Showing posts with label Oil Prices. Show all posts
Showing posts with label Oil Prices. Show all posts

Monday, March 28, 2016

2016 BUDGET FISCAL FAILURE

Winston Churchill said “attempting to spend your way out of debt is like standing in a bucket and attempting to pick yourself up”; the Liberal government is in effect attempting to do this very thing.

"With the exception of the Child Subsidy, this budget was FISCAL FAILURE".  



Counter Cyclical spending, the process of government spending to stimulate the economy in the face of a down business cycle needs to have a very sharp pencil. We need to be sure that the money spent generates a sufficient increase in tax revenue to recoup money spent AND cover the cost of money.  Perhaps the most important point in counter cyclical spending is that it has very little stimulative effect, the Canadian economy is approximately $2 trillion, the Federal Government Budget is about 10% of that give or take. So think about how much 1% ($20 Billion) of the total economy is going to do to simulate the economy just in nominal amounts – nothing. Policy that uses the mass of the economy to drive growth, is policy that works – government spending can be directed at facilitating the economy, it will never grow the economy on its own.

The budget the Liberals just brought down, is the kind of budget that brought us down in the 70s and 80s. Less than 20% of the total budget is going to “investment” in capital projects and many of those are nothing new, nothing that is going to do what capital spending is meant to do, help us satisfy Canada's overall mission – they never got to the $10 Billion they promised in “new infrastructure”. This burgeoning deficit is partly the product of reduced resource revenues, but it is also indicative of a bad attitude toward fiscal management – this is like déjà vu la 1970s, the only difference is then we had an expanding tax base to save us, now we are facing some tough demographic realities that will reduce government revenues and increase the cost of government.  We need to invest in our First Nations, the Liberal government has committed to that, yet they have failed to insist the money invested in First Nations is subjected to generally accept accounting principles, by avoiding mandatory reporting as precondition to funding.  

Capital spending when done in business means purchasing assets or developing assets that generate benefit to the company mission; government can do this as well.  Had this government trimmed government operational spending and upped capital spending, I would be praising them right now. The fact is they have done the opposite and in so doing are robbing the next generation to fund nothing of significance now. 

They – this government – will point to all manner of numbers to say what they are doing is okay, they will pull comparative data from Europe, showing Canada’s debt is better than most western economies – none of this has relevance. What is relevant is, are we doing the very best we can with what our country has to offer – we are falling short. With Canada’s wealth, we should be sporting a sovereign wealth fund big enough to choke a horse, instead we are broke. Had we managed our resource wealth properly, we would be funding counter cyclical spending from capital reserves, instead we are spending our children's future.  We need to get serious about fiscal management, this government’s first attempt falls short, very short – they seem to indicate by their actions that they believe there is no bottom line.

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Thursday, November 20, 2014

Environmentalism Reconsidered

Environmentalism Reconsidered 


This is the first in a series of blog pieces that offer a new way of contemplating environmentalism so please allow me to premise all of the following comments by acknowledging the necessity for humans to integrate their actions with natural systems. There have been damaging effects requiring address from the industrialization of the world. To think human actions, as humans now exist, can occur without effecting change on the plant would be lunacy. As human understanding continues to grow at a startling pace, greater opportunities are presenting themselves that will permit us to enjoy abundant lives in harmony with natural systems.  

Having been born on a farm in British Columbia and then through the course of my working life being exposed to the natural world, the state of the environment is a point of concern and contemplation. The environment, particularly as it concerns humanity’s healthy existence needs to take priority in the minds of the entire world’s population. A bold and “truthful” assessment of the environmental situation needs to occur. Focused debate on the next steps toward human harmony with nature still needs to take place. While there is consensus that the environment is challenged; the rhetoric we are hearing from the extreme elements of the environmental movement is questionable at best. It’s apparent at times there is a religiosity associated with some in the environmental movement, accompanied by the indoctrination of recruits rather than their edification. This is evidenced by the hostility encountered at the mere inquiry as to the credibility of claims forwarded by some.   

