway, the whole incident reminds me of the classic South Park episode, “Butt Out,” where the comically compulsive over-eater Rob Reiner campaigns fanatically against smoking.

Jordan Lien should have stood up for himself, but instead he gave a pathetic apology like a whiny loser.

If people were serious about public health and justice, they would focus on the substance of the issue. Instead, they are complaining about evil conservative men trying to “keep women down” and “fat shaming.” A dumb politician guy said something mean… on the internet. The horror! And everyone is in a competition to be more and more offended than everyone else, which is how one gets street cred in the attention-seeking world of social media. Apparently, that’s all that matters.

Financial Crises Don’t Happen by Accident

By Marc Faber

As a distant but interested observer of history and investment markets I am fascinated how major events that arose from longer-term trends are often explained by short-term causes. The First World War is explained as a consequence of the assassination of Archduke Franz Ferdinand, heir to the Austrian-Hungarian throne; the Depression in the 1930s as a result of the tight monetary policies of the Fed; the Second World War as having been caused by Hitler; and the Vietnam War as a result of the communist threat.

Similarly, the disinflation that followed after 1980 is attributed to Paul Volcker’s tight monetary policies. The 1987 stock market crash is blamed on portfolio insurance. And the Asian Crisis and the stock market crash of 1997 are attributed to foreigners attacking the Thai Baht (Thailand’s currency). A closer analysis of all these events, however, shows that their causes were far more complex and that there was always some “inevitability” at play.

Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses…

Take the 1987 stock market crash. By the summer of 1987, the stock market had become extremely overbought and a correction was due regardless of how bright the future looked. Between the August 1987 high and the October 1987 low, the Dow Jones declined by 41%. As we all know, the Dow rose for another 20 years, to reach a high of 14,198 in October of 2007.

These swings remind us that we can have huge corrections within longer term trends. The Asian Crisis of 1997-98 is also interesting because it occurred long after Asian macroeconomic fundamentals had begun to deteriorate. Not surprisingly, the eternally optimistic Asian analysts, fund managers , and strategists remained positive about the Asian markets right up until disaster struck in 1997.

But even to the most casual observer it should have been obvious that something wasn’t quite right. The Nikkei Index and the Taiwan stock market had peaked out in 1990 and thereafter trended down or sidewards, while most other stock markets in Asia topped out in 1994. In fact, the Thailand SET Index was already down by 60% from its 1994 high when the Asian financial crisis sent the Thai Baht tumbling by 50% within a few months. That waked the perpetually over-confident bullish analyst and media crowd from their slumber of complacency.

I agree with the late Charles Kindleberger, who commented that “financial crises are associated with the peaks of business cycles”, and that financial crisis “is the culmination of a period of expansion and leads to downturn”. However, I also side with J.R. Hicks, who maintained that “really catastrophic depression” is likely to occur “when there is profound monetary instability — when the rot in the monetary system goes very deep”.

Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses (expansionary monetary policies and/or fiscal policies leading to excessive credit growth and excessive speculation). The problem lies in timing the onset of the crisis. Usually, as was the case in Asia in the 1990s, macroeconomic conditions deteriorate long before the onset of the crisis. However, expansionary monetary policies and excessive debt growth can extend the life of the business expansion for a very long time.

In the case of Asia, macroeconomic conditions began to deteriorate in 1988 when Asian countries’ trade and current account surpluses turned down. They then went negative in 1990. The economic expansion, however, continued — financed largely by excessive foreign borrowings. As a result, by the late 1990s, dead ahead of the 1997-98 crisis, the Asian bears were being totally discredited by the bullish crowd and their views were largely ignored.

While Asians were not quite so gullible as to believe that “the overall level of debt makes no difference … one person’s liability is another person’s asset” (as Paul Krugman has said), they advanced numerous other arguments in favour of Asia’s continuous economic expansion and to explain why Asia would never experience the kind of “tequila crisis” Mexico had encountered at the end of 1994, when the Mexican Peso collapsed by more than 50% within a few months.

In 1994, the Fed increased the Fed Fund Rate from 3% to nearly 6%. This led to a rout in the bond market. Ten-Year Treasury Note yields rose from less than 5.5% at the end of 1993 to over 8% in November 1994. In turn, the emerging market bond and stock markets collapsed. In 1994, it became obvious that the emerging economies were cooling down and that the world was headed towards a major economic slowdown, or even a recession.

