Worth the Fee to Read It

Last night in the Vancouver area was a case study in how even carbon-taxed gasoline, and pump prices above $1.50/litre, aren’t even beginning to make a change in the average person’s habits, exemplified by jumping behind the wheel and sitting idling for hours in traffic. (In the interests of fairness, I count myself amongst that group — although a combination of good timing with the double lane northbound on the Lions’ Gate Bridge and the reopening of the Ironworkers’ Memorial Second Narrows Bridge meant we only spent 25 minutes in the queue on West Georgia St. to access the North Shore. This is not an exercise in pointing fingers: we all have a lot of habits to re-educate.)

What made this fascinating was the sheer number of people moving back and forth between the North Shore and the City core for the purpose of getting to a prime vantage point to see the Dominion Day fireworks at Canada Place, launched above Burrard Inlet, which separates North Vancouver from Vancouver proper — and that, from the prime points of Lonsdale Quay in North Vancouver to the area around Canada Place itself runs the SeaBus, a public transport system (plus free parking in quantity at Lonsdale Quay). In other words, the long queue — stretching from the bridge approach all the way back to three blocks from Lonsdale Quay of people trying to leave the North Shore for the city — was eminently avoidable (as was my family’s car trip to North Vancouver for dinner and fireworks watching as well).

Nevertheless, complaining about the sheer cost of fuel, cars lined up and docilely spewed exhaust while consuming tankloads of fuel, simply because we can’t imagine any other way of getting there from here. (Raphael Alexander’s report at his blog, Unambiguously Ambidextrous, on his mis-adventures in road life, serve as another view on yesterday’s behaviour here in Lotusland, the ecotopian gem of the country.)

It ought to be clear enough, one would think, that we have approached an inflection point where how we lived previously is in jeopardy, and that learning new habits is required. (It was in the summer of 2001 that I was purchasing fuel for my car — the same trusty economical Honda Civic I still drive — for $0.54.1/litre; today it’s $1.52.0.) Yet nothing has really changed: we complain, but suck it up and continue to pay. In the same way we move to ever-farther suburbs (excusing our pending commuting costs as “something that will come back down”) to maintain a reasonable cost of accommodation, or take on masses of debt in a price bubble real estate market (when an 80-year-old bungalow on a minimal lot in need of serious renovation and repair in my neighbourhood sells for $2.3 million, all I can do is shake my head and picture the likelihood the buyer will end up under water with that mortgage!) — common sense has left the building, and mythology and a refusal to recognise that the changes have already occurred and now intensifying in amplitude and intensity rules the day. As Shane Edwards at The Politic.com pointed out, the “law of unanticipated consequences” now waits in the wings, bringing further disruptions and systemic shocks. Enjoy the summer; the fall and winter promise to be rocky, indeed!

I engaged in a quick conversation at lunch hour today with a fellow user of Twitter.com whom I happened to bump into in person (you can follow me on Twitter via this link) and he noted how the language of environmental change offered by his neighbours in the Bowen Island community is not borne out in practice — down to development on the island and the decisions being made with general public approval that reflect a “growth mentality” unabated. We parted agreeing that the price signals being received are nowhere near the point where behaviour will begin to change. “A doubling, at least, to $3.00/litre [and its equivalents for heating oil, natural gas, etc.] will be needed” was our consensus.

Since that conversation, however, I’m not convinced that even that will be enough. This is not even a reflection of the lack of investment in alternative public infrastructure. Rather, the rapidly freezing real estate market (it has flipped, suddenly in the last six weeks, into a buyer’s market from a seller’s market) and the mass indebtedness of society will cause us to freeze, deer-in-the-headlights style, in our current arrangements. Many will be trapped in mortgages that are under water, owing more than the sale of their property will realise, and forced to continue driving to work, to buy groceries, to ferry children in child-unfriendly suburbs (cul-de-sac communities branching off of arterial roads with single-purpose zoning are, alas, decidedly child-unfriendly: there’s no alternative to being driven), and the higher costs of everything just bring the moment of dispossession or bankruptcy closer. If one is trapped and there is no alternative, change is seldom entertained.

It has, of course, the potential to get much worse. Business activity will be severely impaired. Jobs will be shed in an effort to manage rising costs. Goods delivery will be increasingly erratic, as trucking falls apart (already its economics have eaten the profits from driving, and truckers are going bankrupt or parking their rigs because they can’t afford to operate them). Laying taxes down on top of these — BC is already sending the public smoke signals that the promise of lowering personal and business income taxes as the carbon tax escalates might not be kept if the economy slows, as “revenue neutrality” will convert into “maintain government revenues” — is a deadly double whammy.

As W. B. Yeats said in his well-known poem, “The Second Coming”, “Things fall apart, the centre cannot hold; Mere anarchy is loosed upon the world”. This is what it will take to bring us to the point of actually changing our habits. For, as Yeats also said, “The best lack all conviction, while the worst are full of passionate intensity.” The average citizen is not bad; he or she is merely juggling priorities, and trying to hold his or her nose above the water while being squeezed unmercifully. Meanwhile, as always, those who thrive on controlling others escalate their volume and demand “action, more action”, thus making the problem worse as unanticipated consequences continue to pile up. Eventually, of course, the centre is rejected and the anarchy comes, but by then a generation or two have lost their assets and been crippled, and society has fallen apart to be rebuilt again.

Many, of course, plant their belief in technological change, most recently as reported in The Economist. In the long run, technological advances may well give us energy alternatives that make sense. In the short to medium term, however, we cannot reasonably expect the development and large scale deployment of the alternatives required, especially when delaying the purchase of a new vehicle is the first choice of action for anyone who is already financially strapped (and in BC, where a twenty year useful life for an automobile is not at all out of the question, and the cost of living is already sky high, don’t expect a fast turnover of the fleet on the roads to take advantage of changes). Demonstration projects and local initiatives, yes — not a wholesale replacement of the fossil fuel economy. (Indeed, just as with the oil sands in Alberta, which required the previous rise to a sustained oil price of $50.00/bbl or higher to make them economically viable, these alternatives will require today’s prices to be sustained or go higher to make them economically viable. Only those who are full of passionate intensity also believe the laws of supply and demand, or of sustainable economic activity, can be waived aside with the stroke of a bureaucrat’s pen and a politician’s speech.

No, it is the very dependence upon private (and near-private) motor transportation that must be overcome. But our urban and suburban infrastructures, our “globalised supply chain” economy, our ideas about single-purpose zoning and many more “facts on the ground” stand four-square against changing this, except for those willing to relocate and take losses in economic potential to do so early (the later switchers will find that the viable non-driving infrastructure is “not available at any price”).

Never forget that the Campbell Government’s top transportation priority is not public transportation, but roads for private trucking and private cars. The carbon tax that took effect yesterday is just a cash grab despite all the rhetoric: all the rest of their programme is geared to “more of the same”. Ignore their passionate intensity on the subject. As for the Stéphane Dion “Green Shift”, it is this and ten-fold worse, with its unabashed sense that “government will know best” — and no sense of what the priorities ought to be.

The life portrayed at Barkerville is returning quickly to being the best we can expect, except that we shall face it in the ruins of a civilisation that built to excess on a non-renewable resource basis. Where is the leader who will speak the truth of this? Where is the elimination of programmes to make way for investments in public infrastructure to mitigate that future? Where is the down-sizing of government to deal with a society that can’t afford its current taxation level as its economic output shrinks?

For make no mistake, if we do not prepare for this, all the personal habit changing in the world will be overcome by the violence and anarchy that will be unleashed as the centre finally fails to hold.

Green Shift, Green Shaft, Red Shift: there are as many names emerging as there are writers. The vitriol is rising: those who don’t offer carte blanche sign-on to the notion of adding a carbon taxation element to the tax scheme (regardless of whether the new tax is “revenue neutral” or not) are climate change deniers, antediluvian cretins and a whole series of other epithetical labels. It’s enough to make one want to climb under the comforter, pull it up and block the world out — except, of course, for the nonce it’s far too hot for that, being summer and all.

