Friday, January 30, 2009

The darkness approaches

Socialist approaches to economic challenges always have an ugly nationalist side to its agenda. Some Canadians celebrating Obamafest are in for a nasty awakening. Indeed, the global economy is in for a chill if the protectionist measures built into the U.S. Congress' protectionist-laden stimulus bill pass into law. We are in for another bout of policy failure echoing the abuses of the market system espoused by FDR's New Deal. Did not America learn then?

This is an opportunity for the new U.S. administration to show its commitment to free trade. It is also an opportunity to recognize the inextricable trade relationships Canada and Mexico have with America. Of course, its failure to do so will only make the economic lesson that much more difficult. This could turn into a trade war if proper leadership does not direct these issues. Let's see what kind of vision President Obama has. Regrettably, he has given free-traders and free-marketers little reason to be optimistic.

Friday, January 23, 2009

One union to stand for: currency union

The Canadian dollar rode the commodity boom from 2002 to its peak above par with the greenback in October 2007. Since then it has ridden the the brutal commodity slide. Whether the oil market regains some of the lost ground - it has been a correction from $140 a barrel to the sub $40 now floating crude oil - remains highly debatable. What we do know is that the loonie has settled back to the sad position it had been in for decades. This is as damaging for the Canadian economy as the "high" Canadian dollar was to the industrial complex of Eastern Canada. Once again Canadian industry will revert to the patterns of industrial production born not out of true competitive efficiencies and comparative advantage, but out of devaluation and handicapped productivity. Worse, the shock the revalued loonie had on markets will not necessarily right the ship for many industries that previously enjoyed growth on the back of weak Canadian dollar. Will the Canadian film industry bounce back? Will tourism increase substantially? Will other Canadian firms forced to scramble to become more efficient in 2007/08 be able to regain some lost market share in their export business? How will Canadian-based NHL teams deal with the increased labour costs associated with a depressed Canadian dollar? The disruption this revaluation of the loonie causes is significant.

Industry needs stability of exchange rates. The North American economy - if it is to achieve higher levels of integration - needs currency stability. Working on currency issues in the current economic climate may not seem politically feasible, but it may be more palatable now than at the top of a business cycle. There are solutions to the current economic challenges facing the United States and Canada (and Mexico) that are institutional. These are solutions that are "outside the box", and have immense potential to reshape the economies of the nations of North America. The challenge from the global economy will force us to turn to our neighbours. Now would be a good time to sound a bell. Let's hear more about currency union.

Tuesday, January 20, 2009

Time to tackle the border problem

Another voice for a proactive Canadian approach toward an expanded U.S. security perimeter: economist Patrick Grady shares today in his National Post op-ed piece, "Mr. Obama, tear down that border". The substantial economic challenges the North American economy faces will not be met by grand speeches and colossal public expenditure. A concerted effort to frame the politics of an integrated North American economy should be a top priority. A good starting point is the Canada-U.S. border. There is much at stake for both economies if trans-border inefficiencies continue to hamper trade. Many politicians recognize this - but few are committed and forceful enough to take on this issue. It is time an inspired voice come to the fore.