But when President Clinton decided to bail out Mexico, over Congress’s opposition but with the support of Republican leaders Newt Gingrich and Bob Dole, and tapped an obscure Treasury fund to lend Mexico more than$20 billion, the markets stabilized. Loans made by the US Treasury, the International Monetary Fund and the Bank for International Settlements totalled almost $50 billion.

However, the bailout attracted criticism. Former co-chairman of Goldman Sachs, US Treasury Secretary Robert Rubin used funds to bail out Mexican bonds of which Goldman Sachs was an underwriter and in which it owned positions valued at about $5 billion.

At this point I am not interested in discussing the merits or failures of the Mexican bailout of 1994. (Regular readers will know my critical stance on any form of bailout.) However, the consequences of the bailout were that bonds and equities soared. In particular, after 1994, emerging market bonds and loans performed superbly — that is, until the Asian Crisis in 1997. Clearly, the cost to the global economy was in the form of moral hazard because investors were emboldened by the bailout and piled into emerging market credits of even lower quality.

…because of the bailout of Mexico, Asia’s expansion was prolonged through the availability of foreign credits.

Above, I mentioned that, by 1994, it had become obvious that the emerging economies were cooling down and that the world was headed towards a meaningful economic slowdown or even a recession. But the bailout of Mexico prolonged the economic expansion in emerging economies by making available foreign capital with which to finance their trade and current account deficits. At the same time, it led to a far more serious crisis in Asia in 1997 and in Russia and the U.S. (LTCM) in 1998.

So, the lesson I learned from the Asian Crisis was that it was devastating because, given the natural business cycle, Asia should already have turned down in 1994. But because of the bailout of Mexico, Asia’s expansion was prolonged through the availability of foreign credits.

This debt financing in foreign currencies created a colossal mismatch of assets and liabilities. Assets that served as collateral for loans were in local currencies, whereas liabilities were denominated in foreign currencies. This mismatch exacerbated the Asian Crisis when the currencies began to weaken, because it induced local businesses to convert local currencies into dollars as fast as they could for the purpose of hedging their foreign exchange risks.

In turn, the weakening of the Asian currencies reduced the value of the collateral, because local assets fall in value not only in local currency terms but even more so in US dollar terms. This led locals and foreigners to liquidate their foreign loans, bonds and local equities. So, whereas the Indonesian stock market declined by “only” 65% between its 1997 high and 1998 low, it fell by 92% in US dollar terms because of the collapse of their currency, the Rupiah.

As an aside, the US enjoys a huge advantage by having the ability to borrow in US dollars against US dollar assets, which doesn’t lead to a mismatch of assets and liabilities. So, maybe Krugman’s economic painkillers, which provided only temporary relief of the symptoms of economic illness, worked for a while in the case of Mexico, but they created a huge problem for Asia in 1997.

Similarly, the housing bubble that Krugman advocated in 2001 relieved temporarily some of the symptoms of the economic malaise but then led to the vicious 2008 crisis. Therefore, it would appear that, more often than not, bailouts create larger problems down the road, and that the authorities should use them only very rarely and with great caution.

The Bank of Canada’s Balance Sheet: Bigger than During the Financial Crisis

During the 2008 financial crisis, the Bank of Canada intervened with an unprecedented 50% expansion of its balance sheet to a total of nearly $80 billion. This was done by creating money and purchasing assets from the big banks in order to add liquidity to the market.

By mid-2010, they had unloaded these emergency acquisitions and their balance sheet returned to pre-crisis levels.

But now, after years of growth, the Bank of Canada’s balance sheet is bigger than ever. The BoC holds nearly $90 billion in assets.

boc july 2013

But the crisis is over, isn’t it? The Bank of Canada is trying to keep the Canadian dollar down and interest rates low. They are acting like the crisis is not over, or like another crisis is waiting to emerge.

Alberta Floods 2013: Calgary Flood Fascism

A crisis always brings out the best in people.

And it always brings out the worst in government.

20130624-155226.jpg

Alberta Floods 2013: Putting Fresh Perspective on Foreign Aid

The Premier Redford and Prime Minister Harper have pledged “full support” to victims of the devastating Alberta floods.

What they do not mention is that both Alberta and Ottawa are broke. There is no special fund for disaster relief. They can only provide help by taking more of other people’s money — either through taxation or borrowing. They will probably borrow money from countries like China.

At a time like this, giving money to corrupt foreign governments seems even worse than it does normally.

Last year, Canada gave almost $6 billion away in foreign aid (MS Excel). That might seem small, but it is a very significant amount of money for Canada’s small population. That money would definitely be useful to help Canadians during times of disaster.