So, let’s look at why neither the BC carbon scheme that settles its hooks into my meagre income tomorrow morning nor the Stéphane Dion “we must do this or the world will end” Green Shift promised as policy should the Canadian people be conned into electing a Liberal Government the next time around is deserving of support.

Frankly, both schemes are hung on several petards where these political “leaders” could hoist themselves, thence to flap in the breeze, for neither BC nor the Federal Liberals offer a true programme aimed at the environment (despite the mounds of lying statistics, promised carbon savings, threats and jeremiads unleashed by their hangers on in the corporatist “environmental axis” of academe, foundations and pressure groups). For neither is dealing in reality.

That this sort of idiocy continues to dominate the pages and airwaves of the pabulum-pushing media, of course, is due to the equally inept and ridiculous approach the Harper Government, the BC NDP, etc. are taking to the issue. They’re not dealing in reality, either. In a clash of “ideas” (hah!) between these forces it is Canadians that are the losers.

Reality: Suburbia is a Dead Duck: The notion of a car-centred plot of land with a McMansion on it that requires two parents to be pressed into permanent roles as drivers, to get to work, to get the groceries, to ferry the children everywhere, has run its course. Those who live there, for the most part, are stuck there. House prices will crash decline rapidly to reflect the cost of filling the tank and operating the vehicles. This will be accentuated by the collapse of credit, which is already unfolding around us (and is a correlate to the loss of growth potential as cheap energy fades from the scene, coupled with the blow-off strategies that have ruined balance sheets all through the 1990s and 2000s to date).

Reality: Oil Production is Already in Decline: New finds? Practically none for fifteen years now; what’s been found is extremely expensive to recover, and a small field (by comparison) to boot. World production for the last two years has not exceeded 84 million barrels/day (Mbbl/d), down from its peak of 85.7 Mbbl/d in 2005, despite many new wells, extensive growth in non-traditional oil recovery, etc. Cantarell (formerly the world’s third largest field) is collapsing at over 15% per year; Ghawar (the world’s largest) likewise. Meanwhile world demand is well over 87 Mbbl/d. While there will be price ups-and-downs (as there are with any commodity) the trend is up — and up on an accelerating curve.

What’s more important is that no oil will be saved through carbon taxation. With demand greater than supply, savings in Canada translate into product available for immediate purchase and use elsewhere. In other words, it’s not as though we would be acting to either reduce emissions or save oil for future years, when it will be even harder to come by. (Canada has less than 10 years left of conventional light crude and natural gas. The United States has less than four. Mexico has less than five.) No, it will just be burnt and add to that devil of the twenty-first century, global warming, elsewhere. A true reduction is worth some disruption; taxing ourselves to death to allow the Chinese, the Indians, etc. to drive themselves (and us) to the breaking point of civilisation as we know it just as rapidly makes no sense at all. (Note that Stephen Harper’s objections to Kyoto have centred, in good measure, on its exclusion of these countries: apparently “blue” is greener than “red”, “orange”, “teal” or “green” itself, not that any of that army of environmental “experts” nor zeitgeist-setting tub-thumpers like Lawrence Martin, Jeffrey Simpson, Carol Goar, etc. will acknowledge it.)

Reality: Trucking is for the “last mile”, not for distance: So shipping goods by truck, if fuel will be hard to come by, is a pretty dumb idea, right? Not according to the BC Government, nor the Green Shift. BC wants to build new perimeter roads, new bridges, etc., all to make shipping by truck even easier. Billions to be spent — ahead of the investments in alternative transport, either as public transit, interurban rail or heavy rail infrastructure for commerce (and nothing for water-borne transport) — to make it possible to build ever more suburbs on the country’s prime agricultural land. Stunned? You bet! Meanwhile the Dion Green Shaft makes Western Canadians and Atlantic Canadians pay so that the same sprawl lifestyle in Ontario and Québec can be maintained and extended. (Sprawl in the West and in the East isn’t sustainable either, of course, but sucking the productive parts of the country dry to keep the unproductive parts — such as Dalton McGuinty’s “same old transfer mind-set” province — carrying on just as before ends up reducing us all to penury (and makes the inevitable changes we must make that much harder for the waste of the resources we have today).

But, hey, it’s about votes, right? Not about the environment, not about changing us to live in the real twenty-first century: it’s all about just getting elected (or in Campbell’s case in BC, re-elected yet again). À l’enfer avec vous politiciens libéraux perfides — especially those who have the knowledge to know better, like Garth Turner. Comment about Garth Turner removed.

Reality: We need a better infrastructure: We need a massive investment in rail, and an electrification of many of the lines. We need to restore the interurban (lighter rail, regional services) systems we once had and ripped up to accommodate the automobile. We need electrically-run public transit: trolley buses or streetcars or light rail trams. We need the nuclear and hydro plants to power these — or a minimal number of carbon sequestration coal plants. We need to restore water-borne transport systems, using our rivers and canals. We need local agriculture. We need local manufacturing (no more McCrap from China at the “Great Wall” Mart). We need to restore communities of human scale. There is a long list of jobs, in other words, and it will be expensive.

This is what a real environmental programme would look like. Note that none of this depends on changing the behaviour of any other nation: just our own. We (barely) have the time and resources to do this now, but we (unlike our southern neighbours) can do it — our cracking of deficit financing last decade by first Chrétien and then provincial premiers, building on the removal of operating deficits under the Mulroney years, has given the country the fiscal capacity needed.

Separately, once in a generation you can uproot and restructure the tax system in a big way. If there is a complaint I have about the BC carbon tax regime and the proposed Green Shift it is that it misses that opportunity. Wipe out income tax entirely and replace it with consumption taxation (carbon and/or value added tax). Wipe out all other taxes (excise, gasoline, etc.) and just have a pump-based carbon tax. This was a time for big opportunities. Unfortunately, what we’re getting are the ideas of little men afraid of their shadows.

The Conservatives have yet to be heard from: It is time for the Conservatives to stop whingeing, fear-mongering and lashing out. Will they provide what no other party has (or probably can): a set of policy proposals that actually deal in the reality we are experiencing and that will unfold over the next few years? Or will they, too, miss the chance by playing it safe?

The time for a real leader is now.

I am always surprised at how the underlying story gets missed. In the case of the global warming tale, the Green Shift announcements, and so on, what doesn’t get reported is how close to the end of a hydrocarbon-based world we are. Given the Canadian climate — and the fact that it is our commodity exports, particularly oil and gas, that are holding Federal Government revenues “together” by holding up the national economy — one would think we might discuss the current state of economic peril we find ourselves in. Instead, we see crowing, triumphal note after head-in-the-sand note being posted from almost all the blogs, regardless of political affiliation — and no attention being paid to the real situation.

So let’s do exactly that.

Light crude production in Canada is expected to dry up in about a decade. Natural gas production in this country, in slightly less time. We are not building the refineries necessary to actually use the tar sands products. (Why not? Natural gas is a key element in how this sludgy sand yields up its hydrocarbon content: if natural gas has a useful life of less than a decade, the plant won’t pay for itself.)

With world oil production — particularly of the light crudes for which our Eastern-based refineries (which depend on imported oil already) — already slipping downward as a share of global production, and, indeed, global total production (including our own) also now less than demand, precisely where will we get petroleum from? As for natural gas, we’re not equipped to receive liquid natural gas (LNG) shipments — nor do we have the pipelines built to transport it. Nor is there a particularly favourable source of supply, either: exhaustion of natural gas on other continents lags North America by only a decade or so. Again, not enough to make building the infrastructure a viable economic proposition.

Yes, we could raise the moratorium on development offshore in British Columbia. Yes, we could build the Mackenzie Valley pipeline. Offshore BC is a decade away if we start now. Assuming we ran roughshod over the Dene and just built the pipeline, its economic life isn’t long, either.

Gordon Campbell in BC, of course, has pinned his hopes on a “hydrogen corridor” running down the west coast of North America. But what’s the feedstock to produce hydrogen — today? There are two: electrolysis of water, or cracking the hydrocarbon molecules in natural gas. There is an interesting experiment being done in Japan right now to produce a water-supplied fuel cell suitable for both mobility applications (e.g. road traffic) and as a power supply in buildings or for the grid, but it’s not mature yet. As for building a hydrogen infrastructure supplied by natural gas? What’s the lifespan of that? — certainly no better than the lifespan of using natural gas directly (heating homes in winter comes immediately to mind).

