Usury-R-Us

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
-Henry Ford

With the J. P. Morgan Chase settlement finally decided, now seems as good a time as any to discuss those most hated of all villains: Bankers.

Generally seen as undeserving of their truly obscene wealth, most people instinctively distrust their skill at jumping their horse over your front line to checkmate you on turn two when you were pretty sure you were playing checkers.

We don't understand most of what they do is what I'm trying to say there.

Also, realize that I am primarily talking about US investment bankers. Canada's banks did pretty well through the crash, primarily because Paul Martin had rejected deregulating the banks as finance minister. Instead, alone amongst the Group of 8, Canada tightened loan-loss and reserve requirements while disallowing major bank mergers. This he did while being criticized by the banks and Stephen Harper, both of whom felt it would put the Canadian financial sector at a disadvantage globally. Fortunately, they were very wrong and Canada came out in a pretty strong position bank-wise.

After the 2008 financial collapse, which was primarily brought about by greed and fraud within the banking sector, it was unclear whether the economy would recover at all. Understandably, there were a lot of people mad. In 2009, Obama spoke to the bankers and made it clear that: "My administration is the only thing between you and the pitchforks."

Fortunately for them, Obama did a damn good job of getting between them and the pitchforks to the point that none of them outside Lehman Brothers actually had to suffer at all. In fact, while 2 million Americans were losing their jobs at the end of 2008 due to the crisis, 2009 would prove to be Wall Street's best year ever. Amidst a $175 billion dollar taxpayer-funded bailout for 9 of the major banks, $32.6 billion of it was being used to provide bonuses even though 'the talent' had only managed to achieve massive losses. Despite the financial sector providing 20% of Obama's campaign funds in 2008, more than any president for the last 20 years, even he had to put his foot down and complain about the obscene culture of huge bonuses for bankers who almost destroyed capitalism.

It was this pro-Main Street, anti-Fat Cat rhetoric that would cause Wall Street to support Romney for the 2012 election, providing him $61 million and only $18.7 million to Obama. Now, I can hear you say, "Surely this lack of support and this record-breaking $13 billion dollar fine for J. P. Morgan shows that the Obama administration is finally getting tough on financial crime and taking the crooked bankers to task!"

Well, it doesn't. And don't call me Shirley.

This fine is unfortunately far less consequential than it sounds and accomplishes nothing except providing a good sound-bite that Obama is 'taking on the bankers'. Essentially, this settlement is their punishment for engaging in criminal fraud and routinely overstating the quality of mortgages it sold to investors. This includes bad loans made by Washington Mutual and Bear Stearns, two firms purchased by JP Morgan during the crash. 26-27% of the loans they packaged did not meet the guidelines investors had demanded but they knowingly lied and said they did.

This payment is likely to just be one of many as there are at least 9 other government probes into JP Morgan for various other illegal behavior. In fact, they just finished up another $4.5 billion dollar settlement with 21 institutional investors who they had ripped off. Clearly a very ethical institution. The bank currently has $23 billion set aside to deal with these other approaching litigations.

The problems with this approach to punishing banks is that it doesn't actually make them stop the behavior. First of all, the settlement doesn't actually include an admission of wrong doing. This means it can work as a shield against other lawsuits. In fact, upon announcing the $13 billion dollar settlement, their stock price would increase roughly $12 billion since smooth legal sailing was assumed from then out. Second, potentially as much as $9 billion of the settlement is tax deductible which seems to defeat the purpose. Third and most importantly, no one is going to jail.

This is a big problem because the company is raking in much more money from these illegal behaviors than it is being required to pay in fines. Thus, fines just become a cost of doing business that may possibly hurt shareholders but won't affect those who choose to commit crimes. Which means they have no reason to not commit crimes. Which is ridiculous.

In 1995, bank regulators referred 1,837 cases to the justice department. In 2006, that had fallen to 75. It has been clear for a while that when a bank breaks the law, it is generally not treated like a crime. During the late 1980's savings and loans scandal, more than 800 bank officials went to jail. This time around? None. Some fines have been paid by those who knowingly committed fraud after investigations by the Securities and Exchange Commission but there has been no jail time. It was argued this was because restoring stability was goal number one and arresting major bank executives for their crimes could destabilize the recovery.

Of course this is nonsense. The top people who agreed to break the law should not be considered "too big to jail." Working for a business should not grant immunity to the law anymore than Nazis were protected for "just following orders."

Being asked to return what you stole is not a deterrent, especially if you don't have to return all of it. Locking the bosses up and promoting somebody else would not somehow destabilize the system. It would increase trust in the system since people would know you play by the written rules or suffer actual consequences.

Even worse is that the Dodd-Frank Wall Street Reform and Consumer Protection Act was gutted. This was supposed to be the big piece of consumer-protecting legislation designed specifically to prevent this whole sloppy mess from happening again. Matt Taibbi over at the Rolling Stone provides a grim narrative of how it was done and how friggin' impossible it is in the US to successfully pass and keep legislation desired by voters but that is opposed by a wealthy industry. This means that their is basically a zero chance of getting in legal trouble for breaking banking laws and basically no law to break anyway.

It isn't surprising that Obama sides with Wall Street when you consider he stacked his administration with Wall Street insiders. He was even been trying to put Larry Summers in charge of the Federal Reserve when Ben Bernanke steps down in 2014. This is despite Summers being an idiot who was partially responsible for the deregulating of the derivatives market that lead to this collapse in the first place. Fortunately, the Senate raised too much of a ruckus and this clown has to go away.

The Obama administration, the banks, and almost all the state attorney generals were desperately trying to prevent prosecution and prevent those defrauded from being properly reimbursed. They had agreed to a $20 billion dollar settlement for the crimes that left millions homeless and almost caused another great depression. The $20 billion would go towards "loan modifications and possibly counseling for homeowners." This is an obscenely small amount considering how much money was lost to investors due to illegal practices. In 2008, the state pension of Florida alone lost $62 billion due to investing in these fraudulently packed securities.

Fortunately, New York's Attorney General Eric Scheiderman was a principled man and refused the settlement and stalled the process. When he did so, Kathryn Wylde, a board member of the Federal Reserve who is supposed to represent the public, would state:

"It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street - love 'em or hate 'em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible."

That's a pretty messed up quote for someone who is being paid by the public to work for the public good. What they were doing was clearly illegal. I'm not sure what else it needs to be in order to be indefensible.

Since then, things have generally gotten worse. Andrew Huszar, a former Federal Reserve official, has admitted that the Quantitative Easing program the US has engaged in, to 'stabilize the economy,' is really only benefiting the banks at the expense of the public. The program has basically consisted of the US central bank, the Federal Reserve, creating money to purchase treasury bonds and mortgage-backed securities from the banks in order to lower interest rates and free up funds to lend to Main Street. Currently, it is creating about $85 billion a month in order to buy up bonds and has bought over $4 trillion worth in the last 5 years.

As Huszar notes, this hasn't worked and the banks aren't creating more loans. It brought down the cost for Wall Street to make loans but they have simply been pocketing the difference and using it to speculate, therefore raising prices and causing a new bubble. The Fed has admitted that the return on this massive $4 trillion dollar investment has been, at most, a few points of GDP growth and possibly even as little as $40 billion.

Because of this nonsense, the big US banks have seen their stock prices triple since March of 2009 and made them even more concentrated and risk-prone than before. 0.2% of the banks have been able to buy up smaller ones and now own 70% of US bank assets. In addition, it killed the urgency of dealing with the problematic US economy which is only producing low-wage jobs at home.  

Simply handing out the cash in the form of infrastructure job programs would have been a much more logical solution. Inflation would have been a bit of a problem but it would certainly have beat this alternative. It's what FDR did during the Great Depression and it spread the wealth around enough to reboot the economy. Quantitative Easing has done the opposite and concentrated wealth so that income inequality hasn't been this bad since the end of the Roaring Twenties, right before the world fell into said Great Depression. One percent of the population owns 40% of the wealth while the bottom 80% get by with 7%. That means the richest 400 Americans have the same wealth as the bottom 150 million. That doesn't bode well for the future of the country.