The biggest recipient of our foreign aid was Ethiopia —  an American puppet state that takes money from the West to fight brutal wars against the Somalis. Another big recipient of Canadian aid is Afghanistan — where we help NATO inflict man-made disasters with missiles, then we pay up to rebuild what we destroyed.

Southern Alberta is underwater, thousands are homeless, and our governments have no money. But aren’t you glad the Canadian governments gives millions to evil regimes in Jordan, Burma, and North Korea?

David Rosenberg on Canada vs. the US

Debate rages on about how sustainable or even real the economic recovery is in the US.

David Rosenberg, former chief economist at Merrill Lynch, showed a presentation at one of John Mauldin’s recent conferences. It is entitled: “The Fed Is Trying Like Crazy, But Nothing It Does Can Save The Economy.”

The presentation consists of 60 slides that collectively devastate the case for expecting serious economic recovery in the US. The charts are extremely convincing. The argument he builds with his evidence seems irrefutable.

You can see the entire presentation here. It is worth your time.

While Rosenberg is very bearish on the US, he seems optimistic about Canada. He thinks the “short Canada” trade is a huge mistake.

He draws his conclusion about Canada mostly by looking at 2013 Q1 data, but overall he underestimates Canada’s problems. Canada’s housing sector is more distorted by intervention than he realizes, and our employment data is terrible.

He also downplays the interventions of the Bank of Canada. He says Canada has performed better than the US “without nearly as much … expansion of the central bank balance sheet.”

Is this actually true? The BoC deflated in the immediate aftermath of the financial crisis, but it has been busy making acquisitions in the last couple years. In two years, the BoC has expanded its balance sheet by about 30%, whereas the Fed has expanded by about 20% in the same time.

The Fed:

FRED Graph

Here is the BoC monetary base (this chart uses data from here):

boc chart

I think Rosenberg is right on the US and a bit off-base for Canada.

Bank of Canada Should Raise Rates to Pop Bubbles, Says Former Carney Advisor

Paul Masson, former advisor to Mark Carney, says the Bank of Canada should raise interest rates and pop the housing and debt bubbles.

He says years of low interest rates have distorted the economy and driven people to take higher risks. The accumulation of debt has left Canadians and their institutions stretched thin, ill-prepared to withstand the impact of another financial crisis.

Mr Passon correctly describes our situation.

The Bank of Canada could raise rates very quickly by selling assets. It will definitely not do this, because it would cause a depression. All talk about “maybe” raising rates “in the future” is just that: talk.

Should the BoC raise rates? Well, the Bank of Canada should be closed down, so really all of its assets should be sold. Central banks exist to empower governments and the elite at the expense of everyone else.

But in the context of having the BoC and Canadian dollars, I am sympathetic to the argument that the BoC shouldn’t really do anything. It would be reasonable to leave the money supply as it is and let the market determine interest rates from there. The BoC shouldn’t be jacking the rates around, whether to raise them or lower them. Let the market set interest rates free of further invention. This would give us a bit more time to prepare for the crash, versus an active contraction of the BoC’s balance sheet. “Laissez-faire.”

— Read more at The Financial Post

Does Capitalism Need the State?

Some guy named “William R Gillies” has been trying to troll CMR on Twitter for the past week or so.

He is failing, because he doesn’t know what’s he’s talking about. He is a “Cartographer, Psychogeographer, Historicist.” All historicists struggle with understanding economics.

Mr Gillies is no different. He does not understand economics and the nature of markets. What is his problem? He believes that capitalism and markets can only exist if there is a state to enforce private property rights. This basically sums up his position:

He is completely wrong. Since this is a widely held view, however, it is worth discussing.

Firstly, let’s define our terms. Generally, capitalism is taken to mean “private ownership of the means of production.” This is a reasonable definition. We can elaborate a little bit by saying capitalism is the social order characterized by respect and recognition of private property. The market is the outcome of capitalism — essentially, people producing stuff and trading with each other. And the state? It is a territorial monopoly on the use of force.

Capitalism exists despite the state, not because of it. There are four basic arguments that refute the notion that capitalism depends on the state to exist.

(1) TRADING WITHOUT THE STATE

A simple thought experiment can helpfully highlight Mr Gillies’ basic error.

Robinson Crusoe, alone on an island, doesn’t have to worry about issues like “private property” or “markets.” It’s just him and maybe a few animals. He cannot trade with anyone. His use of resources affects no other economic agents on the island, because there are none. It is an autarkic economy. He spends his days catching fish and eating them. Property rights are literally a non-issue.