Ethanol has also been proposed. Where’s the capital investment in ethanol plants using scrap wood chips, bits of dead-by-pine-beetle tree, etc.? It’s not happening fast enough. Nor are we doing the pragmatic thing and arranging to buy ethanol from Brazil, where they produce it from scrap sugar cane stalks, cheaply and efficiently. No, where we’re doing it, we’re doing it from corn. A maize-based ethanol infrastructure has a lousy energy conversion ratio: it requires at least as much hydrocarbon-based energy as inputs, for fertilizer, industrial-scale combines, and to run the conversion plants, as you get out of the ethanol. (Brazilian ethanol converts at a favourable ratio. At the scale required, the energy coefficients for wood chip conversion are not fully worked out yet — it’s important to remember that these operations are likely to be built on a local scale, just as the sawmills and pulp mills of timber country are.)

We could, of course, make more use of electrical power. We’d better move quickly: dam construction for large-scale outputs, or nuclear plants — even coal-fired plants with carbon sequestration technology — are usually decade-long construction jobs, even when you waive all the environmental evaluations, tell the local First Nations their claims will not be honoured, and pass laws forbidding legal action to delay the project. Heavy construction requires a heavy investment in fuels, too. Eventually we’ll be making choices: get to work and heat buildings, or build things, or feed ourselves (fertilizers, industrial “agriculture”).

There’s a lot of talk about alternative power. BC has many sources: extensive geothermal zones, wind potential on the coast, even solar arrays. The three Prairie provinces could do wind and solar. It’s a pity, isn’t it, that it’s not happening: in BC, for instance, the Independent Power Production [IPP] scheme put forward by BC Hydro in 2003 allows Hydro to buy out the producer after their project is built. (Not that the BC Transmission Corporation has the capability to handle much of this power, for little of it will be base load.) Why would anyone invest in a plant infrastructure only to lose it at cost once it’s been depreciated (and still useful), i.e. why give up the profits? Is it any wonder little is happening?

So what does this add up to? A sea change in the way we live, like it or not. Yes, Canada has great assets in the energy space. But they don’t make us independent of shortfalls.

When that day comes, our economy takes a nosedive. So do our exports, the vast majority of which still go to the United States, thanks to the unending myopia of Canadian businesses. (There’d be, for instance, no trouble in lumber towns if we could just recognise that the rest of the world does not use American-sized boards — and if we produced the products other countries want to buy. Instead we tell them they have to change, then moan when we don’t get the business.) The USA will be even worse off than we are.

It’s been pointed out that we ought to be thinking about these issues. Assuming Obama wins the US Presidency this November, we can anticipate a challenge to NAFTA: he campaigned on this (and needs to carry the states — all near our border — who think NAFTA has hurt them). A Democratic-controlled Congress will not be trade-friendly. Good: bring it on. We should be prepared to let NAFTA go — Homeland Security has already closed the US border to the point where integrated supply chains don’t work reliably any longer, and they have to work with an ever-sinking US dollar — in order to remove the lock-in that forces us to sell a continuing percentage of our hydrocarbon production to the US ahead of Canadian needs. Failing to do so simply advances the day our furnaces and pumps “go out”.

Eventually, alternatives will bring us back up. Don’t count on them being ready en masse in time. We may well find ourselves back in the 19th century for two or three decades while we sort it out. (If that doesn’t put paid to global warming, what will?)

All of this, of course, strongly suggests that our Governments are about to be put on a starvation diet. Instead of new mass social programmes, any spending should be going on the infrastructure needed to continue Canadian life in a reasonable fashion (the last time I looked, this was still a very cold country with a short growing season). Pruning of existing wasteful spending should also be undertaken.

For here’s the rub: without cheap energy and a continuing supply of it, the centre cannot hold. Large-scale anything requires it. When this breaks down, the pieces fall away. Except, of course, that (with the exception of the Maritimes) even our provinces are too large to hold together. (Australia and the United States, to name just two, will experience similar fracturing.)

A North America divided into a hundred plus polities will be a much poorer North America, and a much weaker one.

Any politician who isn’t dealing in these long-term realities is delusional, and leading us down the garden path to a much harder future than is necessary to experience. By that standard, there are no leaders in Canada today.

UPDATE: To my surprise, after writing this, I found half of the op-ed page of this morning’s Globe & Mail taken up with pieces on this topic written by Michael Warren and Margaret Wente. The last thing we need here is a big government approach: set up a regulatory framework that encourages investment, put what money we have into infrastructure to support the housing and employment stock we have to work with, and let the market price mechanisms do the job of encouraging personal change. After all, the last $35.00/bbl on the oil price has yet to have its impact on the consciousness of citizens!

Twenty years ago, I first came across the notion of megapolitical analysis in James Dale Davidson & Sir William Rees-Mogg’s book Blood in the Streets. A megapolitical analysis tries to get up above events and see the larger pattern that exists. Assuming you’ve done your analysis correctly, what you’re looking at is the structural situation.

An example may help. In the late 1800s, Western nations had the machine-gun (whose efficacy had been proven in the American Civil War and confirmed in the Franco-Prussian War of 1871) and other cultures did not. When the British, for instance, tired of raids by the Dervishes from Sudan into their Egyptian protectorate, they sent a single river gunship up the Nile. The Dervish leader assembled 10,000 of the famed “Whirling Dervishes” — owners of a feared technique for sword fighting that gave them the mobility of a sole fencer and the ability to defend each other that the ancient Roman phalanx structure had given the Legions. From the deck of the gun ship a machine-gunner opened fire — and kept firing. 10,000 Dervishes went a-whirling to their deaths. The British nursed their sunburns and that was that.

In the second half of the nineteenth century, therefore, offensive weaponry like the machine-gun would win the day over any pre-automatic weaponry. A megapolitician would have concluded that Africa and Asia were to experience their almost complete colonisation by Europeans — and they would have been right.

Compare that to 1979, when the former Soviet Union moved into Afghanistan, and discovered that 50,000,000 ruble MiGs could be shot out of the sky by a lone Pashtun or Taliban soldier with an AK-47. Today, the projection of force requires highly expensive weaponry and sophisticated command and communications structures; the defence can work cheaply and melt into the hills/bushes/jungle as needed. Today, a megapolitician would say, again with confidence, that the cost of projecting force against an enemy who only needs to wear you down to make you go away (and thus, win) means not only that colonisation is at an end, but also the ability to “settle” a restive periphery. Today we live with the raids; we can’t “go upstream and settle the matter”. (Yes, as Thomas P. M. Barnett pointed out in The Pentagon’s New Map, the US military has the ability to project force (almost uniquely today) and “smash” any region they choose to in a period of a few weeks — but they lack the ability to pacify it, to establish a new stable order, or to make the “smash” deliver the results they seek. Nor can anyone else. The best we can do is tie up those who would take the battle to us in their homes — but we can’t “win and go home”. To go home, we must admit defeat and leave, tail between our legs.

For the projection of force has become affordable and practical for anyone — and so the advantage is to the nimble defender who knows local ground.

Countries of small scale can be held together more easily than those of larger scale: it is easier to project the necessary force across a smaller distance, allowing efforts to be concentrated. As we saw with the end of the former Soviet Union — the last of the great European empires to “come apart” — the effects of different cultures spread across a large land mass and the difficulty in projecting power in a collapsing economy forced the Union apart. The resulting Russian Federation has been plagued by insurrectionist movements since — not to mention worries about losing Siberia to surreptitious Chinese migration (which reminds me deeply of the individual settlers dashing into the West Bank following the 1967 Six-Day War from Israel and planting themselves there: not government policy, but a “situation on the ground” being created by individuals that then leads to government action for a long time to come).

We sit here, in Canada, in the United States, in Australia, and we think “it can’t happen here”. But it will — two decades from now, I doubt any of these countries will have survived intact.