It's also worth noting that that both Canada and the US have messed up central banking systems. The publicly-owned Bank of Canada was established in 1935 and allows the federal government to borrow money at almost no interest. This borrowing helped us escape the Great Depression and fund WWII. It also allowed for many amazing Canadian achievements without bankrupting the country. These include the Trans-Canada Highway, McDonald-Cartier freeway, St. Lawrence Seaway, various subway lines and airports as well as funding our universal healthcare system and Canadian Pension Plan.

In the 70's, high inflation was the result of the OPEC oil shocks and a tendency in governments to pursue full employment through monetary policy. Together, these would drastically raise the price of all goods and services. This situation would cause our various governments to follow the advice of the International Basel Committee, a think-tank composed of the central bank governors of the G10, and start borrowing almost exclusively from private sources. It was argued that this wouldn't cause further inflation since it is old money being recycled instead of new money being added.

However, this is debatable since now it is just the private banks creating money through fractional reserve lending. They don't lend out the principle which means they are just creating cash, and inflation, the same way the central bank would. Except we have to pay interest on it.

Canada now only uses its central bank for between 1% and 5% of its financing needs. This is a big problem as it puts the Canadian government in debt to private banks when there is no need to. This means we are all in debt to private banks since the Fed's debt is our debt. Between 1935 and 1974, there was almost no inflation except for during WWII. However, wars are always inflationary so this can be considered a blip.

The fact is that money lent by the Bank of Canada to the Canadian government would only be temporarily inflationary. The inflation would go away once the debt was repaid and the cash was removed from the money supply, same as when private bank loans are repaid. This means we could borrow to pay our bills without interest.

This would of course be difficult since it would mean challenging the private-banking structure. However, the advantages would be enormous. In fact, between Confederation and when we switched to borrowing from private banks instead of our central bank (1867-1974), our public debt level only reached $21 billion.

After 1974, our debt level increased 20% annually, reaching $563 billion in 1997. There was a Auditor General report which noted that of the accumulated net debt of $423 billion in 1993, only $37 billion was principal. The rest was compound interest payments, payments there was no reason to make. It is estimated that between 1974 and today, we have needlessly paid over one trillion dollars in interest.

Of course, people are right that there are pretty terrible examples of governments going insane with the printing press. Germany during the 20's, Zimbabwe recently, Chile during the early 70's, etc. Each experienced brutal inflation due to having too much cash around. However, each of those countries had reasons for their hyperinflation that Canada would not face. Germany was making massive reparation payments to Britain and France for its role in WWI, Zimbabwe is a basket-case with insane leadership, and Chile was going through a socialist revolution under Salvador Allende where he fixed prices of goods too low and raised wages by decree. This resulted in too much money chasing too little goods. Canada is safe from all those problems.

This makes the idea of having to pay massive interest payments when we don't have to because we don't think we can handle the responsibility of printing our own money kind of a lame cop-out. If we passed legislation saying that we could only have the Bank of Canada buy a limited amount of Canadian government bonds yearly and that they had to be repaid the next year from tax revenue, we could avoid the massive interest payments to private banks with no risk of hyperinflation.

The United States has an even weirder system. They needed a central bank to prevent various banking crises and got one in 1913 when the Federal Reserve Act was passed. It was pushed through under President Woodrow Wilson two days before Christmas when most of Congress was not there. The main problem with it is that the Federal Reserve Bank is actually a privately owned corporation with stocks owned by member banks that cannot be traded or sold.

However, knowing which banks own it is difficult since it won't tell and has stated that it doesn't need to respond to Freedom of Information Act requests since it is "not an agency" of the federal government. However, it is known that some of its member banks are at least partially foreign owned. This means that the US Federal Reserve is partially owned by foreign citizens and governments.

Either way, the Federal Reserve buys US government bonds and T-bills and provides the US treasury with money. The profits made by the Federal Reserve doing this are given back to the US treasury except for an annual 6% dividend on their paid-in capital stock. I honestly have no idea what this 6% dividend works out to and am having trouble finding out. Please mention in the comments if you can.

Now, the Fed's policy of Quantitative Easing has consisted of the Federal Reserve printing money to buy treasury bonds/bills and toxic bank assets in the hopes of pushing down interest rates and making banks solvent enough to lend. As explained by Andrew Huszar, we already know that the QE policy has only benefited the biggest banks who are not lending any more but are instead buying up smaller banks and speculating. Also worth noting is that it is these biggest banks who are also the member banks that make up the Federal Reserve. Which means the Federal Reserve which is made up of the biggest banks has chosen to implement policies that only benefit the biggest banks. That's not suspicious.

What is clear is that the Federal Reserve is not controlled by the people whose money is made in its name. Between December 2007 and July 2010, the Fed gave out secret loans at almost no interest to various corporations to a sum of $16.1 trillion dollars. The link to the Government Accounting Office's audit showing who got it is here.  

Now, just a few useful quotes on private banking and paying interest when creating your countries own money:

Thomas Edison on the Federal Reserve system:

"That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.
 
Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we 
simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good."

Benjamin Franklin on producing own money:

"That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." 

Benjamin Franklin declaring that the cause of the Revolutionary War was the poverty in the colonies resulting from the British Parliament demanding they stop using Colonial Scrip and instead use gold and silver borrowed from the English bankers with interest:

“The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”

Thomas Jefferson on private central banks:

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."

William Mackenzie King on private central banks:

"Once a nation parts with the control of its currency and credit, it matters not who makes the nations laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of sovereignty of parliament and of democracy is idle and futile."

Overall, I think I've made my point that the big private banks are taking us to the cleaners. Productivity keeps increasing but the benefits keep getting more and more concentrated. My advice for everyone is two-fold.

First, join a credit union that supports your local economy, has less fees, and is more democratic in nature than corporate banks.

Second, push for a change for governments to begin borrowing, at least partially, interest-free money from their central banks to pay their debts. The money saved in interest payments should prevent countries from going deep enough into debt that printing to cover it would cause much inflation. After the government debt to the central bank is repaid, the money is destroyed and the inflation is gone. Make sure debt-minimizing legislation is passed simultaneously to avoid government spending sprees and hyperinflation.
 
Man, banks and money are complicated. But I think everyone knows we're being robbed. There is a reason the major religions and most older empires have all opposed usury, or the charging of interest on debt, beyond a very limited amount.

I doubt that this is the correct answer and I know I'm missing a bunch of unintended consequences but it seems the current system is unsustainable, prone to crisis, and needs to change.


AS

In it for the Long Haul

"The baby boomers are getting older, and will stay older for longer. And they will run right into the dementia firing range. How will society cope? Especially a society that can't so readily rely on those stable family relationships that traditionally provided the backbone of care?"
-Terry Pratchett

Honestly, I'm not totally sure why I'm interested in this considering I won't be retiring from anything for at least 40 years unless I win those lotteries I never enter. Still, it's an interesting subject if only because it demonstrates that there appears to be a growing reliance on the government to force people to be responsible for themselves.

There has been some discussion in Canada about raising Canadian Pension Plan contributions due to concerns that the middle-class Baby Boomers are not saving sufficiently for retirement. Essentially, Prince Edward Island Finance Minister, Wes Sheridan, put forward the idea of raising the maximum contribution from $2,356.20 to $4,681.20 starting in 2016. The maximum annual benefit would then jump from $12,150 to $23,400.

Qualifying for this maximum benefit would require income of $102,000 as opposed to the current cutoff of $51,000. This means under the new plan, if you make over $102k, you will contribute $4,681.20 annually while working and receive $23.4k annually in retirement. I know this sounds boring but keep listening, it's important.

At the moment, payroll contributions are 9.9% on income between $3,500 and $51,000. This is split evenly between employees and employers. The new proposal would raise the contribution rate to 13% of income between $25,000 and $51,000 and to raise the combined contribution rate to 3.1% for income between $51,000 and $102,000.

All of these pension changes will only apply going forward so you will have to have spent roughly 40 years contributing at this rate in order to receive the larger benefit payout. Which is good because it would be pretty unfair if those who pocketed the difference instead of contributing it get to piggyback on this change.

This whole proposal is based on a 2009 report by tax specialist Jack Mintz. The report found that low-income Canadians generally have equal or higher incomes in their retirement years due to income supplements. For them, their working income needs to basically be replaced in full for them to maintain a decent standard once they finish working.

This means, there will be no change for low-income earner's pensions since they need all their income to live on while working and their incomes are topped up by Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) once they retire. For people making $90,000 or more, the report suggests 50% of their working income would be adequate for a good life as an old fogey. Which is what this proposal ensures would happen.

