Bruce Guenter's Thoughts

Spending or saving?

Mon, 22 Dec 2008 12:44:51 GMT

I don't get it.

We have been told for years if not decades how North America has a minuscule savings rate. How we aren't saving enough. Worse than that, the savings rate is dropping, and has now reached zero or even negative savings in places (meaning that as a whole the group is spending more than it is earning). How this will cause financial problems in the future if the trend is not reversed.

NOW that the predicted financial problems are starting to show, now we are being told we need to spend even more. Not only that, the Federal Reserve and the Bank of Canada are dropping their interest rates into uncharted low territories to induce people to take out loans to spend more.

If a lack of savings was bad, how is this making it better and not worse? Sure, in the short term it means we're spending more money, but in the long term it will make recovery even harder and more painful.

Bitter economic lessons still not learned

Fri, 28 Nov 2008 12:31:15 GMT

In an article entitled "Bitter economic lessons learned" (Saskatoon StarPhoenix Friday November 28, 2008), Joe Jeerakathil writes regarding the current economic downturn:

The ascendant market fundamentalism, which upheld religiously that an unfettered market left to its own devices will offer the best path to economic nirvana, became the gospel of the Reagan revolution. Uncritical embracing of this orthodoxy led U.S. lawmakers to loosen the role of regulatory bodies in the pretext of promoting easier flow of capital. Wall Street enjoyed a free hand. The result has been the current mess. ... [Economists Keynes and Galbraith] warned the world about the endemic instability of the free market system with its cyclical swings.

Whoah. Not so fast there. Since when has Wall Street enjoyed a truly free hand?

As said in the article, a good deal of the current market troubles are a result of the collapse of the sub-prime mortgage markets. The whole sub-prime mortgage market was created by government telling banks that they must make loans into situations where it did not make economic sense. Then the government told the banks how to package up these sub-prime mortgages into packages with other loans and sell them on the market as if they were high-quality investments. One recent loosening of the regulations on US banks has been widely hailed as reducing the severity of this collapse, even by those who initially opposed it.

Another part of the market troubles come from an artificially low interest rate set by the Federal Reserve. With the interest rate being set for long periods of time lower than
the inflation rate, the fed was effectively giving away money. This has the effect of completely skewing long-term investment and purchasing decisions, leading to overconsumption and excessive debt, both personal and corporate. The cyclical swings cited in the article are a result of the Federal Reserve setting the interest rate different than the natural interest rate.

To paint these problems as a result of a supposedly unfettered free market is extraordinarily misleading.

(If anybody can find an URL that includes the above article, I would be grateful. It is not on the StarPhoenix's web site with most of the other content from Friday's paper.)

Imbalanced Balance

Thu, 27 Nov 2008 00:30:06 GMT

Many times, when political issues are discussed in the news, you will hear politicians and pundits declare that they are seeking to find a balance in resolving the issue.

This is complete whitewash.

Invariably, the two "sides" to the issue that are presented involve doing little on one side, and doing too much on the other. Notice I didn't say doing "too little". When government decides to change their involvement in an issue, it's normally a question of how much more they are going to do. Doing nothing is effectively never even put up for discussion.

Given how much the state is involved in nearly every issue, the idea of it doing less should be up for discussion. However, heaven forbid any politician should ever bring that up. It's practically a political death sentence, for all but a small minority.

So, when the balance being sought is between doing a little and doing a lot, be sure that no matter what kind of balance is struck, the state will be larger than before. This can mean a number of things, but it usually involves more bureauracy, more laws, and more police or more policing in one way or another.

It also means more taxes. More of your money getting sucked away from productive measures to satisfy those bureaucrats who have a burning desire to be seen as "doing something"... and it's your money their desire is burning.

This is somewhat like the negotiation strategy of demanding far more than you really want to get, knowing full well that the other side will be forced to negotiate down to somewhere in the middle anyways. The difference in this case is that no matter what they ask for, it will be more than before, and any illusion of a balance between two sides is just that -- an illusion.

Parade Encounter

Sun, 23 Nov 2008 12:56:33 GMT

While watching this year's Santa Clause parade in our city, I found myself surrounded by a variety of people, as can be expected at this sort of event. Our daughters were performing baton twirling in the parade, so we were there as proud parents to cheer them on and take photos.