Holding a continental-scale country together is — as it was for the Roman Empire (and many other large human enterprises in history) — a challenge of maintaining growth. Technologies that speed transit times (to allow for sudden power projection: ask Louis Riel and his fellows if they expected the CPR to deliver the Militia quite so quickly and effectively!), and speed commerce; an economic engine for growth; access to affordable resources in growing amounts to deal with a growing population: these are the tools (others are analogues to them) to hold a large scale anything together.

Once the engine of economic growth falters, it must be restarted on a new and viable footing, or it decays into a period of milking the past and exploiting it for ever-more concentrated gain. Once new technologies that add speed and ease of movement cease to be invented — and cease to be invested in — those who would tear the territory apart have time to figure out how to deal with what is now a “static opponent”. Once resources are no longer easy to exploit or cheap to extract/purchase, every projection of power becomes an economic calculation (”do we really need to intervene here, or should we hope this problem solves itself and save what we have for another, worse situation?”). Eventually, increasing costs of energy, transport and materials, and the milking of a dead economic model, means that the battle goes to those who would impose an “iron hand” and “control waste”. Roman Senators give way to Emperors, who give way to a civil war for control of the seat of Augustus — until the Empire is no more (transformed into a religious state in the East, and sunk into the Dark Ages in the West). Long before, the ability to deal with issues at the periphery had meant just letting it go its own way.

Where we are today, of course, is well advanced into the decay of our economic engine that served us well from the 1770s through to 1973: industrial production. Today we offshore the production and focus on manipulating symbols: increased investment in legal trickery, tribunal “justice”, obscure financial instruments, mergers & acquisitions, downsizing and country-shifting to squeeze a little more lucre out of a stable enterprise … the list is long. That it has blown up into a huge balloon that must now wreak its destruction on what’s left of the middle class and productive enterprise is no surprise: indeed, as Schumpeter noted, it’s necessary to remove the old to create the new. A class of courtiers, fixers, manipulators and money men instead decided to establish a rentier culture, cream off the wealth for themselves, and not let their “cash cows” be displaced. (Chrysler, for instance, should have died in 1980; instead it has continued to destroy wealth and future prosperity for another 28 years.)

Add to this ever-more expensive energy — and its concomitant, food — a political class that meddles incessantly — and the stage is set for regional rebellion.

Eventually those that are constantly milked to keep the dying lands alive a little longer will say “enough”. Eventually the cities will decide the interior towns don’t matter. Eventually the three time zones from Ottawa to the Pacific shore will loom so large that the relationship will be seen as pseudo-colonial. A Newfoundland with wealth will ask why it does not reassume its former independent Dominion status. It will then take only the neo-Feudalists to arise and declare “order” over small territories and the splits become real.

Western Australia has nursed grudges and felt ignored and milked for nearly 80 years: now it is the sole part of the Australian economy that supports all the rest. Washington, Oregon and California find Washington unresponsive to their needs and far too far away — meanwhile the Inland Empire of Washington State can’t fathom those around Puget Sound (and the same, too, as you go down the coast: it is the same division you find in BC and Alaska). So when the fracturing begins, it will carry down deeply: a province or state might declare unilateral changes in its relationship to the nation, but it will take but a few months before it, too, starts to come apart at the seams. (To see some of the seam lines, read Joel Garreau’s The Nine Nations of North America.)

When the centre no longer holds, life, which has gotten harder and continues to do so, will suddenly get very much harder. Energy will be expensive; we won’t travel freely. We will be back to eating with the seasons and what is available locally. Democracy will likely fail, to be replaced by overt despots. The world will suddenly have 300+ … 400+ … 500+ “countries” (few of whom will worry about affording diplomats in very many places).

Megapolitically, all the things that consume us today in politics, sport, entertainment and scandal will seem very unimportant and very far away.

I take no joy in saying these things. But they should be discussed. Only by doing so do we hold onto Carroll Quigley’s hope, in The Evolution of Civilizations,, that once again we in the West will reinvent ourselves and prosper again. Waiting until the crisis is upon us will give up the one major advantage we still have — scale — to work to give new means and methods room to breathe.

Lawrence Martin, in his column in this morning’s Globe and Mail, raised the notion that the economy is slipping into stagflation (I agree) and then that the Harper Government would “miss the revenue” it “gave up” through the GST rate cuts. He may well be right that the Conservatives will miss that revenue: goodness knows, they’ve acted far more like bloody Liberals than Conservatives in office, spending like drunken sailors with no clear purposes, no vision, emerging. But I profoundly disagree with the notion that underlies Martin’s thought, which is that the problem with stagflation is a lack of revenue with which to intervene in the economy to “right matters”.

Let’s state my thesis clearly: it’s not the Government’s money; it’s mine.

I am not an anarchist: there are proper functions for government and I have no objection to paying my taxes for them. Nor do I have an objection to government taking on a visionary capital investment programme — akin to Macdonald’s building of the Canadian Pacific, or Laurier’s building of the National Transcontinental — that leave us with a legacy of much-needed infrastructure.

I am, sorry to say, deeply opposed to what are in essence handout programmes that expend operating monies year after year without end: there may well be a need for one of these from time to time, but the case must be made — and the case to continue them must also be made. If I could but wave a magic wand and make one change in the country, it would be to automatically attach sunset provisions to each and every spending programme put forward at all levels of government, forcing politicians to pass them, again and again, in order to continue them. Many, I daresay, would fail to get support the third, fourth or fifth time around: new ideas would almost require the weeding out of old, stale efforts.

(Any programme that achieved 96% of its “total mandate”, for instance, qualifies as “stale”. Pareto’s Law states that the first 20% of the effort will produce 80% of the final results. Two “Pareto cycles” and 96% of the mandate is accomplished [80% + 80% of the residual 20%]. Everything after that plays to deeply diminished returns, and costs at least as much, if not more.)

So, Mr. Martin, if you’re worried about stagflation (the combination of declining economic activity with price inflation) — and I am; the Bank of Canada, with its two rate cuts this year, has practically guaranteed it — the issue is not “whether the government will regret limiting its revenues”. The issue is “what are they going to stop doing in order to find money for whatever programmes they think will ameliorate the pain of stagflation”.

Do we need, for instance, to be funding sports? Why? So that we can afford to play the “undetectable chemical athletic process” that international competitions are laced with? So Canada actually sends true amateurs — who are not people funded by the public purse to pursue medals but people who arrange their own funding to pursue their own excellence — and fails to come home with a bag-full of gold, silver and bronze? The world will not topple from its foundations because we don’t play the drug game with the Chinese, the Americans, the Russians, and all the rest.

Do we need to drop billions into Industry Canada and its affiliated agencies to dispense as largesse across the country? Do we need to turn people into courtiers for a dollop of money from the regional economic expansion agencies? Do we need to fund ever more police-state-like tribunals, status-granting agencies and their kin? I say: you want money, there’s lots of it hiding here. Shut them down and use the cash elsewhere.

Indeed, even on a good day 20¢ out of every $1.00 sent to Ottawa goes into paying the people who administer and deliver programmes. Every programme that is terminated outright — delivery stopped, delivery and administration and policy staff removed from the public payroll, money reclaimed from the relevant spending envelope — generates less spending on overhead. Turn that money back to those of us whose property it is and it’s worth $1.20 per dollar in our pockets.

After all, my overhead, and your overhead, to find ways to do these things (if they matter to us) is far, far less than 20%. Don’t believe me? Ask what the overhead for the child care payments is versus what the overhead would have been for “national day care”. (Check Québec’s experience to determine this.)

There are those, of course, who would say that some “vital interest” or other would be starved or left undone if this type of thinking became pervasive. Sorry, I’m not buying it. Take a look at old Hong Kong, with its 15% government take (compare that to the numbers on your tax return, since April 30 is but two days away!) — an incredibly prosperous community that, somehow, managed just fine (before the Peoples’ Republic regained control in 1997, at any rate). The old Hong Kong colonial government set priorities based on its means, which were kept low (short on resources that could be sold off to close the gap, they were acutely aware that money in the hands of Hong Kong’s citizens was the only economic asset the city had.

