Last Chance for the U.S. Economy!

by John Brian Shannon

This blog examines Canada‘s debt and deficit-cutting success of the 1990’s and early 2000’s which improved Canada’s credit rating, lowered borrowing costs for the government and when combined with a new 7% nation-wide Goods and Services tax (1990) allowed many job-creation projects to be funded which lessened the blow of the government’s (then) austerity program.

Read “How Canada Cut Its Deficits and Debt” — by former Prime Minister of Canada Paul Martin (prior to that he was Finance Minister) who famously took Canada from second-worst among the G-7 countries to the most stable economic performer in only a few short years. The above link takes you to a downloadable PDF document. It is a must-read for students of macroeconomics.

Paul Martin, 21st Prime Minister of Canada
Paul Martin, 21st Prime Minister of Canada (Photo credit: Wikipedia)

The Fiscal Turnaround

“When the Liberal Party took office, Canada’s deficit and debt were by far the worst among the G-7 but for one, and our level of foreign debt was the highest of the industrial world. Indeed, the Wall Street Journal had publicly dubbed Canada all but bankrupt. Four years later, our debt-to-GDP ratio was dropping like a stone. Our financial record was second to none and Canada’s deficit was no more.” — Paul Martin quote in The Magazine of International Economic Policy — The International Economy.

Many American friends of mine, are asking how the U.S. can solve its massive U.S. deficit and debt problems — problems which seem almost as insurmountable as going to the Moon was viewed in the early 1960’s.

The fact is, these problems have been solved in Canada and they can be solved in the United States. What has been lacking up until now, has been the will to act. Once elected, leaders who are empowered by their electorate to slay the twin dragons of debt and deficit could do so relatively quickly.

Some final advice from the Right Honourable Paul Martin former Prime Minister of Canada, the man most directly responsible for solving Canada’s historic debt and toxic deficit problem.

“The final lesson I would draw is that if deficit reduction is to be a priority, then it has to be a “national” priority.

When Canada’s debt ratio hit 70 percent, it was assumed by most economists that we had crossed the tipping point. The United States is there now, and the IMF projects that within eight years it will hit 115 percent. [!]

These are serious numbers, and yet the so-called deficit debate in the United States is not about the deficit at all. It’s about winners and losers.

One thing to remember from the Canadian experience it is that for deficit cleansing to succeed, there can be no winners while most people are losing. If deficit reduction is to gain public support, it requires a united effort—in other words, it must be a truly national exercise.” — Paul Martin quote in The Magazine of International Economic Policy — The International Economy.

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Why African Resource Exporting Nations Need Tariffs

by John Brian Shannon

Many nations in Africa are presently experiencing a boom in resource exports. And that is truly wonderful news as exports of any kind contribute handsomely to national GDP and balance-of-trade figures. Not only that, millions of dollars of Foreign Direct Investment (FDI) often accompany resource exports.

For workers involved in the resource sector of a nation, it is unquestionably a positive development. Many other businesses and citizens at the periphery of the resource sector benefit too.

But does resource extraction benefit the rest of the society? It is heartening when one sector experiences strong growth – but when that rapid economic growth is limited to a small proportion of the population, tensions can become inflamed.

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

Rather than develop the resource sector to the exclusion of all else and hope the rest of the society holds itself together — it would be prudent to tax all raw resources which are leaving the country.

In that case, comparatively few people will still make a good living directly from the oil (or other resource) company, while the rest of the country benefits in other ways from additional government spending on programs like improvements to national infrastructure, such as airports, highway systems, rail transportation and hospitals and schools on account of the tariff revenue.

When governments take in additional multi-millions of dollars from raw resource tariffs they will have additional money to improve services across the country.

The one thing governments shouldn’t do is add a tariff when resource prices are high! The major powers in the world will not let that happen as prices begin to skyrocket because that will add to uncertainty in the stock market and huge pressure will be brought to bear against any government attempting such a thing.

The time to add a small tariff is now, when prices are comparatively low and therefore, complaints will be few. Prices won’t drop much anytime soon. Due to the supply and demand equation they will be more often rising in the coming decades.

As we know, many African nations export significant amounts of unrefined oil, raw metals (ore and ingots), minerals or uncut and un-mounted gemstones. When African nations implement a 5% tariff on every exported tonne of resource — or barrel of oil — their economies will fire on all cylinders and with little complaint from rapidly growing and resource-hungry nations.

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Cited in a United Nations Development Programme Report

by John Brian Shannon

United Nations

In July of this year, the UN asked me to contribute an article to the United Nations Development Programme — and it is now published in a 60-page report.

I’m in the credits on page 2 and my article is published in full starting on page 26. The full report is downloadable as a PDF. Click here to download — you may need to click again when a new window opens.

GREEN ECONOMY IN ACTION: Articles and Excerpts that Illustrate Green Economy and Sustainable Development Efforts
August 2012

I would like to thank Hussein Abaza, who is the former Chief of the Economics and Trade Branch of the United Nations Environment Programme (UNEP) and a person who has contributed unstintingly in the service of our civilization in several UN organizations for over 30 years.

I would be remiss if I did not express my appreciation to Veerle Vandeweerd, Director, Environment and Energy Group Bureau for Development Policy, United Nations Development Programme.

Grateful thanks also to Marjolaine Côté, Special Assistant to the Director Environment and Energy Group Bureau for Development Policy, United Nations Development Programme.