The city government ran an entry in the parade consisting of a car with the mayor's name on it and the mayor himself walking behind it waving at the crowd. Later, the local members of the provincial government ran an entry in the parade, which similarly consisted of a couple cars with the MLA's names on them, and one of the MLAs walking behind it. It sounds pretty boring, and it was, but what else would you really expect?

When the mayor's car inched past, I heard generally nothing from the people around me, other than the normal crowd noise, a little cheering, and maybe somebody giving recognition that they knew who it was. When the provincial government car inched past, the man beside me all but spat on the ground in his disgust, using words like "unbelieveble", "that gang" etc. He sounded both disgusted and genuinely surprised that these politicians would want to show their faces in public.

OK, I get that you didn't vote for the current political leaders. I can't say I agree with everything they've done neither. I am however astonished at the level of hostility that was expressed there. What's the deal? Is it normal to villify those who differ in their poitics?

What is doubly surprising to me is the difference in the reception of the two government floats. They are both politicians, just at different levels. Both our mayor and the province's governing party are considered to be "right wing" in their ideologies. Both have passed some bills that have benefitted businesses, and given preferential treatment. So why the indifference to one and disgust for the other?

Asking for Directions

Fri, 26 Sep 2008 12:09:29 GMT

Throughout virtually all kinds of political discussions the political spectrum is divided into two extremes. Known most accurately as the left and the right, they are also called other names. Democrat and Republican. Liberal and conservative. Communist and fascist. etc.

Sadly, the definitions of "left" and "right" are slippery and constantly changing. They originate in the old British legislative cabinet, where the conservative (Tory) party sat on the right side and the progressive (Liberal) party sat on the right. However, in those days, the Tories were more concerned about keeping the status quo, and the Liberals about promoting liberty. Today, the right generally connotes free enterprise and a strong military, while the left generally connotes egalitarianism and state controlled social welfare.

In any case, they are defined as two diametrically opposing directions on the political spectrum, and usually the only two directions. This kind of dualism leads to long-held but nonsensical observations about the nature of the left and the right. For example, it is commonly said that in their extreme forms, the left and right actually meet in the middle. Given that the ideals of left and right-wing politics are irreconcilably opposed, this is complete bafflegab.

This doesn't however explain how communism, as seen through Lenin and Mao, and fascism, as seen through Hitler and Mussolini, had many things in common. It also doesn't explain those who are anarchists with both communal and free-market views. To explain this, there must be another dimension.

The Political Compass points out that there are two dimensions or axes to the so-called one-dimensional political spectrum. That is the economic axis, on which the left and right labels fall, and the social axis. The social spectrum grades between authoritarians and libertarians.

By the way, please take the time to take the test to get a better idea of where you really stand before reading much more on the site. It is worth the time. As it says on the front page, "there's no right, wrong or ideal response. It's simply a measure of attitudes and inevitable human contradictions to provide a more integrated definition of where people and parties are really at."

Adding this second dimension makes it much more apparent what actually happened with the so-called extreme forms of left and right-wing politics. These extreme forms, embodied in communism and fascism, were not so much extremely left or right but rather extremely authoritarian. Their policies placed most of the decision making power out of the hands of individuals and into the hands of the state.

It is no longer enough to simply label political figures as left-wing or right-wing, assuming it was ever enough. Remember this when you read such reports, and realize there is more to the picture than just a line.

Seniors not embracing generic drugs? Not quite.

Thu, 25 Sep 2008 12:52:00 GMT

CTV is reporting that seniors are "not quite embracing generic drugs", according to a study by Medco Health Solutions Inc. in the USA.

What the study actually says is that "The majority of seniors only switched to generics after they reached the point in spending when users must pick up the whole cost of prescriptions." Apparently, after they actually have to pay for the drugs, they do embrace the generics.

Really? And this is in the least bit surprising? Psychologically, even if you educate people that generics are equally effective as brand-name drugs, the price alone makes the brand-name drugs more desirable. Since the seniors don't have to pick up the whole cost of the prescription normally, why not get the more desirable drugs? After all, they're not picking up the tab, except in their taxes which don't change if they need more or more expensive drugs.

After all, when you go to an all-you can eat buffet, what do you eat? Do you stick to the cheaper foods because that will make it less expensive for everybody, or do you stuff yourself as much as possible with all of the choicest bits? It doesn't matter how much you eat, you still pay the same amount, so go wild.