Basically, the concern is that many Canadians are not saving enough into voluntary retirement plans. The suggested solution is to force people to stick more of their money into the only pension plan all Canadians have so that we don't wind up with lots of broke old people.

Now, there is a certain logic to this. Although CPP was never supposed to be anyone's sole source of retirement funds, having large numbers of people who made good money during their working days living in squalor is a pretty stupid situation. It will also be an extremely frustrating one if those who willingly saved need to subsidize those who didn't because they blew their cash on nice cars and fancy gizmos. And the way things are going, subsidize them they will in the form of health care, social security, food stamps, etc.

Overall, I can get behind the general thrust of this proposal. Forcing people to save who wouldn't otherwise is smart so that others don't need to pick up their irresponsible slack. I know that simply allowing them to reap what they sow may seem appealing in order to change people's bad habits. Unfortunately, Canada's culture has generally decided that its people deserve a minimum standard of living which will need to be paid for somehow. Allowing people to just go broke and fall into degenerate poverty because they were irresponsible will wind up costing society more and will be paid for by those who were responsible and still have money. Social security nets need to be maintained by forcing people not to excessively take advantage of them.

This isn't the first alteration to the CPP in the last while. In 2012, there were several changes. One was that people who started collecting at 60 instead of 65 would receive a larger penalty to their benefits. Now, for each month of early retirement before 65, there would be a 0.5% reduction in benefits received. Someone retiring at 60 would annually get 30% less than someone retiring at 65.

This was the case for later retirement too with a 0.5% bonus to benefits for every month worked after 65. As of 2013, this bonus to benefits was increased to an additional 42% if you work until 70. Also changed was the number of low-paying years that could be ignored in the pension calculations. Previously, your 7 worst-paying years were ignored leading to greater benefits. This has been raised to 8 years.

There were also a couple of changes to account for the fact that many people who are basically retired haven't completely stopped working yet. One was dropping the work cessation period, a pointless two months before being allowed to collect your CPP where your income had to be very low to show you were finished working. The other is the addition of Post-Retirement Benefits. If you do work until you're 65 but are already drawing your pension, you can choose to have it so that you and your employer both continue contributing. This will lead to larger benefit payments starting the next year. It's essentially a way to start collecting while still having your employer pitch in a share to boosting your future pension earnings.

Still, these previous changes are small potatoes compared to the idea of expanding CPP to be roughly twice as important for people's retirement. So is the situation actually bad enough to justify the paternalistic notion of having government force people to save? If it is, the CPP is not a bad way to do it. It is fiscally sound and able to cover it obligations for the next 75 years with no changes if the value of its assets continues to grow 4% annually after inflation. Last year saw growth of 6.6% so no problems there for the time being.

At the same time, it's important to note that CPP contributions, unlike other investments, die with whoever paid for them. The CPP is more like insurance for a guaranteed minimum standard of living than traditional wealth. This means deaths can cause problems and leave one spouse in a bad fiscal situation if their partner suddenly croaks.

Some change is necessary though because the current situation does seem troubling. Canadians are only saving 4% of their income for retirement in RRSPs and TFSAs. In 2011, only 24% of those eligible made any contribution at all to their RRSPs. Manitobans actually had the lowest average RRSP contributions in 2011 out of all the provinces and territories. A recent survey found that 46% of Boomers are unsure they will be financially okay upon retiring. 60% of Canadian workers are without a work-based pension.

As of 2013, you need to be 67 to collect Old Age Security and the average monthly OAS payment is $514.56. For every dollar of income over $70,954, the government claws back 15% of your OAS. To get the secondary income topper, the Guaranteed Income Supplement, you need to be approved for OAS. The maximum benefit for GIS is $8,788 annually for single seniors and $11,655 for senior couples. You lose roughly 50 cents of GIS for every $1 of other income other than OAS. The first $3,500 of employment income is exempt and every dollar of capital gains from investments only costs you 25 cents. Overall, the cutoff will be roughly $22,849 for singles and $34,610 for couples.

The problem is that the expenditure on these are $36 billion a year. This number comes straight from government taxpayer revenue and is expected to triple in the next couple decades due to this lack of savings as more and more people fall below the threshold and begin collecting these. Additional assets in real estate and businesses mean the situation is a bit less grim than presented here but some kind of action makes sense, especially with the Canadian housing bubble gradually deflating and reducing the net worth of many homeowners.

Is this plan the right way to do it though? Finance Minister Jim Flaherty argues that, "I can see it being good in the long run for Canadians, at the right time. But I would want to see significantly more economic growth than we have now before we imposed an additional burden on Canadian employers and employees."

The Canadian Federation for Independent Businesses is also against it and have started a campaign in opposition to the proposal. One study they did estimated that: "700,000 “person years of employment” would be lost over the reform’s first 20 years." Quite possibly an exaggeration but worth noting.
 
On the other side, the Canadian Association of Retired Persons has come out in favor as have most of the provincial finance ministers who are now generally warming to the idea. A recent poll found 53% of Canadians want it expanded while 34% do not.

Overall, it seems that the momentum is behind expanding the plan. Although Canadian seniors are doing quite well at the moment with only 5% falling below the poverty line, the 4th best in the world, the situation won't last. As the BBs retire, the choice has been forced of either making people pay for themselves through forced savings or having others pay for them later through taxes. The answer seems to be forced savings. Don't allow your citizens to be flakes who save nothing. The big question is how to do it without royally screwing five main groups who have done nothing to deserve it.

The first is self-employed people who will be sorely taxed by the need to pay both the employer and employee share of their contributions.This one should be easily remedied by simply allowing self-employed individuals to negate paying their employer share. They won't wind up with the same safety net but that is a risk they accept by being self-employed. In any case, they should have other assets through their business that can get them through retirement.

The second is businesses in general who will need to increase their contributions for their employees. This will likely lead to reduced staff levels and a greater emphasis on contract work where they are not forced to contribute at all. This one is harder to deal with. Although the employer contribution will only be roughly an additional 1.5 percent, it will be treated as a payroll tax hike that will be factored into decisions regarding the off-shoring of manufacturing and exportable-service jobs. In addition, employers may take it as an excuse to stop providing pensions altogether in the same way companies in the US are using Obamacare as an excuse to cut hours and benefits.

I don't really have an answer to this. On one hand, it will move wealth from large, cash-flush, Canadian-stranded companies to consumers. Since large companies don't generally keep on more people than they need, there shouldn't be many layoffs and this will lead to greater customer demand and a healthier economy.

On the other, smaller and medium businesses with thin profit margins may have trouble competing and either have to lay off staff or close. In addition, jobs that can move to places with cheaper labor may do so. The only options are to either not force employers to match this larger contribution or to hope it turns out like in the 90s when a CPP premium hike did not slow economic expansion. If we wanted to play it safe, we could make it an employee contribution increase only. Although it wouldn't be as strong a solution, this might be the most logical answer if the problem is that people aren't saving enough because it forces them and them alone to do so.

The third group is those who save and invest enough of their funds so that they will not require OAS and GIS. They should be allowed to seek greater returns by putting their money into whatever they want instead of having it cautiously invested by the government. The easy solution here is allow people to opt out of the additional contribution if they can prove that they are fiscally solvent and will never need OAS and GIS.

The fourth group is the taxpayers as a whole that would be responsible for matching the contributions of public-sector employees who already have, on average, much better pensions than the private sector. Defined benefit plans are becoming almost non-existent outside of the public sector because it puts so much of the risk on the employer. The solution here is simple. Don't have the government contribute anything extra towards public-sector employee CPP. Allow government workers to pay more themselves if they'd like but the public sector already has good pensions, they are not the group we are worried about here.

The fifth group is the young. Their numbers aren't large enough to maintain the high standards of living the massive Boomer population is used to and birthrates aren't high enough to guarantee these social safety nets will still be around by the time they need them. Immigration helps but will likely not be able to cover the difference. Social security has traditionally been designed like a pyramid scheme; it relies on a steady increase of people participating.

Of course, this baby-making slowdown isn't necessarily a bad thing. The survival of the human race requires our population to reach some kind of equilibrium and this fortunately seems be happening as developing nations become developed and developed nations naturally trend towards smaller families.

