Trading freely or controlled

Free trade is a controversial topic which won’t go away.  The Canadian government is currently negotiating with the European Union and the United States is thinking about it.  Some Canadians are still debating the North American Free Trade Agreement.

ShippingFree trade is attractive because the law of comparative advantage tells us that two countries will be better off and have improved production efficiencies if they specialize and trade.  Also we can  observe that countries which have tried free trade have done very well.

The difficulty is that introducing free trade means some people may have to change their occupations or even spend the rest of their lives unemployed.  This wouldn’t be so serious if we would arrange our economy so that life didn’t depend upon having a job.  It would also be nice if the improved efficiencies were to result in more leisure time.

The term “free trade agreement” is something of an oxymoron.  It is really a negotiated, controlled trade agreement.  There is nothing free about it.

If a country really wants to benefit from free trade it should do it unilaterally.  Just remove all restrictions on imports and don’t worry if other countries don’t reciprocate.  If they don’ want the benefits of free trade, that is up to them.

Saving for retirment

For Canadians the month of February is the silly savings season and it appears our concerns and insecurities about the future are showing up partly as a reluctance to save for retirement.  March 1 is deadline for putting money into Registered Retirement Savings Plans in which money is exempt from income tax.  Tax is charged when the money is withdrawn at which time one expects to have a lower income and thus pay a lower rate of tax.

I think it is a silly idea but many people will do anything to avoid paying taxes.  Some people have even  borrowed money in order to put it into an RRSP.  This plan is a  subsidy to the financial industry in that the federal government is giving up tax income to pay for marketing for the industry.

This year it appears fewer Canadians are going to take full advantage of this tax benefit.  Some are trying to balance their retirement with paying down a heavy debt load or with a need to help their children with education or to look after aging parents.

An online poll has found that Canadians were planning to save almost $10,000 this year, but 66 per cent say they’re tucking the money away for vacations, luxury items and entertainment.

the_family It could be some Canadians are becoming skeptical about the ability of the financial industry to look after our money in the long term.  Whatever the reason many  are worried about retirement.

I am one of the skeptics because there are two threats to savings.  One is that inflation could wipe out the value of savings and the other is that businesses  and governments in which savings have been placed may go bankrupt and be unable to repay the money.

Given the current economic outlook the best investment is a market garden.

The dilemma of immigration

As Americans and Canadians struggle with immigration policy it would be wise to remember people have been  migrating for millenia.  It has probably always been an emotional, stressful and sometimes traumatic event both for the migrants and for the hosts.

In North America we are all immigrants or descended from immigrants. My mother’s parents came from London and my father’s parents were United Empire Loyalists which means they moved to Canada from the United States during the American revolution.  Even the ancestors of our natives are believed to have come from Asia.  I heard the brother of a hereditary chief of a coastal Indian Band tell how in the early 1900s his family migrated down the coast from Alaska.

johnny_automatic_walkingImmigration policy is difficult because some people see immigrants as necessary and others see them as a threat.

Some Canadian business people want immigrants for cheap labor or to do work the rest of use won’t do. Others claim we need immigrants to keep the population up and worry that as we age there won’t be enough younger workers to pay our pensions.

Immigrants sometimes come as refugees and should be treated with compassion and understanding.  Recent immigrants want their family and friends to come.

But immigrants are also a threat.  They work for less money and may be seen as taking jobs.  Sometimes they come with different values and religions.  A few of them (or their children) may want to convert us.  In the past immigrants have conquered their hosts frequently with violence.  When the Europeans conquered North America it is estimated 90 per cent of the native population died mostly from smallpox and measles.

Many  immigrants come for economic reasons and that too is now a threat.  Us North Americans have been very efficient at consuming our natural resources.  We still have a lot but what is left takes more energy to harvest and our economy is in trouble.  We may still be better off than the rest of the world but we are feeling the effects of an economic slowdown.  The more immigrants the smaller the piece of pie for everyone.

So there you have it.  Immigration policy is very difficult.  Sometimes there are no acceptable answers.

Money creation problems on YouTube

It’s great to see a criticism of how we create money getting a good airing on YouTube. (Here)

Victoria Grant is a 12-year old young lady who speaks with a great deal of confidence on a subject about which most people know nothing.  It is hardly surprising that she got a standing ovation for her explanation of how the banks and government are defrauding Canadians.

