Hope meets fear

President Obama made his first visit to Canada today, a one-day, hyper-security visit to Parliament. Needless to say, I'm mortified that Stephen Harper is the chief representative of Canada. If Obama had given a speech I might have slogged my way downtown, but I didn't have much interest in watching his bulletproof limo speed down the Airport Parkway, so I stayed home. All in all, he got a very warm welcome from Canadians.

I'm pleased with many of Obama's policies, although it's far too early to judge their success. He seems to take climate change seriously. But his cabinet appointments and especially his foreign policy are very worrisome to me. First, Obama intends to expand the US military, a $700 billion/year Leviathan whose 800 bases outside US territory house 600 000 soldiers, spies, mercenaries, and miscellaneous contractors. Although he intends to reduce the troops in Iraq by about half by mid-2010, he will redirect those forces to expand the war in Afghanistan into Pakistan, a politically unstable nuclear state. He unconditionally supports Israel's attacks on Lebanon and Gaza. Worst of all, he keeps repeating Bush's completely unfounded claim that Iran has a nuclear weapon program which must be dismantled. (Israel, a nuclear state, has repeatedly threatened to attack Iran for its alleged nuclear ambitions.)

Before the election, you could say that he needed to look tough to attract Republican voters. But now he's the commander-in-chief, inheritor of all of Bush's extraordinary executive powers. Why is he taking steps towards even more war?

Bus strike epilogue

I had a letter to the editor printed in the local paper about the bus strike which ended this week.


Re "Strike cost city $13.4M--so far" Feb 10, A1

Dear Ottawa Citizen:
Mayor O'Brien--thanks to your hard-nosed negotiating, Ottawa bus drivers are slightly poorer. Sure, it cost all of us more than it saved, and many of us risked our lives or our jobs biking or hitchhiking to work at 20 below... but the final symbolic victory made it all worth it. I can't wait to see your next innovative morale-boosting and cost-saving strategy.

No more crumbs for you

(click on image to enlarge)

Above are two cartoons by Ruben Bolling, who pens Tom the Dancing Bug, a brilliant mix of absurdity, irony, and satire. He's part of a small community of full-time alternative cartoonists. (The latest TtDB compilation is the 2004 Thrilling Tom the Dancing Bug Stories, and an overview of the genre can be found in Ted Rall's Attitude series.) Unlike strips like Garfield, Mary Worth, or Hagar the Horrible, alternative cartoons have to fight to survive, and their creators work for (ahem) peanuts. However, there was terrible news a few weeks ago: due to the recession, the largest altweekly syndicate, Village Voice Media, decided to cancel all cartoons in its dozen major weeklies. Many excellent cartoons will probably disappear. I can only hope there are enough fans willing to pay directly to keep the cartoons alive.

...and Blondie has been running 7 days a week for 80 years. There's no justice.

Update: I should add that alternative comics don't only face competition from daily three-panel gag cartoons; they also compete with an army of so-called editorial cartoons. Every paper has them, and 99% are utterly vacuous. Take a look at this collection of cartoons after Michael Phelps was photographed smoking pot. There is no insight and minimal artistic value. Invasion of privacy? Expensive and destructive War on Drugs? Distractions from real news? Why bother taking a stand when you can reinforce the readers' preconceptions?

A real editorial cartoon, by Matt Wuerker. He's not exactly incendiary, but even so he is only published in a few newspapers.
If you ever come across it, Art Spiegelman wrote a very insightful article for Harper's a few years ago about editorial cartooning called "Drawing Blood".

Where is he now? redux

Like so many others these days, I am unemployed. It's boring, frustrating, lonely, and humiliating. But things could be far, far worse.

I am staying for free with my parents in Ottawa while I look for work. I have no income, but my expenses are very low, and there are good job prospects because the federal government is based here. I have no family to support, no fixed lease or mortgage to pay, no car payments, and no high-interest debt, so I don't need to work a low-wage job in the interim (although I do have one I can fall back on).

So far, I've been following the same script as I did in Vancouver: cook and clean to earn my keep, job hunt during the day, exercise, phone my friends, and read library books. After 6 months of job hunting, I'm really running out of ideas, so I'm down to 4-5 hours a week of that. I decided that I need to do something new before I lose my mind, so I'll start volunteering, studying Russian, taking aikido classes, and pursuing my research project. If this recession gets worse I may be un- or underemployed for quite a while, and I need to find some fulfillment and balance.

Ergo failure

My limited knowledge and incomplete logic doesn't tell me whether the trillion-dollar bailouts will lead to hyperinflation. I just don't know the details of how it is financed and distributed. I find it hard to believe that a government with $10 trillion in debt could find creditors willing to lend another trillion... but without raising taxes or cutting spending, where will that money come from?