Of course, the notion that I might tend to my own affairs and have to be responsible for my own decisions scares so many people, who would prefer to be coddled, cradle-to-grave, no matter what the cost in lost opportunity. But here’s the thing: the standard of living in real terms — not the nominal terms of ever-less-valuable fiat currency systematically ruined by governments and central banks around the world — stopped growing in 1973, right when “stagflation” first reared its ugly head. If the long boom of 1982-2007 couldn’t deliver a real improvement in standards of living (for, remember, in 1973 most families were single-income, drove new vehicles that they paid for in three years or less, had mortgages of 25 year amortization or less, were eating better [more imported food, more and better cuts of meat] — compare that to today’s situation), then this next lengthy period of downturn will eat further into Canadian standards of living.

We will all be much poorer, in other words. Stop taking so much of our money!

Remember, those of you who say that without high taxation — and for the middle class no G-7 country hits its pocketbook harder than Canada, its provinces and municipalities do — no great visionary programmes to build the country or relieve suffering could be undertaken, that when Canada was a brand new nation it took on the building of a transcontinental rail line, on a Federal Government tax and tariff base that amounted to 3±1%! (Provinces barely had budgets compared to today: all those Section 92 responsibilities were provincial in large measure because the public looked after them themselves.)

So we can afford grand infrastructure. We can afford our social safety net, too (but we have to be willing to entertain some hard truths about its costs, and how we deal with demand in an era of restrained supply of funds). We simply need to make choices.

In the first paragraph I decried the Harper Government’s failure in this arena. To those who believe, as Tom Flanagan (judging from his piece in the Globe and Mail last fall), that triangulation to the left is how Conservative majorities will be elected, what Harper & Co. have done is not a failure, but a successful positioning for future power. The skirmishes erupting on various blogs between those who hold to “my party, right or wrong” and those who expected better from a Conservative Government indicate the depth of disagreement that is emerging around this.

So, let’s force the issue. My word to any politician who bangs on my (virtual) door? “We want you cut to 20% maximum. Now, do your job within that.” (The Netherlands has a system like this: on your tax return, if the total of all taxes paid to all levels of government, including VAT, plus fees and charges to all agencies, exceeds 67.5% of your income, you cap your tax so that you do not pay (in total) more than 67.5%. The number is horrendously high — which explains much about the Dutch economy’s structural issues — but the idea is sound.)

With such a cap, parties would be forced to campaign in one of two ways. First, to adjust the cap itself — which makes the “the Government graciously allows you to keep this much this year” crowd stand up and be counted. The second is to prioritise, focus, and make programmes work — because there isn’t enough to do otherwise.

The parties would start to differ on what they would do within a limit rather than being able to simply promise, promise, promise. All that extra money in the hands of Canadians would deal with stagflation — and provide resources for entrepreneurial activity to create a 21st century economy in this country “from the ground up”, not from the “successful grant application downward”.

Not that I’m religious, but even the Deity didn’t ask for a tithe beyond 10%. I’ll grant a transitional 20% as we have a nation of recovering addicts — people who think there really is “something for nothing” — who need to go through detox for a few years. But even at 20%, we’d finally fulfil Laurier’s “the twentieth century belongs to Canada”. A century late, perhaps, but certainly on a sustainable foundation (which depending on rising commodity prices due to supply shortfalls globally isn’t).

I’ve chosen the Canada I want to see, the BC I want to see, the Vancouver I want to see. Now: who wants my support? For the price tag of failing to ultimately come to grips with this is that people like me up and leave rather than pay, pay, pay. (After all, were I to go abroad again, it would be for the third — and last — time, and this time I would be looking to take out citizenship where I land.)

Where do you stand?

Yesterday, in accordance with practically everyone’s expectations and often their desires, the Bank of Canada lowered interest rates in this country by fifty basis points. The markets had certainly expected this move, for the exchange rate of the dollar barely moved (but then, it’s most tightly coupled with the price of oil these days, even if the US Senate thinks passing legislation that stop the US from importing half of the oil they do every day from Canada because they don’t like its oil sands source (and all the attendant ecological issues surrounding it) is a wise move. It’s not, of course — we are the Americans’ largest single source of petroleum; allowed to stand, fuel in the US would skyrocket to over US$5.00 per US gallon in the wake of rationing line-ups as in the 1970s. (Mind you, it would reset the NAFTA targets for minimum amount to export, something we might be thankful for a few years from now. But it won’t stand; it’s so destructively stupid that it won’t become law.)

50 basis points! The Bank of Canada almost never moves in chunks that large. The fear, of course, is for Central Canada, which they perceive as being in trouble. Which, I suppose, there’s some concern for. Mind you, a lot of that trouble can be laid directly at the feet of the US Department of Homeland Security and their asinine approach to cross-border commerce, and another chunk of it - a goodly one - at the speed and depth of the collapsing economy in the United States. With an insolvent banking system, even the debts of solid corporations get called, credit lines get cancelled, and business freezes up. There’s nothing this rate cut does to mitigate any of those causes of distress, but you wouldn’t know it for the cheering section’s noise.

What it does do across the country, of course, is pump a little more air into the leaking balloon that was the housing bubble, by lowering the cost of money. It also makes savings a pathetic choice, which will see even more free cash swept up into our own version of high-risk mortgage lending: yesterday, at a North Vancouver Starbucks, while I spent two hours using the WiFi for research before a meeting, no less than six transactions went on around me of younger couples putting their savings into one mortgage pool or another. Good luck with that.

Good heavens, VanCity (the “big bank” around here, even though it’s a credit union) already paid a higher interest rate on a particular type of ordinary savings account — not even a term deposit — than the previous Bank of Canada rate. That’s what it took to attract deposits, for without deposits there is no fractional reserve banking, no multiplication of money by lending it out five or six times on the strength on one deposit. In essence their rates to borrow had to stay higher than what they need to pay out to attract the base from which to work. Now that the Bank of Canada rate is 0.5% lower, will it move their rates? Or will the system stay right where it is — maybe even see lending rates rise to make ends meet and cover risk? — because liquidity is poor already?

Your guess is as good as mine. But, hey! What a feel good factor, eh?

Of course, this is precisely the wrong interest rate policy for Western Canada, whose economies continue to boil along, with shop windows filled with “Help Wanted” signs and ever-escalating real estate prices even if the transaction rate slowed a bit this winter. (How much of that is the normal winter slowdown no one’s saying: we’ve become used to the idea that each and every month should see “growth”.) In essence, a roaring fire in the West has just had another tanker truck or six of kerosene dumped on it.

What goes up, must eventually come down. Great differentials do not persist without fundamental reasons, and although resources have been a powerful reason for the health of the West that doesn’t keep housing stock high, high, high in the sky on its own, nor does it support the notion of minimum wage rates as “just a suggestion” (because no one will take a job for so little money with costs rising like mad). None of it, anywhere in this land, deals with food inflation, rocketing onward at 20-30% and with real shortages emerging in staples (tried to buy any white rice, other than the hyper-processed Minute Rice or Uncle Ben’s lately?), or fuel inflation (premium is about to hit $1.40/litre, and regular is at $1.27.6 this morning), or escalating taxes, or escalating utility costs…

We who live in Canada’s new economic engine need what the Australians have been getting: not rate reductions, but rate rises, to dampen down the fervour and create an updraft in the currency exchange rate to offset the commodity price increases driven by global demand and ever-shortening supply. Of course, Australia is lucky: it doesn’t have a Central Canada built on being branch plants part of a continental supply chain trading on a poor dollar exchange rate and never giving two hoots about productivity, about new markets or about “what happens if”. So, once again, we get to accelerate our upwave and really suffer in the following downdraft to make life good in the Toronto-Ottawa-Montréal axis.

Many years ago, in her Cities and the Wealth of Nations — and in her following works — Jane Jacobs pointed out the obvious: cities are the economic engines. Even the resource economies of the “Canadian Empty Quarter” (Saudi Arabian oil is mostly concentrated in a part of that country known as the “Empty Quarter”, a place big on non-renewable wealth and short on people) are centred in cities (although the wealth itself is “out in the country”): money is raised there, support services are found there, expertise is concentrated there, etc. As such, each city that actually creates economic value (some don’t: Ottawa and Washington DC obviously not, but even big cities like Atlanta can be very low value-add places) needs its own exchange rate. Big currency areas, in other words, punish the successful by amplifying the booms and busts, and reward the indigent by setting policy to ameliorate their failures to adapt and change.