Honestly, I don't know what to do about this. We will have to constantly adjust benefit and contribution rates in order to maintain a safety net. With slowing population growth, there will simply be less people taking care of more people. All we can really do is hope that technology and our political leadership will have brought us to a place where we can survive and be happy with the resources available.

So, in conclusion, there is a group of people that need to save more themselves so that the rest of society doesn't have to take care of their negligent asses through OAS and GIS. Since the Baby Boomers don't have time for this to take effect before they retire, society will just have to dig into its pockets and pay them enough to have a minimal standard of living.

Fortunately, the next generation will have been legally forced to handle their finances better since apparently we don't know how teach financial literacy no good.

AS

Read more at http://www.brainyquote.com/quotes/keywords/baby_boomers.html#67yhoCfFFjqOsO2Q.99

The baby boomers are getting older, and will stay older for longer. And they will run right into the dementia firing range. How will a society cope? Especially a society that can't so readily rely on those stable family relationships that traditionally provided the backbone of care?
Terry Pratchett
Read more at http://www.brainyquote.com/quotes/keywords/baby_boomers.html#67yhoCfFFjqOsO2Q.99

The baby boomers are getting older, and will stay older for longer. And they will run right into the dementia firing range. How will a society cope? Especially a society that can't so readily rely on those stable family relationships that traditionally provided the backbone of care?
Terry Pratchett
Read more at http://www.brainyquote.com/quotes/keywords/baby_boomers.html#67yhoCfFFjqOsO2Q.99

The baby boomers are getting older, and will stay older for longer. And they will run right into the dementia firing range. How will a society cope? Especially a society that can't so readily rely on those stable family relationships that traditionally provided the backbone of care?
Terry Pratchett
Read more at http://www.brainyquote.com/quotes/keywords/baby_boomers.html#67yhoCfFFjqOsO2Q.99

We are All Voyeurs

“I’ve changed the culture down here. You don’t hear about the scandals anymore… I mean, a money scandal.”
-Rob Ford

I'll admit it. I'm a sleazy voyeur. Apparently I am completely incapable of getting enough of this train-wreck of depravity. Fortunately, it seems that many others are in the same boat I am.

I'm talking, of course, about Toronto Mayor Rob Ford's horrific meltdown as a politician and as a human being. It's like watching a Jerry Springer episode except way funnier because it's not staged. And like Jerry Springer, it makes the viewer feel bad about themselves.

I'm not gonna lie. I am taking satisfaction in watching this law-and-order champion get exposed as a crack-smoking, drunk-driving hypocrite. The German's call it Schadenfreude and it refers to the pleasure one takes in watching another's misfortune. It's not a good thing for the soul and I hate myself for it. But, I also don't think I'm going to stop feeling it until he's off the front pages and I don't think that's gonna happen until this train has finished cartwheeling off the bridge, over the cliff, and into the red-hot magma core at the center of the earth.

First, let's take a quick look at who Ford is and how he came to be mayor of the fifth most populous city in North America. It's probably worth noting that I'm just stealing this basic background of Ford from Wikipedia so if any of it is incorrect, please feel free not to give them any money during their next donation-drive.

In 1969, Robert Ford was born in Etobicoke, a wealthy area of Toronto, Ontario. He was the youngest of four children and his parents had founded Deco Labels and Tags, a grocery packaging company with annual sales estimated at $100 mil. Ford would become a football enthusiast and his parents would send him to train at the camp of the Washington Redskins and at the University of Notre Dame. He would then go to Carleton University where he made the football team and studied political science. Unfortunately, he would not play any games and went back to Toronto without getting his degree.

Ford would then get a sales job at his parent's company and get married to high school sweetheart Renata Brejniak in 2000. He would continue being involved with football by coaching at Newtonbrook Secondary School in 2001 until he was dismissed for a dispute with a player. He would then coach at Don Bosco Catholic Secondary School until earlier this year when an interview, unrelated to his current scandals, got him dismissed. Essentially, he was saying that many of the Eagles players, the team he coached, are from broken homes and gangs and only go to school thanks to football.

In 2000, Ford would get elected to city councillor of Etobicoke North, ironically with the endorsement of his later arch-nemesis, The Toronto Star. He had lived in this ward, with a 53% immigrant population and a reputation for gang violence, until his marriage in 2000. He would go on to hold that ward convincingly with 80% of the vote in 2003 and 66% of the vote in 2006. In 2010, he would run for mayor and be elected with 47% of the vote.

His political platform the whole way along has been strongly fiscally conservative with an emphasis on reducing taxes, beating back public-sector unions, law-and-order, and minimizing government while making it more responsive. He would often attack his fellow councillors on their spending habits and was not well liked by the political establishment. To demonstrate that he was different, he reduced his councillor office's spending to basically zero and would respond rapidly to the public's complaints and even give out his personal phone number to constituents. He was essentially swept into office on a wave of resentment aimed at government-employee privilege with his primary plan of "ending the gravy train."

As mayor, Ford has stated that "I've saved a billion dollars." Quite a claim to be sure. Is it true? Well, not completely although he has certainly honestly attempted to cut costs where he could. Taxes were cut by $200 million in the form of getting rid of a license registration fee. This isn't technically saving money since it's cutting revenue instead of spending but it does fit with his promises of less taxes. However, he contradicts himself when he then adds a savings of $24 million via increased user fees which is a tax increase. It's understandable that he wants the sound bite of being able to say he saved a billion dollars but you can't really have it both ways.

Regardless, reaching a billion is just an arbitrary goal anyway. Any sensible savings are good for a city in the red. He cut $6.4 million from councillor and mayoral office spending. Over seven years, he hopes to have saved $78 million by contracting out garbage collection. He will have saved $89 million from renegotiated public-sector contracts and $606 million from random "efficiencies" found. While columnists have dissected this and demonstrated his numbers are fairly exaggerated, he has been the necessary swinging pendulum that forces the efficacy of programs and spending to be re-evaluated. This rebuilds the faith in the city's politicians which was obviously lacking since they, ya know, elected Rob Ford.

Now to be honest, I like everything about Rob Ford that I've written so far. His love of coaching speaks well of him, even if he was sometimes leaving work early to do it, and his smaller-government mentality was exactly what was needed to combat the massive deficits the city was running. However, his lack of education and wealthy, somewhat entitled upbringing would hurt him later on with some bizarre statements that really polarized people.

In 2006, Ford was angry about the city spending $1.5 million preventing the spread of AIDS. At one point he said: “It is very preventable. If you are not doing needles and you are not gay, you wouldn’t get AIDS probably, that’s bottom line.”

However, the UN's statistics have demonstrated that the majority of people who get the disease are actually heterosexual, non-drug users. When told it was primarily women who get it, he responded: “How are women getting it? Maybe they are sleeping with bi-sexual men.”

Not a great response. It seems to be something someone would say who has heard about the issue but personally knows nothing about it beyond stereotypes. And honestly, if you don't understand an issue, you shouldn't be spouting stuff about something so serious until you've done some research.

In 2008, Ford would stick his foot in his mouth again with this gem: “Those Oriental people work like dogs. They work their hearts out. They are workers non-stop. They sleep beside their machines. That’s why they’re successful in life. I went to Seoul, South Korea, I went to Taipei, Taiwan. I went to Tokyo, Japan. That’s why these people are so hard workers (sic). I’m telling you, the Oriental people, they’re slowly taking over.”

Clearly meant as a compliment but obviously has some problematic racist overtones that most people recognize instinctively. Concerningly, Ford didn't.

And I guess that's the problem. Ford's ideology was what was necessary for the time but I don't think he was necessarily the person to deliver it. He was a rich kid who dropped out of school to get a job at his parent's company. He grew up in a bit of a bubble where actions didn't have consequences. There was a piece in The Globe and Mail that investigated the youthful antics of Rob and his siblings and found that the groups they ran with were prone to the types of drug and wealth-fueled recklessness that is usually associated with George W. Bush and Lindsay Lohan.

Rob's brother, Toronto City Councillor Doug Ford, has been identified by old acquaintances as a bulk-hashish dealer in his youth. He and his friends would refer to themselves as the RY Drifters after the Royal York Plaza strip mall they would regularly hang out at. Troublingly, sources have suggested that this group did more than the typical teenage drug experimentation with at least ten of these Drifters winding up as heroin addicts and some even engaging in burglaries to feed their habit.