As the saying goes: If you think health care is expensive now, just wait until it's free. (P.J. O'Rourke)

Cell phone foolishness

Fri, 25 Jul 2008 00:27:39 GMT

Recently, Dr. Ronald B. Herberman, director of the University of Pittsburgh Cancer Institute, has warned that cell phone use may cause cancer. Really, as warnings go, this is old news, frequently reported but never conclusively proven. I use a cell phone (occasionally) but I refuse to be panicked until something more substantial develops.

The really foolish part of his warning is this: "Adults should keep the phone away from the head and use the speakerphone or a wireless headset" (emphasis mine). Warning users of cell phones to stay away from electromagnetic fields but simultaneously recommending them to use wireless headsets is absurd. How does he think wireless headsets operate that avoid electromagnetic fields?

Copy protection and death

Fri, 13 Jun 2008 12:35:19 GMT

In the light of the new copyright bill introduced in Canada yesterday, I had this thought:

Copyright has frequently been described as an incentive for creators to produce new works. If that is true, why does copy protection on a work extend for decades after the death of the creator (70 years in USA, 50 years in Canada)? What possible incentive could that be after the creator is dead?

Oh how I wish for a federal vacuum

Wed, 11 Jun 2008 12:58:09 GMT

The Saskatoon StarPhoenix opinion column has observed that a vacuum in federal politics leaves the provinces fighting to fill in. Somehow this has been misconstrued as a bad thing.

While apparently "most federations recognize that the best way to attack such large issues ... is for the federal government to take the leadership and direct policy", this is really not as effective as it sounds. There are innumerable instances where federal policies have benefited one group only to completely cheat everybody else. Since the federal government is effectively constrained to "one size fits all" type policies, this will always be the case.

For comparison, let's look at some other large issues where the federal government took leadership and directed policy. First up, the energy crisis of the 1970s. The result of the federal government's "leadership" was the National Energy Program, a name that is still cursed nearly universally in western Canada.

What about the problem of disparities between so-called have and have-not provinces? That is supposedly solved by another federal system, the equalization program that punishes successful economies and reduces motivation for poor and underachieving economies. It has been the cause of all kinds of fighting, even to the point of near lawsuits by the provinces against the federal government, a rather ludicrous prospect.

It is true, as they say, that the provinces have "disparate interests". That is precisely why the provinces should be left to solve the problem in their own way rather than having the federal government dictate their choices. In fact, given the tension between the cities within each province, having the provincial government dictate solutions to the cities may even be too large a division. Having lived in both cities, there are problems for which Regina and Saskatoon would have offered completely different solutions if the provincial or federal governments had not made their decision for them.

Truly, decisions are best made as locally as possible to provide the best results for the disparate people groups we have in Canada.

McCain's shows off his economic ignorance

Wed, 11 Jun 2008 12:09:12 GMT

In the news today, Republican John McCain is quoted as saying oil companies should return some profits to consumers.

What on earth for? By definition, consumers are the ones that are buying the oil companies' products. Also by definition, said consumers have already profited by buying the products. We have made the decision that the products are more valuable to us than other uses of the money, and so are better off for purchasing the products. That's profit.

See, there are only a handful of people in the world who could possibly produce the kinds of products that oil companies produce on their own. Even then, they would have to purchase billions of dollars of equipment, land rights, employees, and so on. For all the rest of us, we benefit from the incredible investment these companies have made in offering us a valuable product.

In fact, given all the competition in the oil product market, these products are being offered at razor thin margins. John Gormley, a local talk show host, calculated all the costs involved in delivering gasoline to the pumps. Despite all kinds of complaints that we are being gouged, or that oil companies are colluding to charge us more, the end number he comes up with is within a few pennies of the actual price at the pump.

No, companies are only obligated to return their monetary profits to those people who have shared in the risks they take. That would be the investors that have given the companies their money to use. That's right, the same shareholders that they already return profits to. Thanks to the wonders of modern investing, pretty near everybody who owns shares in a mutual fund probably is an effective shareholder in at least one oil company.

So, we can all profit from companies by sharing in their risk. Or we can profit by purchasing their products that we value. Either way, we can profit from companies without those companies being coerced to do something so counterproductive as what McCain is suggesting.