I have for many years now held that the continental-scale countries will not hold together. As energy gets ever shorter in supply and more expensive, “big” becomes (in many cases) an expensive luxury. Local conditions begin to matter much more — and so the premium of not having a monetary and fiscal policy framework attuned to those local conditions eventually becomes too much to bear, and separation begins.

(It always amazes me that the drumbeat that the fast-growing European Union countries would “break the Euro apart” has not abated since the single European currency was put forward, yet the same argument applied to North America is laughed out of court. Yet we didn’t have money in this country unified until 1935 — before that, individual banks and corporations “created” banknotes, which traded against each other at premiums or discounts — and the US didn’t have it until 1913.)

Separation will begin here in the West one day because of Eastern economic mismanagement lashing the West one too many times. It won’t take another “National Energy Policy” to do it. Just stupid moves like lowering interest rates when they should have been raised to let the balloon down and restore a degree of equilibrium in conditions in different sectors of the economy. Eventually, when the West goes, the East can have a cheap dollar again, and we can have the strong dollar our economies will need and want.

Remember, when it happens out in the 2020s-2030s, that it isn’t coming out of the blue.

In the meantime, though, a lot more suffering in Canada has just been created. More risk will be taken on, with more losses as a result. More people living on fixed incomes will find their straits tightened, perhaps to the breaking point. More of the aware of the East will take their losses now, uproot themselves, and come West, increasing the pressure on housing here. (Have you see the number of Eastern licence plates circulating — both US and Canadian — around Vancouver neighbourhoods … and then the number of cars that sport them one day, and BC plates the next?) Nothing the Bank of Canada did yesterday will really help Ontario or Québec: their house prices are coming down regardless, and now their investment asset values will, too. Insolvency and liquidity will remain the hallmarks of the financial system.

Instead of debating this, we’ll spend the next few weeks playing the scandal game. Good-bye country, killed by bad policy and a lack of creativity in making basic economics entertaining.

This morning’s news was full of cheer: evidently, unlike everywhere else in the world, Canadians are not experiencing rising price inflation.

You could have fooled me. Petrol is at $1.26.4 per litre for regular, a new high mark. Two grapefruits yesterday totalled to $8.00, up about 25% from the last trip to the organic food store. If things are getting cheaper or holding their price I’m not seeing it.

The radio announcer doing the business news segment on CKNW ended with the comment that “yes, Western Canada is seeing some price increases but the economy’s not doing so well in Ontario — anyway, the Bank of Canada will drop 50 basis points next Tuesday and that’ll fix that”.

Absolute bull, that last bit. Not about the interest rate cut — I fully expect the Bank of Canada to do the wrong thing and lower rates — but about the “that’ll fix that” sentiment. (As for Western Canada, well, I guess we can just see our prices continue to rocket upward, too much loose credit chasing too few goods of quality.)

This is how the United States slid down its rathole. This is how the United Kingdom slid down its one. This is why China has separated into two economies — something that could easily lead to internal friction and a split in the country. Everywhere in the world that you see economies in trouble today, you see price inflation coupled with insolvency.

The last thing you do for either of these is lower interest rates.

So, if lowering interest rates is on the table, the question that comes to mind is “why?”. The answer is simple: it bails out the financial institutions (which these days are fund managers, brokerage firms and mortgage lenders quite as much as banks). The trouble is — again, as the United States has shown — lowering rates at best buys a few weeks before the next wave of trouble hits.

Make sure you’re clear on that: lowering rates is akin to handing out large bags of drugs to junkies.

Canadians often sneer at Americans for “living beyond their means” but we’ve been up to exactly the same schtick. After all, there’s no way for houses to sell at prices that take 70% of a two income family to make the payment — this a 40 year amortization on the lowest possible down payment — without being “beyond your means”.

The British used to call installments “the never-never plan”. Well, “never” has arrived — and it wants its due.

The reality is that our pride in governments stopping the deficits and retiring part of our debt has been counterbalanced by corporations taking on massive debt to go private (it’s BCE that bears the $40 billion plus of debt, something that makes that company a very fragile reed indeed), and individuals taking on massive debt which they judge by the costs of servicing, not the amount that’s being racked up. (Meanwhile governments are throwing numbers around like they’re going out of style — BC’s announced new programmes galore, mostly to “be paid for by other levels of government”; Vancouver’s hiding its property tax increase this year by subsidising it with the savings from last year’s city-initiated civic workers’ job action — and the Feds have emptied the cupboard. In other words, everyone is now positioned to slide back into deficit spending, jam a crowbar in the citizen’s wallet and savings to get much more money, or both.)

Did I say “savings”? Damned little of that left in the economy — the national savings rate is so close to zero it would barely fog a mirror, were the savings rate a breath of life. That, of course, is what it is: future life. Put nothing away, and where does the investment come from for new work, new opportunities?

Oh, yes. I forgot. We seem to think that’s government’s job, too. Of course, they’re short of anywhere to produce it from (and long on promises).

Let’s be very clear. The United States has made its bed. It is going down to a much lower standard of living. The adjustments there will take years. On the way they will fight it tooth and nail — they’ll “Japan” their monetary policy all the way down to 0% if they have to (that, over in the land of the Rising Sun, has led to an 18 year [and counting] deflation, where all the government spending in the world — Japan’s debt went from best in the G-7 to worst by quite a bit — couldn’t get the economy moving again), and that still won’t save the US financial sector from insolvency. They’ll throw up protectionist move after protectionist move, abrogate the terms of treaties, demand special treatment “or else”, and it still won’t create American jobs. Eventually they will pull back from the world, unable to afford their military. Even then, the adjustment won’t be over.

Why on earth would we want to follow them? Simply because they live next door, we have relatives there, we vacation there? Wouldn’t we be far better off to deal with our own issues and keep Canada economically healthy?

Keeping us healthy means the Central Canadian manufacturing base needs to change from being a branch plant, continentalist entity to one that produces products for sale globally. It means letting the companies with weak management go under if necessary. It means the ones that are owned by failing companies in the US need to be sold to better leaders here, or die with their parents. This adjustment will be hard, but it is needed.

Out West, we need to start building local companies. There’s more to life than resource extraction. Local firms and public sector agencies need to buy from other local firms.

All of this needs to be supported by a good savings rate, to finance our own growth in the future. (You want a greener Canada? It requires investment. You want an employed Canada? It requires investment. Enough said.) Lowering interest rates effectively says “saving your money is worthless; go spend it”.

The gas needs to be bled out of the housing market — certain markets (South Coast BC, Golden Horseshoe Ontario, etc.) need to come down. The way to do that is to raise interest rates, squeezing out the speculators. Start by holding the line, at least, then gentle increments so that there’s time to adjust.

Or we can go right behind our American neighbours and hit the failure point. Average resale prices in real estate are down 49% in Los Angeles, for instance. Want to see your million dollar 80-year-old bungalow on Vancouver’s West Side, or your half-a-million postage stamp condo halved in value? It’s only worth what someone will buy it for — not what the mortgage amount is. Push the speculation to its limit, when the financial institutions here become insolvent, too, and that’s exactly what will happen.

So who is talking about this? As far as I’m concerned, this is far more important than whether Cadman was bribed, Mulroney made off, ad money moved in and out of riding associations, Bernier suffers from indelicate tongue or Dion is about to be toppled. It’s far more important than whether or not an election may or may not be forced upon us.

Instead, we’ll get a neophyte Governor of the Bank of Canada who’ll probably destroy us all by cutting rates. But boy! Will it make the financiers happy!

Whatever made me think that stability and order in monetary affairs was the point of a central bank? Foolish me.

Sauve qui peut.

Having been away for a few days in the southern United States has given me an opportunity to get a feel, on the ground, so to speak, as to whether the US truly is in economic distress or not. This is a subject about which there are conflicting opinions (as, indeed, there are conflicting opinions about whether and to what extent will Canada be affected).

I shall start by being quite clear on one point: I went convinced that the US had passed a tipping point last fall, and that the question was not whether years of economic mismanagement were going to have their revenge, but when and how deeply. Much of my examination, therefore, was done with a conscious attempt not to read too much into what I observed, to try, so to speak, to take the contrarian view and look for the bright side rather than confirm my own down side view.