I think I've wasted too much time already trying to make sense of our dysfunctional economic system and its handmaidens. When I have a nonzero income, I'll be able to make financial/economic choices, but for now I'll stick with my employment, language, and technical projects.

Out of touch, anyone?

President Obama announced yesterday that any senior executives who receive a federal bailout will have their pay capped at
$500 000/year. Expense accounts, stock options, and other benefits don't count, so they can still earn millions. Wow. Even for a symbolic gesture, that's unbelievably timid. Let's review the score: failing corporation X will get a billion dollars in free money, and in return the senior management needs to tighten their belts down to a million dollars a year. Does the president realize that hundreds of thousands of non-incompetent Americans lost their jobs and savings and can't pay for food and rent?

I shouldn't have to point this out, but there are real problems with their economy which brought us this pass. Among other things:

1. Out-of-control deficit spending by some individuals, corporations, and governments caused a massive debt bubble, an economic house built on sand. We still don’t know how much of their apparent wealth is bad debt. They need transparency and lending reform before the bubble bursts.

2. A lack of oversight of the financial system led to billions of dollars of fraud. This isn't new, but it gets worse every year.

3. Creation of credit is entirely in private hands, so when bankers panic en masse as they did last fall, they cause major economic damage (”credit crunch”). Capitalism has a gun to our head. There should be a public body which can also lend money and keep commerce running smoothly in such situations.

4. North America's productive economy is linked to an unproductive and volatile speculative economy and an equally unproductive war industry. We should invest more in things which are durable and improve quality of life.

5. There is deep and persistent wealth inequality, which distorts political decisions and causes unnecessary suffering for "the rest of us". For a start, billionaires need to start paying taxes so we can fix our health care, EI, and pension systems.

I don’t want to see anyone punished “as an example”--I want to see financial criminals put on trial and systemic reform so this doesn’t happen again.

Ergo inflation

I was still wondering how these mind-boggling bailouts will affect the value of money. So to find out more, I picked up a 10-year-old book called Paper Boom, a critique of the Canadian financial system. The author makes some interesting points*, but there is something he mentions in passing that really caught my eye.

When talking about the value of money, we're really talking about inflation. In theory, inflation occurs when the money supply expands faster than the amount of real goods and services (or shrinks more slowly). With more dollars in circulation for the same number of goods, the price per good goes up. Nobody wants that** because it means the purchasing power of our salaries and savings shrinks every year. We can't just keep the money supply artificially low because then there is a shortage of currency, which leads to an inefficient barter economy. Since we can't easily control the total amount of goods and services, we control the money supply to avoid inflation.

I thought that the government controlled the money supply by minting, physically or electronically, any money used in commercial transactions. Loans or bonds wouldn't change the total money supply since they are simply a transfer from one person to another. In fact, that's quite false. Only about 5% of wealth created is issued by the government. The rest comes from a special power that banks have called "creation of credit". By law, banks can lend more money than they actually have. So if they have $1 million in liquid assets, they can lend $10 million and thereby increase the total money supply. That sounds like a bad thing--I have visions of 1929 bank runs--but as I explained above, the money supply does need to expand*** in order to keep up with the increase in goods and services, and bank loans are an efficient way of doing that. It would be difficult for a central planner to accurately match monetary and economic expansion, but since banks lend (newly created) money to purchase newly created goods, there is a close match. That being said, there is a logical consequence: the interest charged on this created credit leads inevitably to inflation. I'll illustrate what I mean below.

Suppose a community produces 100 units per year of real goods and services at $1 apiece, say food and music, and that increases by 5 units per year. That's the real economy. We'll neglect government wealth creation by assuming old currency wears out as quickly as new coins are minted. Each year, citizens take out loans (since the money doesn't exist yet) to buy the additional goods. The economy expands by 5 units/year and the money supply expands by $5/year; therefore the goods will still cost 1 $/unit the next year and there is zero inflation. However, banks don't lend for free: they will charge interest on the $5 loan. This extra dollar or partial dollar means that the money supply is now larger than the real economy, so there must be inflation to compensate. Ergo, any interest charged on bank loans causes inflation.

The next question is, how much does this contribute to real-world inflation? Canada's real economy was valued at $1150 billion in 2007 with yearly economic growth of about 1.5% and 2.5% inflation. Interest on bank loans was about 5%. So inflation from bank lending is

(economic growth)x(loan interest rate)/(size of economy)=(1.5%x$1150 billion)x(5%)/($1150 billion)=0.075%

Which is only a tiny fraction of the actual inflation. So I guess it isn't a major factor.