Rob's other brother, Randy Ford, was also a known dealer and would later get arrested for beating and kidnapping lower-level dealer Marco Orlando for outstanding drug debts. Randy and friends tried to ransom Marco to his parents for the money owed but instead got busted when the parents called the cops. Randy was charged but it is not on record how the case was resolved. A cash settlement is possible since no jail time was given.

Rob's sister Kathy also has some troubling history. In 2012, her long-time boyfriend Scott MacIntyre, a convicted cocaine dealer, was charged with threatening to kill Rob. In 2005, Scott and another guy were accused of shooting her in the face during an altercation in her parent's basement. They got her to the hospital and Scott fled in his mom's Jaguar. Scott wasn't charged although the other guy got in a little trouble for having the handgun. Seven years before that, Kathy was with a white supremacist named Michael Kiklas who was shot and killed by her drug-addicted ex-husband Ennio Stirpe. She was also friends with several other white supremacists, one of whom, Gary MacFarlane, helped start the short-lived Canadian branch of the KKK.

Now no one is suggesting Rob Ford is engaged in drug dealing or linked to white supremacy but it does show a troubling trend in the types of people he grew up with and what he thinks of as normal. Also worth noting is that none of the family ever really got in trouble for their antics. Is this due to the privilege of wealth or simply that they didn't deserve to be in trouble? Hard to tell. However, this all goes a ways to explain why Rob was still involved with hard drugs and reckless partying even after entering politics. Although things have gotten truly nuts since he became mayor, a year prior to being elected councillor, Ford was charged with DUI and marijuana possession in Miami. In 2008, Ford was charged with domestic assault although the charges were dropped due to 'inconsistencies' in his wife's story.

Since then, he has smoked crack with Somali drug-dealers who tried to sell the evidence to a newspaper. Two of those dealers were murdered although that is probably unrelated to Ford. His sometimes driver and suspected drug-dealer Alexander Lisi is being charged with extortion in trying to get the video back. He has admitted to buying illegal drugs, drinking and driving, and often being in drunken stupors like in this video that went viral. His own staff accuse him of hanging out with prostitutes, yelling racist gibberish at a taxi driver, snorting blow, popping oxycontin while partying, and telling a female staffer he would perform oral sex on her. 

Just for fun, let's throw out a few of his quotes:

“I do not use crack cocaine, nor am I an addict of crack cocaine. As for a video, I cannot comment on a video that I have never seen or does not exist.” May. 24/13

 "Yes, I have smoked crack cocaine. But do I? Am I an addict? No. Have I tried it? Probably in one of my drunken stupors, probably approximately about a year ago." Nov. 5/13

“I’ve had a come-to-Jesus moment.”

“I cannot support taxing the taxpayer.”

“I don’t understand. Number one, I don’t understand a transgender. I don’t understand. Is it a guy dressed up like a girl, or a girl dressed up like a guy? And we’re funding this for – I don’t know, what does it say here – we’re giving them $3,210?”

“I made mistakes, I drank too much, I smoked some crack some time. What can I say? I made a mistake, I’m human.”

 “This is an insult to my constituents to even think about having a (homeless) shelter in my ward!”

“No, I’m not in any alcohol treatment program, I’m not in any drug treatment program. I have a weight issues. I’ve been training every day.”

“Say your son or daughter just got killed in a car accident and you’re plastered out of your mind at three in the morning. Are you going to be able to handle that?”
-Responding to a question of whether a mayor should be getting black-out drunk.

“My question is, I urinated in a parking lot. What does that have to do with anything?”

“I am a role model.” 

Good stuff. In fairness, this is a democracy. The ability to elect a nincompoop is the right of voters. I don't even think he is a bad guy for all the stuff written here. People say stupid stuff. I know people who have drank and driven and have done and dealt hard drugs. I may not respect that aspect of their lives but most are still decent people and if their ideas were good, I would still vote for them.

The problem here is his lies and hypocrisy. Supporting a tough on crime stances while being a criminal is hypocritical. Being for personal responsibility and then lying through your teeth about your actions is also hypocritical. Considering the support that stayed with Ford even as the scandal unraveled, it is hard to imagine he would not have been much better served by being honest about his failings early on instead of playing semantic word games. Ford doing this would also have dealt with the main problem, the fact that the mayor opened himself to blackmail from gangsters. Imagine if the drug dealers trying to sell the tape to The Star and Gawker had instead chosen to blackmail Ford? They'd have had him by the short and curlies and the mayor of Toronto would be owned by drug dealers.

At this point in time, Ford has had his powers stripped by the city council after an overwhelming majority voted to do so. They have been transferred to Deputy Mayor Norm Kelly for the time being. Some people have been arguing that this is illegal or a coup d'etat, that the democratically elected mayor has had his powers stolen in an undemocratic fashion. Ford himself has threatened to sue. In reality, the city councillors were elected democratically and have the power to do this. A poll for last week has 76% of Torontonians wanting him to resign. His attempt at a TV show was pulled after one episode. He is running on fumes.

Most people understand that he needs to go, that this behavior is insane to allow in an elected official who has so much authority. Having him still there makes doing business impossible. Those still desperate to defend the man and keep him because he bugs the 'lefties' are not doing anyone any favors. They are basically saying that "I want a crackhead criminal for a mayor because some people I don't like think it's a stupid idea." It's bad for everyone and is simply divisive for no purpose.

That Toronto elected his views was the correct thing to do. That they elected him to personify them, apparently not so much now that we know about his issues. At this point, he can deal with his addictions and attempt reelection once he gets his nose clean or he can sit it out and let somebody else champion his brand of fiscal conservatism. Currently, by trying to hold on come hell and high water, all he is doing is discrediting his allies and hurting his ideology by association.

In any case, you've been a breath of strange and concerning air Rob Ford. For the good you have tried to do, here's hoping that rock bottom is softer than they say.

AS

Quick Shout Out

My friend Andi Sharma has written an excellent paper outlining the advantages of co-locating or clustering amongst social enterprises and non-profits. New research has been showing that the advantages are far more than just reducing building costs.

http://ccednet-rcdec.ca/en/node/12830

Take a look, I suspect you won't regret it.

Privatizing Parts

"Privatization came on slowly. When something very big happens, like privatization, historians and economists like to think you must have had very big causes. That is not how it happened."
-Kenneth Baker

Transforming public assets into private ones sounds like something most moral parents would agree with, doesn't it? Like you are doing something to make the world more chaste and wholesome? Alas, the sad truth is that privatizing public assets has literally nothing to do with puritanical notions of butt-covering. Which I agree makes it far less interesting but maybe just as important.

In reality, deciding how goods and services will be provided, either by the public collectively or by people in their role as autonomous citizens seeking profit, is what a lot of human conflict has been about since the industrial revolution. It is the essential dichotomy that drove the Cold War, the fight between free-market capitalism and state-centered communism.

As usual, the correct answer appears to be in the middle since the extremes are both terrible. I don't think there are any attempts at communism that I personally would have liked to be a part of. Maybe they just didn't do it right and it would work some other way and with different leaders but I've pretty much lost faith in any centralized government running an economy and coordinating production without having to resort to sinister totalitarian methods. Cuba, the USSR, Mao's China. Those all sound terrible.

As for going to far the other direction into unrestrained capitalism, what you wind up with can be equally bad. Our form of capitalism is a liberal capitalism and is based on liberty, that is, having freedoms from government which are usually dictated in a constitution or by historical precedent. This is basically the opposite of communism where the government has total control. Liberalized capitalism is what allowed the west to emerge as the strongest bloc of nations in the world, complete with quite decent standards of living for the majority. It did this by harnessing the power of market-capitalism to create wealth while keeping society stable because governments had to be respectful of the voters or be removed.

Of course, it's worth noting that we didn't get the good standards of living for the many by engaging in pure liberalism, what is generally referred to now as libertarianism or neoliberalism. Following the industrial revolution, the situation for workers was atrocious despite all the wealth they were producing. After long, hard battles by labor, we tempered our classical liberalism with some traditional conservatism and socialism until a middle-class emerged for pretty much the first time ever. This is why liberalism today has different connotations than it did in the past when it simply meant total freedom of trade and some basic protections from the arbitrary judgments of the government and nobility.