The arrival of Friday considerably changes the situation. Suppose Robinson Crusoe decides to trade some of his fish for some of Friday’s berries. This would literally create a market economy. It’s just a small and simple one.

The only way trade is possible is if both recognize the property rights of the other. Transferring ownership is what trade means. Otherwise there can be no trade. Either no exchanges will take place, or a hegemonic relationship will arise if one actor uses violence against the other.

If trade is possible in this situation, and there is no state, then a market economy does not depend on the state. Since trade clearly is possible in this situation, then it follows the market economy depends not on the state, but something else A modern economy is more complex and its division of labor much wider than the “two people on an island” economy, but in principle nothing changes between them.

(2) CATEGORICAL ERROR

The idea that the market economy depends on the state gets things entirely backwards. The state depends on the market, not the other way around. To say otherwise is to say the host depends on the parasite, rather than the parasite depends on the host. It just makes no sense.

The state literally cannot exist unless there is something to tax (because it produces nothing). The market, on the other hand, can arise spontaneously and exists anywhere people are trading goods and ideas with one another. The state depends on the market. The market does not rest on “state violence” as Mr Gillies claims. The state rests on state violence, the way the robber depends on robber violence. Just because there might be property rights violations where there is no state does not mean property rights depend on the state, because the state has property rights violations too. If the market must exist before the state, and the market depends on private property, it’s hard to understand how only the state can establish property rights.

It is simply incoherent to claim that the state, the very nature of which necessitates interference with property rights, is the source of property rights. All states without exception tax their subjects and outlaw competing institutions of compulsion. To say that the greatest, most systematic violator of private property rights is the only way to protect private property rights is simply absurd, and reveals a level of cognitive dissonance so severe it must cause migraines. The state fails the number one requirement of a valid lawgiver: that it follow its own laws.

The very idea of the state as a protector of property rights is contradictory. Hoppe writes:

Yet how can there be better protection for A and B, if S must tax them in order to provide it? Is there not a contradiction within the very construction of S as an expropriating property protector? In fact, is this not exactly what is also—and more appropriately—referred to as a protection racket? To be sure, S will make peace between A and B but only so that he himself in turn can rob both of them more profitably. Surely S is better protected, but the more he is protected, the less A and B are protected from attacks by S.

We should at this point offer some other remarks on the Hobbesian thesis, that there cannot be peaceful relations without a Sovereign to enforce agreements. Hobbes’ argument asserts that in the “state of nature”, A and B cannot cooperate, so they must agree to have S tax them and resolve their disputes. If this is true, then ostensibly property rights depend on the state.

But who enforces the agreement between S, A and B? After all, S is still a human and unable to form agreements without a Sovereign according to the Hobbesian thesis. So there would need to be another enforcer, S*. But then who enforces this agreement? You would need another enforcer, S**. And then you would in turn need to enforce this with S***, and S****, and so on into an infinite regress. To escape this conclusion, it must be conceded that agreements and property relations are possible without the state, otherwise no agreement or trade could ever arise (this argument comes from Anthony de Jasay).

(3) EMPIRICAL EXAMPLES

The essence of Mr Gillies’ position is private property rights are “not natural” and “must be enforced.” Sure, rights need to be enforced. So what? It is a non sequitur to take that claim then say it follows that only the state can enforce rights. There is nothing inherent in private property rights that require enforcement to come from the state.

There are historical cases in which the enforcement of property rights occurs with the state. Yet there are also examples without the state. This is extremely important. Basically, all legal systems deal with property rights, and if there have been non-state legal systems, Mr Gillies must be wrong. A legal system of enforcing rights does not inherently require the state at all.

Remember, the state is specifically a territorial monopoly on the use of coercion. Yet throughout history there has been enforcement of rights without such monopolists. Most of the Anglo-Saxon law grew out of voluntarily adopted norms, rather than authoritarian decree. Off the top of my head, here are some other random examples of customary, non-monopolistic legal systems: ancient Ireland, the Law Merchant, many other forms of commercial law, the Yurok Indians, the Ifugao, the Kapauku Papuans, medieval Iceland, and eBay.

(4) THE A PRIORI OF COMMUNICATION AND ARGUMENTATION

Most critically, the proposition “Private property rights depend on the state” is proven wrong by the act of saying it. For it is not possible to argue anything without presupposing that one has private property in one’s body. This is logically antecedent to the formation of any system of rights enforcement. It’s what makes it possible to have a rational standard by which to judge a system of rights enforcement in the first place.