Thanks due to Serena Bedwal, Environment and Energy Group Bureau for Development Policy United Nations Development Programme

Many thanks to Danielle Crittenden my Managing Editor at Huffington Post Canada who was the first editor to approve and publish the first version of this article which was titled As China Goes Green What Is Canada Waiting For?

I also owe thanks to Emma Ellwood-Russell, my editor at EcoPoint™ who published a later version of this article titled China Goes Green and to EnergyBoom.com which also published the last variant of this article China Motivated to Adopt Sustainable Energy Solutions.

The UNDP elected to generously provide a link to the EcoPoint™ website in the United Nations Development Programme report.

Please take a few moments to look over this 60 page report. I would be very interested to hear your comments about any part of it. Thank you.

John Brian Shannon

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ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Let’s Just Blame the 47 Percent For Everything!

by John Brian Shannon

I was pleased to find Simon Johnson’s brilliant article in today’s edition of Project Syndicate, entitled; “Mitt and the Moochers” — the best summary of America’s economic situation that I have yet seen.

The psychology of the present paradigm is very odd indeed.

It approximates the following statement; Blame 47% of the population, the mostly blue-collar working people and taxpayers for the combined failures of the banksters, a few corporations and some inept government regulations — and then at length, when some of the 47% complain about getting blamed for a situation not of their creation, just default to calling them ‘victims’ in the pejorative sense of the word.

Oh, and let’s make the 47% pay to fix the damage they didn’t cause.

Those who were the first to benefit from the $12.8 trillion dollars of corporate welfare — are among the first ones to criticize 47% of Americans, most of whom;

“pay a great deal of tax on their earnings, property, and goods purchased. They also work hard to make a living in a country where median household income has declined to a level last seen in the mid-1990’s.” — Simon Johnson

In a general way, I take these developments as a sign that the formerly deep roots of American egalitarianism are getting shallower and we are now seeing the beginnings of a class-based society.

“the emergence of global megabanks was not a market outcome; these banks are government-sponsored and subsidized enterprises, propped up by taxpayers. (This is as true in Europe today as it is in the US.)” — Simon Johnson

All of the above are egregious enough in their own right. But what I take greatest offense at are those corporations which having made poor decisions, then line-up to receive billions of corporate welfare — whereby the government effectively rewards those organizations with heavy doses of cash for their poor performance — while corporations and companies which made good decisions all along are comparatively weakened.

It is a sure sign of the apocalypse, when corporations which invested in better decisions do not receive federal ‘reward’ money, but lesser performers do. No lasting good can come of this state of affairs… in fact, it is to weep.

John Brian Shannon

Related articles
ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Why Resource-based Economies Need Tariffs

by John Brian Shannon

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

The usual solution to the inevitable slowing of a resource-based economy is to facilitate ever more extraction — in the hopes that more resource dollars will stimulate growth and compensate for the lack of progress in other sectors.

Time and time again this fails to work and to make matters worse, other sectors of the economy grow weaker in almost direct correlation with mounting resource exports. Manufacturing often takes the greatest hit.

Moreover, resource-rich countries often do not pursue sustainable growth strategies. They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer. Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments. — Stiglitz

The government line on this is usually; “We should concentrate on what we do best.” Which is fine except that in so doing, the rest of the economy slowly slips toward the day when the government must then announce; ‘The majority of the resources are gone, we now must rebuild our economy from scratch.” This is when economists are finally consulted and listened to — but are then expected to solve the entire problem by the weekend, with nothing more than a magic wand and an algebraic/transcendental incantation.

Resource-based economies should commit to robust and long-term economic development throughout the economy well before such cantrip is required.

Real development requires exploring all possible linkages: training local workers, developing small and medium-size enterprises to provide inputs for mining operations and oil and gas companies, domestic processing, and integrating the natural resources into the country’s economic structure. Of course, today, these countries may not have a comparative advantage in many of these activities, and some will argue that countries should stick to their strengths. From this perspective, these countries’ comparative advantage is having other countries exploit their resources.

That is wrong. What matters is dynamic comparative advantage, or comparative advantage in the long run, which can be shaped. Forty years ago, South Korea had a comparative advantage in growing rice. Had it stuck to that strength, it would not be the industrial giant that it is today. It might be the world’s most efficient rice grower, but it would still be poor. — Stiglitz

The problem of course, is how to fund the necessary investment in the non-resource economy. And what level of funding do non-resource sectors enjoy at the present? Less than you might imagine.

Of all solutions, the simplest usually work best. Which is why a nominal export tax is a necessary ingredient to any resource-based economy to assist the national economy maintain a quantitative balance.

After all, taxing natural resources at high rates will not cause them to disappear, which means that countries whose major source of revenue is natural resources can use them to finance education, health care, development, and redistribution. — Stiglitz

There is little need for domestic resource taxes in nations where the majority of resources are exported. Such ‘recycling’ of citizen’s money adds little ‘new money’ to the economy and irritates voters, while the most efficient economic performance enhancement available comes from export tariffs and FDI.

Both export tariffs and FDI revenue streams represent new money entering the system which means unlike domestic taxation, citizens are not paying for other citizens employment programs — foreign interests will be paying that bill.

When resource-based economies implement a 5% to 8% export tariff on every exported tonne of coal/metals/minerals, or barrel of oil, their economies will fire on all cylinders — and with little complaint from the rapidly growing and resource-hungry nations.

John Brian Shannon