She clearly has  a good understanding of the problems with our money creation mechanisms but her proposed solution would probably be an even greater ripoff.

She got it right on when she said “under the present system all money is debt” and when she points out debt is enslavement.  I would take issue with her suggestion that money issued by the banks if fake while money issued by the Bank of Canada is real.  It is probably good that both are money “generated out of thin air” as the alternative, a commodity money, has its own problems.

Her concern is that the Canadian government is defrauding us by borrowing money from the banks and paying commercial interest rates. I would be more concerned that the government will never be ale to repay its debts with the same purchasing power as it borrowed.

Miss Grant’s solution is for the government to borrow directly from the Bank of Canada rather than the commercial banks and use the money for economic infrastructure..  This is quantitative easing and would increase the money supply.  It would work only if there are available lots of physical resources for infrastructure and that is not clear.

If the increased money supply is not matched by an increase in the goods and services produced, the result would probably be inflation.

Inflation is a more subtle and more efficient way for governments to steal from their people.  Any one with financial assets in fixed prices or with pensions would lose purchasing power.  I’m not sure Miss Grant would want that.

However, she should be lauded for pointing out some problems with our banks and money supply and for getting a lot people to think about them.

Immigration emotions and economics

For us Canadians immigration is a difficult, personal and emotional issue.  Most of us have parents, grandparents or great grandparents who were immigrants. Even the native Indians are believed to have ancestors who came from Asia.

Immigrants enrich our lives by showing us there are different ways of doing things.  There is also the humanitarian aspect of immigration.  Canada is a large country with a relatively small population.  We should be welcoming people from parts of the world where conditions make life miserable.

A frequent argument is that we need immigrants to keep our economy growing and to support a growing number of retirees.;  It is also the argument used by people who worry our population is not increasing fast enough. This argument assumes unlimited resources and a potential for continuing economic growth.

Those of you who have read other posts on this blog will know I have problems with this line of thought.

It is possible that relative to other parts of the world we are well off.  It is also possible that with most of our economic history based and resource exploitation we have cherry-picked the easiest accessible resources

If this is correct more immigrants will mean more people wanting a piece of a pie which is getting smaller.  It will probably mean a better standard of living for the those immigrants from the poorer parts of the world but a lesser standard of living for those already here.

I sometimes ask why are we entitled to a better standard of living than others.  Surely everyone on  this planet should be equally  entitled to a North American middle class lifestyle.

This writer lives 15 miles from town in a valley with a  moderate climate, adequate rainfall and good neighbors.  We are far from the problems of large cities.  Shortly after we moved out here I started saying: “Now that we are here I don’t want any more people moving out here.”

Housing prices, marginal cost and an increasing income gap

The following post was written as a comment for the Huffington Post Canadian website for an article claiming that a widening income gap is forcing up housing costs for everyone.

http://www.huffingtonpost.ca/2011/11/21/canada-income-inequality-house-prices_n_1101655.html?ref=canada

Here’s an alternate explanation for high house prices.

Prices are determined by supply, demand and the marginal cost of producing the last item.  This means that in any segment of the housing market the price for all houses will be equal to the cost of manufacturing the last one built.  If  supply and demand brings the price below this figure no more houses will be built and if supply and demand takes the price higher more houses will be built until an equilibrium is reached.

In Canada the cost of building houses has clearly been increasing.  Marginal cost explains why many people have made large sums by selling their older homes.

The income gap explains why rich people can continue to buy expensive houses while those people whose income is shrinking can’t.

For people at lower-income levels to be able to resume buying homes one of three things would need to happen.  Their incomes in real terms could increase,  new building techniques or new cheaper sources of materials could be discovered so that houses could be built for less money or the lack of demand could result in a reduction in prices below marginal cost.

(The author of this comment has a web log on economics at https://economics102.wordpress.com/)

Recession? Side by side headlines

I really enjoyed seeing these two headlines side by side on the Canadian business edition of the Huffington Post”

It May Get A Little Rough, But Canada Isn’t Heading For Recession: Flaherty
http://www.huffingtonpost.ca/2011/11/01/flaherty-canada-economy-recession_n_1070345.html?ref=canada-business
and

Canada’s Food Banks See Recession-Level Demand
http://www.huffingtonpost.ca/2011/11/01/food-banks-usage-canada_n_1068786.html?ref=canada-business

May be how one sees the world depends upon one’s perspective and one’s wanting to be re-elected.

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