CONCLUSION

Mr Gillies simply doesn’t understand the relationships between capitalism and the state. He relies on a tissue of fallacies believed by those whose understanding of reality is completely distorted by historicist nonsense. His confusion is so profound that he doesn’t even come close to understanding property rights, capitalism, or markets. He doesn’t understand the foundations of the market economy at all.

For further reading:

Hans-Hermann Hoppe — A Theory of Socialism and Capitalism

Jörg Guido Hülsmann – The A Priori Foundations of Property Economics

Follow Canadian Market Review on Twitter here.

UPDATE: For the record, Mr Gillies has seen this article. After reading it, he swiftly retreated from the debate. He was clearly in over his head.

I didn’t want him to think I was being unfair, so naturally I offered him a chance to reply. Instead, he went crying to his friends on Twitter for support. To them he made made a bunch of inane comments, like “Austrian School econ also underpins a fair bit of the neoliberal consensus” (lol wut), and “Must be a Randian.” Right. Because anyone who defends free market anarchism from an rationalist, objective idealist position — pretty much the opposite of statist, egoist, empiricist Rand  — must be Randian. Which… makes no sense at all.

He also said that “plenty” of “economists” have “refuted” everything I wrote. Of course, he provided no names or links or anything. I am pretty confident I have seen those arguments and anticipated them. Otherwise, I would gladly respond to any specific arguments. His behavior is to be expected from someone who understands nothing about economics and history.

European Union Wants to Tax Heavy Crude from Oil Sands

The European Union is falling apart. It is desperate for money. The bureaucrats in Brussels will tax anything they can.

Now the EU wants to modify its fuel quality directives, so that refiners who use oil that is “too dirty” (according to bureaucrats) must pay a tax.

Joe Oliver, the Natural Resource Minister of Canada, thinks this amounts to specifically targeted tax on Canadian oil-sands product. He says Canada will sue the EU at the World Trade Organization if they implement the changes, because the oil-sands crude isn’t any “dirtier” than many other crude imports which are not subject to the tax.

Firstly, let me note the hypocrisy when an official from Harper’s government whines about tariffs, while Harper’s government loves tariffs. “Oh yeah, taxing our stuff is bad; taxing your stuff is okay.” Typical government knavery.

On a more general level, yes the EU fuel quality directives and its associated penalties are bad for the economy. They are bad for Europe and bad for Canada. They reduce production of the taxed good and divert resources to government approved fuels. The government is in principle incapable of knowing to what extent a given quality of oil should be used.

Oil sands production is “dirty”, sure. The industry has a lot of flaws. Really, the CO2 emissions aren’t even a big deal, although that’s what everyone focuses on. But the environmental situation is still very screwed up, because Alberta is essentially a mini-petro-state. Property rights and laws of tort can rarely protect the environment because virtually all the pollution takes place on government land.

Even so, that is true of most oil. There is very little “clean” oil where you just turn on the tap and get light, sweet, succulent crude with minimal impact on the earth. Most of it is heavy and sour and difficult to get. Due to inept government regulation and interference with property rights, its production is environmentally problematic. So the European tax seems to be not just destructive, but arbitrary.

If the WTO agrees with Canada that the fuel directives constitutes an unjustified tax, they can’t force them to change it. It just means the Canadian government can put their own tariffs up to retaliate. That is bad for everyone. It would be better to just accept one dumb tax over which one has no controlnthan implement another dumb tax to go along with it. If the Canadian oil producer finds it harder to sell its oil, that’s already bad enough. Why should the Canadian consumer also be punished? It makes no sense, and only a politician or a shyster would advocate this.

Read more at Market Wire

Australia to Join the World’s Orgy of Currency Debasement?

Australia’s mining boom is fading. Demand from China is slipping. The economy is going to contract. Yet their dollar is strengthening.

Central bankers are Keynesian-mercantilists that get bent out of shape when their own currencies are “too strong.” Especially when the economy is threatening to slow down. The bureaucrats at the RBA are no different.

What are they going to do? Try to hold down the price of the Australian dollar. They will join Europe, Japan, China, America, and the Swiss in the frenzy of currency debasement.

This is… a bad idea. Yet it is to be expected, as are the negative consequences it will create.

It might be best to start trading your Aussie dollars for something better. For other currencies, few good choices exist. I used to like the yen before Abenomics. Now I like the Singapore dollar.

Hardly any central bank  can resist racing to the bottom. I don’t think Australia’s can resist.

— Continue reading at Sunday Morning Herald —

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