I was at a conference this week which attracted the bulk of its attendees from across the United States — along with a few Canadians and a handful of people from Europe. First of all, attendance was off relative to prior sessions (this is a twice-a-year event). While the conference organizers tried to paint a positive picture, my crowd estimate is that attendance was down more than 33% from October. Normally, too, the audience tends to bias to the eastern half of the continent at the spring session (held in the east) and to the west in the fall session. Major sections of the east — mostly in the industrial belt, what Joel Garreau, in his 1981 book The Nine Nations of North America called “The Foundry” — were thin in terms of attendees. “Local” attendees — those who could have driven to the event to avoid the cost of flying — were practically non-existent. This is a radically-different profile from previous conferences of all types that I have attended in the Orlando area, as “taking the family” to an event there when you live in the south-eastern US is almost de rigeur.

The tollway from the airport to the hotel facility — this time, at the Universal complex rather than at Disney — doesn’t give one much opportunity to see the state of residential real estate. I was here just a year ago, however, when the billboards were filled with real estate ads: this time, nary a one was seen. Condo developments near highway I-4 were advertising rentals, rather than purchases (and I believe this walled and gated community was advertising as much holiday rentals as long-term ones). There is much unfinished construction, and no sign of continuing work.

Prices everywhere were up from a year ago. Diesel, for instance, is over US$4.00 per US gallon — about CAD 1.06 per litre. Regular petrols ranged between US$3.50 and $$3.70. Yes, they’re still cheaper than in Canada (and especially in Vancouver, which is consistently above the CAD 1.20/litre mark these day) but the differential has dramatically closed: Florida has always been relatively inexpensive, as it is quite close to the heart of the refining base (unlike, say, California). Such food prices as I was able to glean from the local newspaper and television advertising indicate 20% jumps from a year ago for the basics.

The attendees at the conference were glum — morose, even. Few felt that their companies would be doing much this year; many asked me for my thoughts on how to defend their budgets and staff base. There was a general feeling that harder times lay in their companies’ futures. Many capital projects had been cancelled or deferred. Many had had their contractors and consultants quietly purged and removed from the office. More than once I heard people say “thank goodness this was booked months ago, along with a non-refundable air ticket, or I wouldn’t be here”.

Local advertising was mostly for solicitors, especially to deal with foreclosure and to provide relief from dunning by creditors.

A friend of mine in Vancouver asked if (following up on some reading she had been doing) organizations like Starbucks were suffering more deeply than most. The lineup at Starbucks at both Vancouver and Toronto airports was its usual long self, with a full complement of serving staff to keep up with the demand. On the other hand, this morning, the airside (where no worries about liquids would be involved) Starbucks in the busier terminal at Orlando Airport had no lineup at all, and a skeleton (and obviously not well trained) staff. Having had an efficient and even relatively pleasant TSA experience, I had the time, so I sat where I could watch the outlet for about thirty minutes. Only one other person bought anything there during the entire time. Burger King coffee, on the other hand, was a much better seller (although not necessarily a better experience). Apparently people are cutting back.

I think there’s little doubt that Canada will experience some of the same experience over the next while: there are Canadian regions that have also experienced a housing bubble (no area can long sustain housing prices that require 70% or more of a two income family’s monthly net pay simply to pay the mortgage on the most generous [minimal down payment of 5%, 40 year amortization, lowest variable interest rate], as does Vancouver today). Garth Turner’s new book — based more generally in the Toronto region experience, which is equally overpriced — suggests the bubble is being burst this year. I concur. The adjustment — having lived through Connecticut eight years after its last housing bubble, where a 50% “adjustment to reality” was still required to awaken the local market — can be long and difficult, especially as real estate generally needn’t move.

For all that, we have done many things right. The West is unlikely to experience a slowdown (save only if the Bank of Canada does something really stupid and follows the Federal Reserve into the abyss of negative real interest rates). Central Canada has some adjustments, but these are as much due to the drying up of business on the US side of the border — work-out specialists from New York fill flights to Michigan, for instance, to restructure the extended automobile sector — as to the border shenanigans associated with the Department of Homeland Security’s flouting of the principles of NAFTA, to which the US was a willing signatory and remains a general beneficiary.

The Bank of Canada must resist the siren call to lower our interest rates: we do not need it for our domestic purposes, and indeed it would simply start an economic fire that would worsen our competitiveness for the future. (We must also, it goes without saying, eschew the “quick fix” handout mentality from the Opposition benches, from the Turners in the Liberal camp to the NDP at large.) On CNBC this morning the Bank of England was applauded by the stock junkies for having lowered rates “to help the United States” (the myopia of the US media continues unabated) and the European Central Bank was criticised for being “more concerned with European needs than ‘our’ needs”. Jean-Claude Trichet and his fellow ECB governors are to be applauded for paying attention to the people they are there to serve, and so, too, our central bank should do the same.

All in all, I come away thinking that the US had quite a bit further to fall. Until the hubris that leads to calls for others to suffer to “bail out” the US abate and Americans take responsibility for the shape they’re in — no one I talked to felt there was any connection between their own deficits, or their quest for endless growth, or their quest for a risk-free life and the conditions they are now experiencing — this downturn will continue to unfold. Only if we see responsibility being accepted, south of the border, should Canadians consider lending a hand. Certainly none of the candidates campaigning for office there show any sign of understanding how much bad policy exists, and how much they are espousing. In short, sauve qui peut — we should tend to our own health and well-being.

Living next door to the United States as Canadians do, we are innundated with daily doses of American media. A significant percentage of us have relatives on the other side of the border, or own property there, or have spent part of our own lives living there. Then, too, much of what interests us for our own savings and investments tends to be American in nature: American companies on the stock market, for instance. We are, as a people, invested in outcomes in the USA almost to the same depth as we are to Canadian ones.

That’s why it’s not surprising to find most Canadians feeling that there’s nothing wrong with helping our neighbours out as they continue their descent into an economic collapse of their own making. (Too harsh, that? What else would you call no commitment to ending deficit spending and ever-ratcheting-upward debt, no concern for the health of their currency [odd, given the dependence of the United States on imported energy: slipping US dollar exchange rates means it costs Americans more even if the world price of oil and natural gas is stable], financiers who have once again taken on too much risk and a Federal Reserve policy of saving their bacon at the expense of Main Street, USA?) Indeed, as the combination of the US Department of Homeland Security’s incessant border actions impede business as organized under NAFTA, destroying the effectiveness of just-in-time industry supply chains, and as the insolvency crisis around mortgages continues to drain the American economy of consumers with cash, American businesses are consolidating, to the detriment of Canadian plants and suppliers. Canada ends up with clear differences across the country: sectors in trouble (lumber everywhere, manufacturing in Ontario and Québec), and sectors that are booming.

But we have our own issues. We, too, have been playing the “house equity ATM” game these past few years — after all, if we hadn’t been, local radio wouldn’t be full of advertising for second mortgages, home equity lines of credit, and borrowing from equity built up, especially in the country’s hot real estate markets. Meanwhile affordability has gone to hell in a handbasket: less than 30% of Vancouver-area residents qualify to enter the housing market, even with 95% mortgages CMHC-backed, and the target being a 400 sq. ft. overpriced postage stamp of a condo as houses are out of the question. At a time when fuel is (as it is here) over $1.20 per litre, the suburbs sprawl ever further out, with even longer commutes, to try and trade off land costs and create “affordable” housing. There’s a financial trap: too much money, still, to live too far away, with all the hours spent stuck on the road, in mounting traffic jams (the worst roads are inevitably in the suburban areas outside our cities), and all the life that is lost — not to mention the health care problems to come from all that sedentary, stressful driving time and worries about making ends meet!

Australia saw this coming back in 2004. They — like us, like the UK and Spain, like the Irish, and like the Americans — had a housing bubble and a growth in consumer debt. They decided to get ahead of the inevitable “popping” of the bubble (with consequences clearly on display south of the border). Interest rates were run up, to dry up the speculative building and house-trading. Even today Australian rates are more than double ours — and nearly quadruple where American rates are now after the US Federal Reserve’s 75 basis point rate cut today. This was a little less than anticipated, yet, judging by the futures and stock market action this morning, a continuation of the “preserve Wall Street, to hell with everyone else and the US dollar” approach taken to date.