Nature to me is the smell of pine drifting across my path on an August day in the high country. The smell of fresh-cut wood is pungent in contrast to ambient fragrance. Nature is alpine flowers in July, ephemeral beauty. Nature is the excitement, as a flicker of a whitetail passes from view. Nature is hours spent astride a horse and watching the county pass by. Nature is the bite of a cold winter wind, the shiver from early spring rain. Nature is bold beautiful and powerful, comforting and intimidating. I’ve spent my finest moments in life at the whim of nature, a crisp October morning giving way to an afternoon’s nap against a south-facing rock. I’ve quacked at the rustle of a bear in the bush. I wondered to find my way when a flat piece of the county on a cloudy day stole my sense of direction. I have spent time with nature and felt bound to it and grown to love it, making an emotional bond. I feel I understand it and appreciate it as well as anybody. Given this intimacy I’ve developed with nature, when I hear someone speak of protecting “nature” my ears prick up. When, however, I hear someone prostituting nature to promote bygone political objectives, I become deeply offended. 

Far too often I’ve turned my head toward individuals expounding with save the earth rhetoric from the heart of urbansville, only to hear every word they say underpinned by an ulterior motive. When they say “cap and trade”, they really mean enforce monetary equality. When they say “100 Mile Diet” they really mean down with world trade. When they say “community-managed forest” they really mean stop logging. When they say save the earth, they really mean stop everything, freeze it all, stop society dead in its economic tracks. The constant salvo of urbanized thinkers trampling on the progress of humanity in the absence of an aft-ward glance is offensive and most certainly frightening. As Winston Churchill said, “the further back you look the further ahead you see”, and when I look back to when nature had its full sway, humanity was a small ship on a rough ocean. The modern world has brought both promise and pearl to be sure. The reality is we are the earth’s stewards now, and we are expanding, and we need to harvest nature’s generous bounty. Nature exists in a changing landscape; a new road can be viewed as a scare or as a mode of transport. There is a critical balance to be had to be sure, one needs to be cognisant of the result of our actions, but action is necessary; more than necessary it is exciting and filled with opportunity. This opportunity needs to be pursued with a clear mind, however, informed by clear information. The environmental message has lost resolution and fidelity, as it has been appropriated by social interest.          

The modern western population is now predominantly urban people who possess an idealistic view of nature. In grade school, they were told about the “balance” of nature, how, as a rodent population exceeds its food supply and they die off from starvation, and other examples of predator populations declining in response to predator overhunting of prey. Nature is a mass of happenstance and these are examples demonstrative of inherent imbalance as opposed to balance, anthropogenic interventions in the form of mindful stewardship can mitigate these fluctuations by integrating natural processes in human action. Anthropogenic intervention can enhance natural processes through the course of human endeavour. The view of human activity on the ground needs to be transformed in the minds of people, from the shroud of detriment to the realization human endeavour is integral to natural systems. A road built blind to the requirements of nature is a scare on the land; a road built mindful of nature serves to enhance human endeavour and maintains or enhances natural processes. We can harmonize our actions with nature; that should be the focus, rather than having social engineering take us off course.  

The Dali Lama teaches us to “avoid putting a goat's head on a yak's body”. This is precisely what many social activists are doing to the environmental movement – perhaps the social activists are best regarded as wolves in sheep’s clothing. The wolves are the authors of the environmental manifesto and the builders of the road to subsistence.  

It is my desire to move the environmental movement's thinking away from obstruction to participation, from scarcity to abundance, from analysis identifying problems to their massive brain trust in finding solutions. The only way to change humanity's dependence on fossil fuels is to find a solution, free unlimited energy will render fossil fuels obsolete and provision for abundance.


Wednesday, November 19, 2014

Government - Resource Dependence & Big Government?

Excerpt - If this is substantiated by events - maybe the rest is true. 