I realize that there are several important factors I've neglected in this analysis--I was just so astonished that banks create wealth that I had to write this down. For the sake of brevity, I'll just mention one of them. We know that human industry and commerce are damaging our planet's life support system and depleting natural resources. Expansion of goods and services, which mainstream economists take as their goal, is a central cause of this degradation. Therefore it would be preferable to halt inflation by freezing economic growth and minting a constant amount of currency. That is, to invest in reduced waste rather than growth for its own sake. I don't know the best way to achieve that, but there will need to be public analysis and control of resource exploitation and pollution rates to safeguard our environment's life-support capabilities and allow continued prosperity.


*Author Jim Stanford mostly tells us what we already know--our financial system is hyperactive, mostly pointless, heavily subsidized, unfair, detached from reality, and prone to catastrophic crashes--but he goes into depth and lucidly explains how and why this is so. A few things he said were surprising:
First, although theoretically its whole purpose is to channel savings into productive investments, the financial sector only handles about 3% of real investment. The rest is performed via retained earnings by companies, individuals, or governments. That productive investment accounts for about 5% of financial activity, and the rest is entirely casino capitalism.
Second, most successful companies in Canada are insulated from the destructiveness of the stock market through majority ownership by a family or individual.
Third, mutual funds are for suckers: they nearly always underperform the stock market as a whole. Mutual fund brokers do so well because they spend hundreds of millions of dollars on advertising and because they get large subsidies through the RRSP system.

**Some argue that inflation is really only a problem for those who are already wealthy. In Canada, the poorest 30% (family income < $30 000) have such a low income that they never accumulate any savings. The middle 60% ($30 000-$250 000) usually invest any surplus income in paying off their mortgage, so as long as their wage keeps pace, they actually benefit from inflation. The richest 10% (family income > $250 000), whose assets and real estate are paid-for, invest their surplus income in the financial system, and that is where inflation is a big problem. So for 90% of Canadians, high employment and wages is much more important for their financial well-being than low inflation. I agree with that under normal conditions, but what I'm worried about is hyperinflation, which is very harmful to the poorest 90%.

***For commerce to function, the money supply needs to keep pace with the expansion of the real economy. However, banks are given the power to create wealth but not a mandate to do so. This can lead to serious problems when, for one reason or another, banks refuse to create wealth (ie lend money). That's exactly what happened last fall; bankers panicked over the collapse of the stock market and caused a paralyzing "credit crunch" until they were bribed to lend money again.

"The Strong are strongest alone"

US Congress enraged the Canadian government this week by adding a clause that any bailout money (in the trillions now) must be spent on American firms only. We've been NAFTA partners for 20 years, and they still treat us like an unwelcome houseguest. Is this the start of another 1971-style trade war between Washington and Ottawa? Considering they import 20% of their oil from us compared to less than 5% in 1971, plus a lot of their electricity and raw materials, that might not be a good idea.

Either way, this halfhearted protectionism seems so puny compared to the scale of the problem. The US has an $800 billion per year trade deficit; they can't produce enough to satisfy themselves, and no-one wants to buy their shoddy goods. They've been coasting for decades, using their military dominance to rewrite the international rulebook in their favour and letting their civilian and industrial infrastructure decay. They can't fix that just by giving mad cash to the largest corporations--there needs to be real investment and real restructuring to become productive and self-sufficient again.


When the news becomes too depressing, I sometimes play a little game I call "stupid or evil?" For instance, Hurricane Katrina killed thousands and wiped most of New Orleans off the map before help arrived days later. President Bush said afterwards that no-one could have predicted that the New Orleans levees would break, yet the week before he was explicitly told that that was a major risk.

Despite his reputation, I think that is a clear case of "evil" not "stupid". Why did the US Justice Department allow torture and suspend habeas corpus and Geneva Convention rights? Why did Clinton force single mothers to get a job and pay for childcare to get welfare benefits? Why did Reagan "not recall" the Iran-Contra affair? The list goes on.

Likewise, it seems obvious that these trillions of dollars of bailouts will only make economic collapse worse if and when it does come by inflating the debt bubble and exacerbating financial inequality. So either (a) the White House and Congress have terrible economic advisors or are ignoring good advice or (b) senior decision-makers will personally benefit from their decisions. (Or (c) their decisions are right and I'm wrong.) There is no way to be sure unless there is transparency and investigation.

Update: the White House weighed in and modified the "buy American" clause to specify that it would abide by NAFTA and WTO rules. So no trade war for now.