Just so I don't get criticized for completely equating neoliberalism with libertarianism, I'll do my best to briefly differentiate the two. Neoliberalism is what the US has essentially pushed on the world since the 80s and consists of policies that intended to restore the dominant position of capital over labor, social movements, and voters. It was pushed on other chunks of the world like South America and consists of totally freeing financial flows and forcing everything into market-relations while removing the role of the state as anything but an arbiter for contracts.

The collection of policies it entails are often referred to as the 'Washington Consensus.' Generally, it tries to reduce taxes as low as possible and to get rid of things that are not controlled by market mechanisms such as welfare nets, government-provided services, organized labor, minimum wage, worker's rights, environmental protection, any forms of trade protectionism, etc. 

Neoliberalism is essentially the prescription Grover Norquist demanded when saying, "I'm not in favor of abolishing the government, I just want to shrink it down to the size where we can drown it in the bathtub." The neoconservative movement that dominated the George W. Bush administration essentially came out of neoliberalism. As neoliberalism is about corporate rights, minimizing regulatory power of government, and reducing people's obligations to each other through a total reliance on monetary market-mechanisms, there was very little in neoliberalism to attract people to its tenants since it is fragmentary by nature. That is why the theory was merged with conservative aspects like trying to undo the separation of church and state, emphasising the governing of morality, and empire building via war. As traditional US Republicans already supported these ideas, neoliberalism was able to find a base to support the dominance of capital by throwing them some bones that didn't negatively affect the profitability of transnational businesses.

Libertarianism is similar in some respects. It also believes in a very small government, one that is only able to mediate contracts and ensure people are compensated for damage to their private property. Unlike neoliberalism/neoconservatism, it believes in minimal laws, an isolationist military, and as much freedom from government as possible. This means no drug laws or government intervention when people are only hurting themselves.

People who advocate it claim it that it would truly rely on free-market principles instead of simply a corporations-first agenda. If ever enacted anywhere, it would apparently abolish the market-corrupting special deals that the biggest corporations have with domestic governments and with international governing bodies like the IMF, World Bank, and WTO. The idea would be a truly level playing field.

Personally, although it sounds nice, I have my doubts that libertarianism could ever work. It seems like it would fracture society as we are constantly reminded that we are not our brothers keepers as the bible informs us we are. In addition, the idea of allowing the infinite concentration of capital while keeping government as small as possible seems like a recipe for corruption and oligarchy, the rule of money, since the government would simply not be capable of being a counter-weight.

The US went the farthest in enacting policies that limited government's ability to regulate capital and seems to have a more of a bought-and-paid-for government than any other developed nation. Also, with such weak regulatory systems, how could libertarianism do anything to protect our environment, prevent the exploitation of people, or moderate destabilizing swings in the business cycle? Market mechanisms don't seem like they will be able to do it, at least not quickly enough. As for those few hard-core libertarians and anarchists who believe in no government, I would suggest living in Somalia for a while and seeing how much fun it is.

Capitalism is like a horse. Although it may be putting out a lot of energy as it bucks around unbroken and untethered, it's not actually doing any good until its calmed and its efforts put to work for the good of people. Regulations are necessary for this or else the powerful horse kicks the world in the face through unbridled greed like during the 2008 financial collapse. Before that, there was the Gilded Age of the Robber Barons and the severe inequality and stock-market gambling that led into the Great Depression. All examples of capitalism allowed to go wild that were terrible for the masses. After the Great Depression, regulations like Glass-Steagall were added that limited the freedom of banks to gamble with other people's money and the system would work quite well until these regulations were removed.

This has turned into a bit of an incoherent rant that has little to do with my starting premise. Which is fine. Basically, my point is that smart societies rely on the huge power inherent in private citizens interacting for their personal benefit while using government to prevent the worst excesses.


Essentially, I feel there are some things that government should provide and some that it shouldn't. The fact is that governments tend to be less efficient than the private sector as they are not forced to compete to survive. They are natural monopolies when they want to be. This means they should stick to things that cannot be safely or cost-efficiently provided by the private-sector for whatever reason. In addition, the government should provide services that society as a whole should take responsibility for like justice and a minimum level of welfare. Governments should be responsible for providing defense, police/fire services, water/road/power infrastructure, justice, a minimal level of healthcare, basic welfare, and regulatory agencies to police private-sector standards. The government should also have influence in key industries like agriculture and telecommunications while not actually running them.

As for resource extraction, personally, I believe governments should actually take a more active role in extracting and selling resources ourselves since they belong to all Canadians, not just the energy companies that control them, too many of whom are foreign-owned and wind up filtering Canadian resource-wealth away from the people who have natural right to it. Although the government would no-doubt be less efficient in running them than the private sector, considering the very limited royalties we receive and the large amount that leaves the country without helping the economy by being spent here, it seems that we would still make more money as a country even with the inefficiencies and higher wages we'd likely pay. The fact that Alberta was running big deficits even when oil prices were at record high shows that we are getting a bum deal.

However, this would likely be politically impossible as the oil industry has huge influence and the Americans would be extremely displeased with any move towards nationalizing aspects of the energy sector. I'm not even sure we could do so under NAFTA and a protectionist showdown with the US would likely result in Canada losing badly. A better idea would probably just be to have our provinces stop competing for corporate investment in a royalties race to the bottom. Our country's federal debt belongs to us all and we have transfer payments between provinces which means we share our wealth. Bargaining as a bloc to get the best return on non-renewable resources from the energy industry seems obvious and in no way violates the tenants of free trade.

The main issue is that having the private-sector provide any of the truly essential services means there are dangerous conflicts of interest that create incentives to work against the public good. Private prisons have meant corporations lobbying to change laws to fill these prisons. This has corrupted the justice system, resulting in lengthier sentences which has created a larger tax-burden with less available tax-payers. Privatized healthcare in the US resulted in expensive care, insurers trying to get out of providing services owed, huge numbers of uninsured and untreated, a lack of preventative medicine, and a generally bad system compared to countries where the point of medicine isn't profit. Obamacare doesn't change this much and is unlikely to fix things. In addition, the overly large influence of private weapons manufacturers in the US has lead to an extremely aggressive foreign policy that produces huge profits for certain companies. Ike Eisenhower, probably the last principled Republican elected president, would warn about the power and influence of this "military-industrial complex" in his farewell speech.

Privatizing key services also means losing democratic control of them. In Bolivia, Aguas del Tunari was granted a contract to provide water and waster services to Cochabama. Rates were promised to be raised by only 35% in order to expand operations and services when in reality, people's bills as much as tripled for no reason and with no regard for how little money many of the citizens had to live on. A referendum had 96% of the people wanting out of the water-privatization contract but the government refused to cancel it. It took massive protests with several deaths in order to return things to normal. Still, Boliva is being sued for $25 million for breach of contract despite the supplier lying regarding what the rates would be and being generally negligent.

Of course, sometimes it's the opposite and publicly-owned things should be privatized. My home city of Winnipeg has 12 public golf courses owned by the city that are running yearly deficits of $850,000. It seems to me that privatizing these is a no-brainer. Having everybody pay for golf courses is ridiculous and is subsidizing people who already have the money to play the fairly expensive sport. It's true golf courses may help make Winnipeg more attractive to golf-enthusiasts planning to move here. However, the private sector should be providing non-essentials like these. If the demand isn't there for the private sector to make a buck than we can do away with some of them and use the land for other things. Unfortunately, city council recently voted against leasing out four of the courses for a profit.

These are just general rules however. In cases where the government has proven itself capable of running a business properly, it is generally advantageous to leave it in in the hands of the public as it cuts out middlemen and supplies needed funds to pay for government services. When they start failing and need new blood and leadership, then it may be time to privatize as long as this doesn't create any major conflicts of interest and the selling of public assets is done in good faith.

One such idea that has been floating around Canada is to remove the monopoly possessed by the government in most provinces on selling hard liquor. Alberta did this 20 years ago and has seen a huge boom in the number of stores, the variety of alcohol available, and has enjoyed longer store hours. However, it has come at a cost. Alberta is one of the few provinces where government revenue from alcohol sales has been falling despite drinking levels remaining stable. In addition, Albertans tend to pay higher prices for hooch although the occasional sale means that sometimes they can pay considerably less than the country average.