Canada is a resource-rich country, unimaginable wealth is ours to use to build the most advantaged society on earth. An occurrence of grave concern is the liquidation of assets to fund government operations. This is the equivalent of a farmer selling his/her land to buy fertilizer, soon the farmer will run out of land to fertilize. The federal and provincial governments are presiding over the liquidation of non-renewable resources as fast as the market will purchase them. This is fine as long as the revenues this generates go to the establishment of other capital assets, but it is presently going to fund the operations of the government. Sell a million barrels of oil, build a hospital – ok, sell a million barrels of oil and pick up the garbage – not ok. Inherent in this reality are massive structural deficits. Take government revenues from taxation ONLY and if operating expenses exceed that, you've got a structural deficit – presently most governments in Canada see royalties from the sale of raw resources as a legitimate source of funds for funding operations. The funds from royalties should be going toward long-term infrastructure and the development and enhancement of human capital.



In business, a company’s actions are constantly rationalized to the dynamics of the market in the pursuit of profit. The expansion of administrative costs in a company sees an almost immediate effect on profit and ownership seeks to rectify the situation. The time span of realization of error is crisp, the line of accountability clear this generates a circumstance where the organization responds quickly and effectively to frivolous and extraneous costs - the larger the organization the more muted this response becomes.

The nature of our political system generates a circumstance where the three contributing factors in favour of private enterprise, work against the government. In a company when an error in spending is made, the reporting structure sends information immediately to a concentrated entity - management and ownership, which responds. In government when an error in spending occurs, the time it takes for the people affected (the taxpayer) to realize it, events have extended beyond effective response. Worse, there is every incentive for the people who made the decision to conceal the event, as the individuals executing the error are financially unharmed by the event and can only be negatively affected by the public knowing. Further exacerbating the situation is that the reporting structure of the government is arcane which mutes the resolution of the event in the context of accounting. It is in this atmosphere that poor practices and waste continue in government, increasing the cost of services and exacting a greater and greater toll on the taxpayer. This phenomenon is attributable to the size of an organization and in equal measure to the nature of government having an inherent challenge in this regard.

All matters of human exchange involve a transaction. Contemplate your daily life and count the number of transactions you make through the course of your day. If for every $10 purchase a $10 bank charge was levied on the transaction, you would have half as much money to pursue life. This is the exact circumstance most of us living in Canada, where for every $1 we make the government takes $1. As government burgeons, there is an exponential increase in cost to the taxpayer. As government grows, so too does its involvement in all exchange. Transaction costs that emanate from government-mandated requirements to utilize other services, the $1000 conveyance fee to transfer a house, the airport fee, the list is frighteningly immense. These represent transaction costs that serve as a drag on the actions of the population – retarding citizens’ ability to provide for themselves and retarding the ability for people to utilize resources for enterprise, leaving the government with a smaller, heavier taxed tax base. This is the vicious downward spiral that causes the government to cave in on itself, like a snake eating its own tail.

As government grows and extends greater control over the human exchange, a policy requiring licensing comes into play. A driver’s licence is a document that indicates competency around the operation of a motor vehicle and is relatively benign as its access is determined by the ability to pay and competency alone. There are other cases, however, where government licensing has other motivations and unintended consequences. In the case of licensing of frequency for broadcasting, licensing was originally required for the management of frequency – to avoid one broadcaster interfering with another. As time progressed licensing progressed under other motivations. Naturally, an incumbent broadcaster wants less, rather than more competition and would lobby the government to preclude new entrants. Government itself openly admits in its literature that it uses licensing to restrict the supply of broadcasting services. When government takes actions which distort the natural ebb and flow of business, the consequences are almost always negative. In the case of broadcasting, lower numbers of people restricted the supply of advertising raising the cost of businesses to promote themselves – ultimately increasing the cost of goods and services as the media spectrum of the offering was limited. People have been forced to consume media content of inferior quality and interest. While it is appropriate for government to seek to offer strategic direction- meddling with distorting micro policy is most inhibiting. The government in this case should seek harmonious utilization of the airways and allow the market to work.                   

