Saturday, August 13, 2011

Saturday Morning Links

Assorted content for your weekend reading.

- Armine Yalnizyan discusses how inequality is no better for business than it is for society at large:
Just a few months ago, two IMF economists, Andrew Berg and Jonathan Ostry, showed that the more equitably incomes are distributed, the longer are the spells of economic growth. They note, “Growth and inequality-reducing policies are likely to reinforce one another and help to establish the foundations for a sustainable expansion.”

Yet the IMF analysis shows the reverse is also true, that higher inequality leads to more volatility. Against a backdrop of low and falling interest rates, wealthy investors hunt for returns with higher yields, which means higher risk and more volatility. As Mark Thoma, professor of economics at University of Oregon, writes, “When we see income inequality rising, we ought to start looking for bubbles.”

All bubbles eventually burst. The boom-bust cycle wipes out even successful businesses, and increases market share for the larger players in the game who can tough it out longer or buy up the competition. This dynamic has led to the “too big to fail” phenomenon, distorting the game for everyone, leading to bailouts and higher prices.

Lack of real income growth and falling interest rates over a generation have led to more borrowing, which points to a world of trouble tomorrow. Nobody gets hurt if the incomes of the top 10% grow more slowly than the bottom 90%, but current compensation practices make that highly unlikely. If the only change on the horizon is higher interest rates, personal bankruptcies and foreclosures will go up. That could slow access to credit for everyone, and further raise the costs of borrowing for businesses and households alike.
- Meanwhile, Marc Lee considers the option of printing more money:
The big barrier is psychological: once we start talking about “printing money” the danger is that millions of misunderstandings about what money is get amplified. In a fiat money system like ours it is the faith or belief that a colourful piece of paper has a certain value in purchasing goods and services that matters, and we need to be careful in shaking that confidence. That most people seek to get money (by selling their labour, or making investments, or buying low and selling high) to acquire things now or in the future is pretty obvious.

But how the money supply itself grows through the expansion of credit in the banking system is not broadly understood. The scale of private money creation is huge. Bank of Canada data for a number of monetary aggregates show that money expands rapidly during boom times, and slows down during downturns. Going back to 1996, M1+ has been at lows of about 4% annual growth, while peaking at more than 14% annual growth. M1++ peaked at around 20% annual growth through much of 2009. A broader monetary aggregate, M2++, did not grow as fast as that, but still was in the 8-9% annual growth range between late 2006 and late 2009. All of this money supply growth was compatible with low and stable inflation.
(F)inancing a $50 billion deficit through the Bank of Canada at a time when demand and private credit creation are slow is not a really big deal – apart from fear that would be whooped up in the media by those who do not get this or whose economic interests were adversely affected. Even a modest uptick in inflation is likely to bring hysterical cries from those who own the debts that must be repaid. And higher but stable inflation can get locked in to price and wage expectations that impose some economic costs on society, although costs will be minor for inflation rates in single digits.
(G)iven that there are horribly polluting industries out there that need to be phased out, why not use public money to offset the economic hit of decommissioning? At a time of deleveraging and record high household debt, a new public sector stimulus program is just what is needed, rather than the conventional wisdom that nothing more can be done by governments.
- Which leads nicely into Megan Leslie's column on the need for real investment in renewable energy and conservation:
We must not forget that the development of the oil sands in Canada was the result of substantial government-sponsored research and subsidies. As part of a federal initiative, taxpayer money was invested into figuring out how to extract and refine bitumen, which has led to enormous profits for the industry. However, we have not seen a similar long-term commitment from the federal government to support the transition to clean energy, including long-term investment in energy efficiency technologies.
Oil and gas subsidies have been touted as necessary for keeping the industry competitive through development of modern, cleaner technologies, yet a recent government study found that research subsidies for the fossil fuel industry have done little to reduce greenhouse gas emissions.

It's time to shift the focus of the government's initiatives from big oil to renewable and conservation technologies. All Members of Parliament should commit themselves to supporting the much-needed and greatly-delayed transition to a green economy powered by renewables and energy efficiency technologies. This transition should include putting a price on carbon.
- Finally, Anne Lagace Dowson weighs in on the media's baseless attacks on Nycole Turmel, while Tim Naumetz neatly ties the latest loyalty test to the RCMP's history of spying on Tommy Douglas which is still only in the process of coming to light.

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