In 2002, BC began closing some government stores and opening private ones that could sell hard liquor. What was noticed was the private stores would charge between ten and thirty-five percent more than their publicly-owned counterparts. Not surprisingly, in both Alberta and BC, they are having more problems with private stores selling to minors. In addition, wages are only about half in the private sector of what they are for unionized government LC employees. Higher wages are generally desirable in the private sector to maintain a strong consumer base while lower ones are desirable in the public sector to avoid government debt. Reducing wages for government employees working in liquor stores might be something worth mimicking in these deficit times and would allow the greater profitability to justify keeping the stores publicly-owned.

This is an interesting conundrum within the private-public debate. If the government can run an industry at a strong profit and manage it in ways that are superior to how the private-sector can do it, does that mean they should do it? Even if it is not a necessary service? It seems this way for liquor, at least for the moment, since alcohol is such an easy cash cow. Ontario was able to bring in $1.63 billion from booze sales in 2011 alone, not including the taxes on them. Considering the governments of most western nations are running deficits, it seems that bringing in more cash is more important than neoliberalism's desire to be rid of anything government-run.

An interesting example of a government operation being able to be as effective as the private sector was during the Thatcher years in the UK. Thatcher was Ronald Reagan's point-woman during the neoliberal 80s and was just as big into privatizing friggin' everything. Her opponents referred to her actions as "selling the family silver." One ironic twist was that British Energy, the largest state-owned power company in the UK, was privatized so as to be hopefully run more efficiently and cheaply. The joke is that it was purchased by Electricité de France, a French state-owned power company. In addition, French state-owned Areva now makes and controls the UK's nuclear power stations. Essentially, the energy industry that Thatcher privatized was renationalizd by their neighbors who now get to reap the profits. This seems a good lesson if anyone ever considers privatizing Manitoba Hydro.

There is also a concern about choices to privatize being made via special interest lobbying. In the last few years, there have been several cases where public assets have been sold off stupidly cheap in what were likely crooked deals. Again in the UK, they have recently sold off the Royal Mail service. While 67% of British people were against the sale and even Margaret Thatcher had thought it was too historically important to sell, the deed was finally done. The main problem was how intentionally undervalued it was when sold. The shares jumped by 38% on the first day of conditional trading which means the citizens brutally lost out on the sale. When sold, all of the Royal Mail's real estate was valued at 787 million pounds even though a single one of its depots in London has been estimated at 1 billion pounds. And there were 44 other sites. Now the Royal Mail is selling 8 of its 45 sites by 2016 and the profits are all going to the new, private owners. Even worse, the private investors left the pension fund liabilities, estimated at 37.5 billion pounds, with the public!

Of course some people made money off of this. They had promised that only 'responsible, long-term institutional investors' would be allowed to purchase shares. Lansdowne Partners was allowed to purchase a large stake and its co-head of developed market strategies, Peter Davies, was best man at UK Chancellor George Osborne's wedding. This likely explains why they were allowed to purchase shares. Lansdowne made 18 million pounds the first day of Royal Mail share trading. In addition, the horrible people at Goldman Sachs made 21.7 million in fees for advising the sale of a company that the British public didn't want sold. If people think that this will save them money in the long run, it might be worth remembering that Britain's privatized rail companies received about four times the government subsidies given to the publicly-owned British Rail.

So in conclusion, knowing what to privatize and what not to can be a tricky subject. As a rule, you don't want people's profits directly tied to society doing badly like with private prisons, private healthcare, and private weapons production. In those cases, incentives are created to make people into criminals, keep people unhealthy, and create conflicts where guns and bombs are needed.

If you want real innovation, the private sector will generally always be superior although government regulations must be in place to protect workers, protect the environment, and keep things like gambling by financial institutions under control. When privatization must occur because government bureaucracy has built itself up to an unsustainable level, make sure the process of selling is not simply cronyism and a chance to rip off the citizens.

Pragmatism needs to ultimately triumph over ideology. Communism lost and neoliberalism is showing itself to be unsustainable as it turns out that both government and corporations are dangerous when left unopposed. A middle way is needed that spreads the power around, something like what the Germans and the Scandinavian countries have. A decentralized capitalism with a hefty dose of socialism appears to be the best hope the west has.

AS

The Wealth and Health of Nations

"Blessed are the young for they shall inherit the national debt."
-Herbert Hoover

Or maybe they won't. Considering the US government's current position on paying their debts, it's kinda hard to tell. As of Oct.17th, there will be only about $30 billion left in the US treasury while the government's daily spending can be as much as $60 billion. There are also $120 billion worth of short-term bonds due on that day and a total of $417 billion worth of interest payments due by Nov. 7th. The Republican-controlled House of Representatives has so far refused to raise the debt ceiling to borrow the money needed to meet these commitments until their concerns regarding government spending and Obama's Patient Protection and Affordable Care Act are alleviated.

As of Oct.1st, the US government has already undergone a partial shutdown due to lack of funds and has given unpaid, involuntary leave to about 800,000 "non-essential" federal employees although the Pentagon is ordering 350,000 of its employees back to work. This means about 450,000 of the 2.9 million federal employees will still not be allowed to fulfill their duties. Active-duty military personnel and civilian pentagon workers on the job will continue being paid on time under a new law passed by Congress last week. Other federal workers will need to wait for the government to be reopened whether they are required to work through the shutdown or not.

Strangely, the Republican-led House of Representatives has passed a bill that will provide all federal workers with back pay for their time off, even if they are considered unessential and stay home. The Democratic Senate followed suit although questioned the logic behind such action. Honestly, why send them home then? It seems to make more sense to keep them working and just pay them once the debt ceiling is raised instead of having them sit on their butts. It's a confusing method that allows the Republicans to keep the government technically closed while still spending the money it would cost to be open, all without the benefit of any work actually being done.

If this whole situation seems familiar to you, it's because it is. There have been 18 government shutdowns since 1976 although the US hasn't actually defaulted since 1790. More recently was the 2011 showdown over the debt ceiling which seems painfully like the one occurring today. The government didn't shutdown but the United States got extremely close to defaulting on their debt which freaked out financial markets. Standard and Poor's, a major credit-rating agency, would downgrade US bonds for the first time ever and stock-markets around the world would take a hit as $6 trillion worth of stock-value was wiped. The Dow Jones fell 5.6% in one day, the worst since the 2008 financial crisis.

If getting close to a default is quite bad, let's just say that the US actually defaulting would be nigh-apocalyptic. Which is why it probably won't happen. But if ideology somehow wins out over common sense on this one, it could be many magnitudes worse than the 2008 crisis when Lehman Brothers was allowed to go belly-up. If it remains unclear for any length of time after the initial default whether the US will pay its debts, trust in the dollar could collapse and the world would likely fall into recession and depression. The US owes $12 trillion, 23 times more than the $517 billion the Lehman Brothers owed when they filed for bankruptcy. Considering the stock-market fell by almost 50% and unemployment raged after that as credit seized up, it's troubling to predict what would happen following a US default. Borrowing would certainly be much more expensive in the future which would make getting out of a recession far harder. It's even possible the US dollar could lose its status as the world's reserve currency and at the very least, other countries would do their best to work out trade deals amongst themselves in their own currencies.

Funnily enough, the group that brought the US to the brink in 2011 are basically the same group doing it today. The Tea Party faction of the Republican Party consists of about 50 members of the House of Representatives who are adamantly opposed to Obamacare and are using the threat of default as a last-ditch effort to defund it. This is quite an unorthodox maneuver considering the act has already passed both houses and been confirmed as constitutional by the Supreme Court. Obama would go on to win the election over Mitt Romney, further entrenching the bills legitimacy.

Republican Texas Senator Ted Cruz has been extremely vocal on the issue, building up emotional pressure amongst constituents who voted in Tea Party members. There has been some argument that he is looking forward to a presidential run in 2016 and is just wanting to earn his credentials with the far-right. Some people have noted he's a little bit crazy considering how he engaged in a 21-hour, filibuster-style rant, to a basically empty Senate chamber, about how bad the Affordable Care Act is The reading was complete with a rendition of Green Eggs and Ham by Dr. Seuss because he obviously didn't get the moral of that story. A filibuster is used to delay the voting on a piece of legislation, either to simply stall or to get time to get enough votes on your side to win. However, this wasn't technically a filibuster and couldn't stop legislation, thus making it basically a long, crazy rant. It even compared the fight against Obamacare to the fight against the Nazis because expanding healthcare and Nazis are pretty similar now that I think about it. 

