Saturday, November 26, 2016

Calling The Kettle Black

We live in the Age of Misplaced Faith. A stunning example of what this means for ordinary people is CETA -- the Comprehensive Economic and Trade Agreement. Murray Dobbin writes:

The federal government makes its own "reality" by crafting "facts" to fit its policy objectives -- no matter how outrageous they are when put to the test. Three numbers stand out in the talking points of federal governments under both Harper and Trudeau: that CETA will increase GDP by $12 billion, that it will create 80,000 jobs and that the newly created wealth will boost income by $1,000 per family.

But economist Jim Stanford debunked these numbers long ago -- pointing out in 2012 that the federal trade department simply took the $12-billion figure (itself a highly dubious figure) "[a]nd divided it by the number of families in Canada. That assumes that every additional dollar of GDP translates directly into family income. In fact, higher GDP never fully trickles down into income..." The money that does find its way into income goes mostly to the wealthy.

The $12-billion figure came from a study commissioned by Canada and carried out by three EU economists. Stanford pointed out that the model used made some outrageous assumptions:
"[c]onstant full employment (so no one can be unemployed due to imports), balanced trade (so a country's total output cannot be undermined by a trade deficit), no international capital flows (so companies cannot shift investment abroad), and no impact from fluctuating exchange rates."
Stanford called the study "outrageous." He was being far too polite. It was outright fraud. Anyone paying even cursory attention to the Canadian economy knows that not one of these assumptions holds. We haven't had full employment for decades, we have been experiencing trade deficits for years, NAFTA resulted in the shifting of billions of investment dollars to Mexico and China, and our exchange rate has been all over the map.

A recent study from Tufts University took a long look at CETA and arrived at these conclusions:

  • "CETA will lead to a reduction of the labour income share. Competitive pressures exerted by CETA on firms and transferred onto workers will raise the share of national income accruing to capital and symmetrically reduce the share of national income accruing to labour. 
  • By 2023, workers will have foregone average annual earnings increases of €1776 in Canada and between €316 and €1331 in the EU depending on the country.
  • CETA will lead to net losses of government revenue. Competitive pressures exerted by CETA on governments by international investors and shrinking policy space for supporting domestic … production and investment will reduce government revenue and expenditure. 
  • CETA will lead to job losses. By 2023, about 230,000 jobs will be lost in CETA countries, 200,000 of them in the EU, and 80,000 more in the rest of the world [the study projects a loss of 23,000 Canadian jobs due to CETA in the first seven years].
  • CETA will lead to net losses in terms of GDP. [D]emand shortfalls nurtured by higher unemployment will also hurt productivity and cause cumulative losses amounting to 0.96 per cent of national income in Canada..."

Mr. Trudeau lambasted Mr. Harper for his misplaced faith. It was the pot calling the kettle black.


Lorne said...

Strange, isn't it< Owen, that this kind of analysis almost never finds its way into mainstream media. And they wonder why their readership is declining.

the salamander said...

This message from your elected & unelected Public Servants ..
' Its the Economy, stupid! '

I've tried eating, drinking or sharing 'The Economy, Stupid'
or for that matter, LNG or Dilbit, Military Arms etc
All are tasteless, unpalatable.. short of nutritive value..
seemingly toxic to all living beings

At the same time.. I keep hearing
its all about 'Energy Security' for Canadians..

So I am looking forward to seeing the inbound ships from Asia
arriving in 'tidewater' bearing edible Energy Bars or Security Blankets
I can barely contain my enthusiasm .. or expectations !

Owen Gray said...

I read that Postmedia is going totally digital, Lorne, and that they are in a hole from which there seems to be no escape. Their situation can't simply be attributed to a run of bad luck.

Owen Gray said...

H. L. Mencken would applaud your comments, salamander -- and ask for more.

The Mound of Sound said...

The operative word, Owen, is "faith." Economic theory is, at best, a social science and is often as tenuous as a new religion. Recall the old gag about how, if you find yourself in a room with twelve people, each espousing a different reality, you're either in a conference of economists or a lunatic asylum.

Even our markets are faith based. On a smiley day, they're up. When something sad happens, they take a dive.

The neoliberal experiment of government withdrawal, sovereign power shared between governments and the private sector, globalism and such was anchored in the ideology pumped out by Hayek and Friedman that took hold in the minds of ideologues Reagan, Thatcher and Mulroney. The only surprise is that it has lasted so long.

Trudeau remains a devotee of globalism, apparently ignoring the warnings of the IMF and the World Bank that it's a failed system that only brings chaos to societies it impacts. It is the engine of inequality.

Trudeau's actions are indefensible. I cannot fault him for his intellectual limitations but he doesn't seem especially bright, certainly not bright enough to grasp what the IMF and World Bank have been saying. He's also a leader seemingly incapable of any grand vision, the opposite of his father. Something of an empty suit with a pleasing smile.

Owen Gray said...

I don't expect our leaders to be geniuses, Mound. But, after thirty-five years, the evidence is overwhelming. Hayek, Friedman, Thatcher, Reagan and Mulroney were wrong. Trudeau should know better.

Anonymous said...

Owen I suspect that Hayek, Friedman, Thatcher, Reagan and Mulroney all knew they were wrong. They surely knew their regressive policies would primarily benefit the wealthy and in so doing they too would be assured of reaping the spoils, to the detriment of their populaces.

Owen Gray said...

I'm sure they realized that making the right connections would ensure that they were comfortable after they left public life, Anon. Reagan had lived by that principle all his life. I wonder, though, if he truly grasped the long range consequences of what he did.

John B. said...

Are the current CETA cheerleaders still resorting to a repetition of that old Rotman-Linz bunkum? You'd think that by his time they would have put the arm on another bundle of public cash to come up with more convincing disinformation.

Liberals are so unoriginal when they implement the policies that their next generation of careerists will try to blame on whatever assembly of "Conservative" or CRAP Party delinquents preceded them.

Owen Gray said...

It's the same script, John. Not even a re-write.

Hugh said...

The BC Govt in 2006 used a completely hokey study to justify ramming through the TILMA deal between BC and Alberta. This deal has ISDS provisions, like CETA and TPP.

The study claimed "the TILMA has the potential to add $4.8 billion to real GDP and create 78,000 new jobs in the province."

Sounds familiar.

Owen Gray said...

It's always the same script, Hugh, going all the way back to Mulroney's Free Trade Agreement.