Yes, Australian prices have fallen. Those on the frothiest edge of the speculative bubble paid the price for being the “last one in” — something that must happen when every set of conditions turns. But they have come down in an orderly fashion — that country is not filled with whole neighbourhoods in foreclosure or for sale at distressed (40% or more down from purchase prices of two years ago) asks with no bids. The Australians have had to tighten their belts for a year or two. But the country is growing, and prosperous; the danger was averted.

We in Canada can (just) still do this. The Bank of Canada ought to be doing the same for us: raising interest rates, signalling to lenders to think more about risk. Borrowers would pay more; real estate would begin to decline in an orderly fashion. Likely, the Canadian dollar would rise as well. The whole combination would likely bring screams of anguish from Southern Ontario (which has had both a housing bubble and a plethora of employers who figured the Canadian dollar would perpetually be the poor cousin of the US one). We would need, as a country, to begin to add high-value-add manufacturing to our mix, instead of competing on price. All this is a long-term benefit to Canada, worth the price of two or three years of pain.

The alternative, after all, will be to be a Japan, with a nearly two-decade long depression — exactly where America is headed. A deflationary depression, with all the levers of monetary policy jammed at zero and unable to do anything, debts galore, a declining currency and escalating costs for food, fuel, etc. due to imports and diversion of foodstocks to make fuel with the ethanol programme. Add a little of the usual American protectionism and the outcome will be America’s withdrawl from much of the world exactly as did Britain a century earlier: unable to afford to stay. This is where the world is headed — thirty or forty years of great power transition. Two world wars signalled the last one.

What Canada must do is take its medicine. Yes, it’s hard: it’ll bring pressure on the government, and will make people like Garth Turner, MP froth at the mouth. So be it. The alternative is to do what we have done so far in 2008: sink ourselves and our future so as not to “deviate too much from the United States”.

America is a dying empire. We need to step up to our own future — energy state that we are — and decouple from the US. We do that by straightening out our own house. Ideally we would go all the way and return to a gold standard. If not that, at least show some backbone — be Swiss, be European, be Australian.

There is no greater gift to the future — no better sign of stewardship — than that a dollar retains its value. When it doesn’t, saving makes no sense. Do we want to be Americans, with a negative savings rate, drawing down capital to keep spending? Or do we want to again practise thrift and a sense of longer-term interest?

The choice is now. Let us hope those in charge in Ottawa get the point, and do what we need, not what we, in our desires, may (at this moment) want.

There really isn’t very much that’s required to turn Canada into a world power, a country filled with jobs (and good ones) galore that attracts the best and the brightest from around the planet. It’s simply to remove the dead hand of government from the economy.

Dead hand? What other name would you have for $220,600,000,000 of spending by Ottawa? All that money, after all, didn’t come from nowhere: it came from you and me. That’s just a tall latté and a slice of lemon poppy-seed loaf at Starbucks (or a lunch special at Tim Horton’s) away from $6,900.00 from each and every Canadian: new-born babe, school child, university student, adult worker and retiree. This year, next year, every year. That sixty-nine hundred dollars doesn’t count the take by your province, or your municipality, but it does cover every tax the Federal Government assesses: the GST, the gas tax, the air conditioning levy, the tire levy and the like.

Then there’s the cost of administration. With 400,000+ Federal civil servants, even assuming a low $80,000 each for salary, benefits, office space, etc. we’d have 15% of that two hundred twenty billion simply going to pay for all the people whose hands touch this money through their work. Don’t forget all the money that goes to pay for contractors and consultants to augment the federal headcount, provide for skills that don’t fit within the current pay bands due to their demand, and the usual second opinions in the endless game of “my ass is covered”. It’s probably not at all unreasonable to figure that a good 20% of every tax dollar goes into “administration” in this way.

That’s $1,380.00 a head, Canada. And what did we get for it?

Well, ostensibly we got programmes and services. Great chunks of the spending, of course, are simply transfers: take the money from here and send it to there, collect money from this and pour it into that. Papa knows best, and all that. Personally, I’m of the opinion that if some provinces are wealthier than others (i.e. pay more into this transfer agency that skims 20% off the top just for existing than they see back in “goodies”) that’s just a fact of life. At the time of Confederation the economic powerhouse of Canada was Nova Scotia, with New Brunswick close behind. Much of the twentieth century saw Ontario and Québec as the place to be. Early 2008, the money’s being made in Alberta, British Columbia, now Saskatchewan. In other words, the more productive corners of this large country keep shifting. It would no doubt be desirable if we could just keep the strength of each region and others grew up, but that’s not what happens in the real world. Power and population, economic models, etc. shift and change. Accept it.

Capital, in fact, goes where it receives the most respect (i.e. isn’t nibbled away endlessly either by erosion of the value of the currency or ever-changing fees, rules and taxes). Investment comes when a region has lots of opportunities to choose amongst, and where inflows to the region are sustained and sustainable: the timeframe here is not “to the next election” but measured in decades (and sometimes, centuries). Capital is not just financial: it is educational, human, dynamic. It can receive more respect with the right policies: the argument for a single payer health care environment (regardless of who delivers the care) is found in low cost and universality (I can take a risk as my care is not tied to my employer); the argument for low cost education with many options (no mandated curriculum) is the allowance for developing even more human capital. There are, in other words, some investments worth making to prime the pump. Others may facilitate sustainability: the infrastructure of urban areas, for instance. But if the total package isn’t right, or the take to do these things is too high, the capital will go elsewhere.

It shows how badly off we are when you realise that Dubai — a place with a beastly climate, close to one or more potential wars that could spill over and engulf it, little food-producing capability, etc. — is attracting the mounds of capital it is. But that capital isn’t going to multiply much: it’s being sunk into buildings. No real import substitution (as Jane Jacobs, in her works The Economies of Cities and Cities and the Wealth of Nations showed, this is the true engine of economic prosperity that lasts) will take place. If that is the best use of capital, it shows how much we have impoverished our own prospects.

So: get out of the redistribution game, the picking favourites game, the national champions game, the innovation agenda game, etc. Stop agonising and studying (even unto death) the locations of things. Allow — as the Finance Minister has hinted — province to compete with province for the shape of the future. Leave the bloody money in the hands of citizens to start with by lowering tax rates and eliminating whole taxes outright. Starve the beast. Remember, each dollar denied to Ottawa is actually $1.20 saved, thanks to the overheads of running the place.

As for the Canadian economy, the other thing that’s required is a strong and stable currency. A dollar saved — I care not whether in an ordinary account or term deposit, in an RRSP, an RESP or a TFSA — should still be worth a dollar in terms of its purchasing power years later. Inflating the currency, in other words, is destructive of wealth. Lowering our interest rates, as was done this month by our new Governor of the Bank of Canada, and promising to keep doing it “to keep matching the Americans” is a fool’s game, for they, foolishly, are outright destroying their economy and the US dollar. There is no need for us to follow them into the pit. Not doing so would make our corner of North America the one to invest in, to accumulate capital in, to build factories in to serve the entire NAFTA area. Why destroy our prospects and our own futures? To satisfy Garth Turner’s and Dalton McGuinty’s odes to twentieth century applied Marxist corporatism?

Ideally, of course, we would bite the bullet, take the transitional pain, and return to a backed currency. That means gold, once money and no doubt again as country after country follows Zimbabwe’s descent into wheelbarrows full of bundles of million-unit bills to buy what little there is. That is where the US is headed. So far Europe is trying to resist. Australia is resisting. We should, too — and take the power away to play games with the value of money in the process. The first country to get serious about the long-term value of their money will see a massive inflooding to boost their economic future. It should be us.

There is — just as there is with issues such as the environment — little likelihood that any of this will come to pass. Parties and party leaders positively thrive on siphoning off the future to bribe the voters today. But we can dream.

And when our children are impoverished and life is hard, we can tell them just how badly we screwed up, how we missed our chance to be great, and settled instead for a little more largesse.