Essentially, Obamacare has been made into a line in the sand that the Tea Party will fight to the death of the country over, even if they get blamed for it. More moderate Republican congressmen justifiably see this attempt as counterproductive and dangerous for Republican chances of holding onto the House in 2014. Polls have indicated that more people blame Republicans for shutting down the government than the Democrats. Still, Republicans have been forced to tow the line by the wealthy Tea Party backers who can fund primary challengers to have them replaced.

This is a problem since it means Republicans need some victory to take home, even if it's just symbolic, to justify voting to fund the government without killing Obamacare. Obama has fully stated he is refusing to re-fight the health-care battle and considering the Republicans are blocking any changes he wants to make to immigration and gun control, it seems clear he is not planning on budging on his main achievement. Doing so could make what is essentially extra-legislative extortion into a routine part of negotiations. Obama knows he'll be blamed less if a default did happen but extreme ideology may mean the Tea Party are willing to shoulder that blame anyway. Considering the lack of support for Obamacare amongst Republicans, many of them really are doing what their constituents want by taking this approach. This explains their 42 votes to defund the law in the House of Representatives, well-aware that the Senate would never pass it themselves.

Republican Speaker of the House John Boehner has been put in a tough spot. He knows he's being blamed for the shutdown but he's unwilling to look weak to the far-right. This means he's still refusing to hold a clean vote to refund the government without some concessions, saying that it wouldn't pass anyway. He may be right but there are at least 20 Republicans who have already agreed to side with the House Democrats in such a vote. Trying the vote makes sense and I don't think it is personally helping his position to wait until the last minute to cave. And let's be serious, he will take the blame for any economic problems that occur from spooking the markets with a last minute ceiling raise, regardless of how he feels, if he fails to try a vote. Obama has already called him out to quit being a wuss:

"The only thing that is keeping the government shut down, the only thing preventing people from going back to work…is that Speaker John Boehner won’t even let the bill get a yes or no vote because he doesn’t want to anger the extremists in his party. That’s all. That’s what this whole thing is about.”

I might as well make my own position clear here. I am adamantly opposed to this method of shutting down the government and trying to kill legislation they don't like in this undemocratic way. In a healthy political environment, they should take control of government via elections and then repeal the law. That being said, I'm am opposed to Obamacare as it stands. Not because I don't think the US health system needs an overhaul. It does. Badly. In 2010, per-capita spending for health care in Canada was $4,445 per person. This is compared to $8,233 in the US. And it's not even like Canada's health care system is very well ran. Of course if you're rich in the US, your health care will be better than in Canada. Still, for the vast majority of people, it's not.

I think most people agree it makes economic sense to provide at least limited healthcare, just like it's good sense to feed hungry children. The stresses and disadvantages associated with lacking these basic things saps a lot of energy and creates damaged people who then make up a damaged society. Essentially all developed countries acknowledge this with the exception of the US. However, assuming Obamacare will improve the situation may be premature. Obama sold out early on a single-payer system like we have here in Canada. He also sold out on a public-option like they have in most European countries where you can get your own health care from private companies but there is also a basic government option available for those who can't afford it. France uses this system and was rated as having the best healthcare system in 2000 by the World Health Organization. The US ranked 37th, right behind Costa Rica. Canada did fairly poorly also, coming in 30th.

Obamacare is instead entirely private and actually creates a mandate requiring people to buy from private-insurers. This sounds unconstitutional to me but apparently it's not. The question of why Obama stuck with private health care can probably be best answered by Otto von Bismarck's quote that, "Politics is the art of the possible, the attainable..." Considering that the health care industry spends more money lobbying Washington than any other sector of the economy, it's probably not surprising that they were never at risk of losing their cash-cow. During the health-care debates in 2009, the industry was spending $1.4 million per day on influencing politicians. This emphasis on the private-sector means that they won't get to enjoy some of the benefits of a single-payer system like we do in Canada. These are savings on administrative overhead, increased bargaining leverage for drugs and medical gear, savings on advertising, savings on shareholder dividends, reduced burden on employers to provide health coverage, savings on excessive executive pay, and no incentive for providers to weasel out of providing care owed.

So what does the act actually do? Well, on the plus side, it subsidizes the very poor/unemployed in order to get insurance and forces companies to cover people with pre-existing conditions. It also allows young adults to stay on their parents plan until age 26 and provides some preventative care in the form of free mammograms, colonoscopies, and check-ups for seniors. Very importantly, it got rid of insurance companies ability to pull your coverage for technical reasons like spelling mistakes on your forms. Insurers are also forced to provide insurance premium rebates if they spend less than 85% of premiums on health-care services or quality improvement. All of these are noble and useful things that may justify the system on their own.

On the negative side, there are as many as 20 new taxes that will be applied to help pay for it. Americans generally don't like taxes and Republicans have traditionally preferred running massive deficits instead of raising them so you can see why this makes it a tough sell. Another problem is a reduction of hours for employees. Under the act, companies with 50 or more employees have a mandate to offer health care to workers who do at least 30 a week or else face a $2000 dollar fine per employee per year. This means many of them are cutting down below 50 employees if they can and are reducing hours if they cannot. Actual unemployment in the US ranges between 14% and 24%, depending on which measurement you choose, so people will take whatever work they can get.

Depending on your company, part-time workers like those at Trader Joe's and Home Depot can be shifted from private-coverage through their employers to public healthcare exchanges. This will almost definitely cost them more than their previous work insurance, even with subsidies, while often resulting in them working less hours. This means unfortunately the poorest workers will likely be hit hardest as companies use the act as an excuse to relieve themselves of all responsibility for part-timers.

It might be worth remembering that in upstate New York, following a food poisoning outbreak, it cost $546 dollars to get 6 liters of saline into patients. Saline is just saltwater by the way and one of these liters goes for between $0.44 and $1.00 from the manufacturer, so that's a pretty decent markup. This means the main question really is whether Obamacare will reduce health care costs from their ridiculous levels? The answer, it seems, is quite likely no although nobody knows for sure. The law is designed more to generalize access to care and the cost of insurance for individuals. It was not really created to reduce the costs of procedures, drugs, or medical supplies that define the amount spent in total. Considering the lobbying power of the groups involved in writing the bill, this is not surprising.

Supporters say the larger pool of insured people and increased insurer competition will keep costs down. Detractors say there really won't be enough added to matter. Supporters say increased copays for drugs and the high-deductible plans being offered will keep people more cost-conscious. Detractors say expanding preventative care will cost more and the insurers will just take in more than ever through the deductibles.

In the end, I'm leaning towards the idea that it is not going to help much. I may be wrong and it already seems that some of the worst excesses, such as cutting insurance right as it's needed, won't be able to destroy lives anymore. Which is good. Still, the same group of illness-profiteers remain as the only ones to go through for most Americans and they were essentially gifted 50 million new customers through the mandate. The high deductibles will also mean that most people will be fairly limited in actually being able to take advantage of their coverage except in worse-case scenarios.

It's sad because the US could have simply dropped the age requirement for Medicare and they would have had a single-payer system while allowing the private-sector to provide extra care for those with the cash. Instead, all the political will to make such a change has been blown on this mess. Nobodies gonna want to open this issue again for quite a while except to possibly scrap it.

On the other hand, Canada would probably do good to open it again. Our health-care system is extremely expensive and wait times are getting too long. With our aging baby-boomers, this is going to only get worse. We could probably do with adding limited fees for check-ups and small procedures in order to prevent abuse of the system. Likely we could change doctor compensation to be more in line with quality over quantity. Having a discussion around limiting end-of-life care to something actual doctors and nurses feel is appropriate would probably go a long ways as well. Interesting fact is that doctors tend to have less money spent on them when they are dying since they know when the battle is lost and don't want to go through unnecessary painful and undignified treatment associated with desperately clinging to false hope.

We could also probably do with a bit of private-sector competition, especially for quality of life things like joint replacements. If the European countries can do it and get better results than us, than I suggest we take a look.

Tommy Douglas wanted all Canadians to be covered and we are. I don't believe he ever said anything about having the government monopolize that coverage.

AS