Tax policy in Canada is very complex so there is an extreme cost to the citizenry, firstly in negotiating the maze of tax policy to minimize payment and secondly in the actual paying of the tax. Complex taxation policy, in and of itself, increases transaction costs, and worse, is the waste of human capital taken in administering taxes. The complexity of the system takes some of our best minds away from productive contribution to society to attend to the analysis of complex policy to determine the most beneficial “interpretation” of tax legislation, while some more of our other best minds at Revenue Canada are taken away from productive pursuits to devise ways to respond to the interpretations of the first group. All this intellectual capacity is wasted; it is hard to imagine a more destructive way for the government to conduct itself. By simplifying the tax system, this waste is reduced, government requirement for enforcement is reduced and a retraction in government operating costs effects a positive situation by reducing tax requirements – a positive cycle is initiated. Opportunities abound to reduce the complexity of government and hence the cost of government. This is just the tax system; contemplate the legal system and any of the other multitude of government services. Government is too important to allow actions that serve to damage its own long-term standing.

Canada is a resource-rich country, unimaginable wealth is ours to use to build the most advantaged society on earth. An occurrence of grave concern is the liquidation of assets to fund government operations. This is the equivalent of a farmer selling his/her land to buy fertilizer, soon the farmer will run out of land to fertilize. The federal and provincial governments are presiding over the liquidation of non-renewable resources as fast as the market will purchase them. This is fine as long as the revenues this generates go to the establishment of other capital assets, but it is presently going to fund the operations of the government. Sell a million barrels of oil, build a hospital – ok, sell a million barrels of oil and pick up the garbage – not ok. Inherent in this reality are massive structural deficits. Take government revenues from taxation ONLY and if operating expenses exceed that, you've got a structural deficit – presently most governments in Canada see royalties from the sale of raw resources as a legitimate source of funds for funding operations. The funds from royalties should be going toward long-term infrastructure and the development and enhancement of human capital.

There needs to be an apolitical rationing mechanism that limits the growth of government so that government and economy are optimally matched. The challenge we face now is that governments are strongly incentivized to spend more, more as a percentage of GDP, in the quest for public approval. We elect a government on how best to administer public resources and choices related to this task need to reside with elected officials. There are objective means to assess the optimal size of government, within reasonable variance. The size of government is determined by the size of the budget at any given point in time. In the same way that the central bank has a narrow set of parameters to set interbank rates at arm’s length from the government, so too could a “Budgetary Review” official have a narrow set of parameters and function at arm’s length from the government to set the size of the budget.

As stated before, there is a point where the government is an organ supported by the people as an entity unto itself – rather than being the facilitator of human exchange, it becomes the focus of the national endeavour. It is then like the proverbial snake eating its tail – a circumstance that is clearly unsustainable. Canada has a productivity deficit; perhaps we need look no further than the overall transaction cost that is government to find the key contributing factor.  

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Wednesday, October 9, 2013

Discourse on the Great Recession – Oil

Discourse on the Great Recession – Oil

For the most part, one can contribute “the lion's share” of the blame for the Great Recession on the collective human mind; in fact, the entire world enterprise is a product of the human mind and its interface with the world environment. What we humans want, we get, supply does wane, prices do go up – oil is no exception. Oil is the single biggest influencer on the human enterprise, without a doubt, where oil goes we follow. There are replacements, just none that come into play quickly enough to offer a liberating degree of fungibility for this item, as George Bush said “we are addicted to it”.  When oil goes up, economic growth wanes, it is a constant in reviewing the modern economy. The good news is that there has been somewhat of a "decoupling" of oil and GDP post the 1979s oil crisis. The move to a more efficient fleet is partly responsible and of course, we have moved to a more “intellectually” based economy – less physical stuff relative to information and services.   

The challenge in the run-up to the Great Recession was in no way related to the presence or absence of oil reserves, but rather, a product of the perception of possible supply constraints due to geo political events – this is evidenced to some degree by the post crisis high price that stabilized much lower absent the speculative fluff that had accumulated in the run-up to the crisis. Oil went parabolic – the economy slumped. One might assert that oil is still harbouring speculative fluff at $100 / barrel given an average world price of less than half that since 1947. Technology is giving access to more and more oil. High oil price is certainly a causal agent for the Great Recession, it is hard to determine where in the harmonic between the physical world and the financial world the genesis for the rise originated. 

Note: In August 2015 this speculation has come true, the price is now half what it was when I wrote this.