Saturday, August 08, 2009

Buy American and other loony notions

Most Australian’s would not know about the ‘buy American’ campaign or particularly care, but Canada sure does and resents it. There seems little cause for concern. As always, simple concepts become prisoner to highly complex realities.

“Obama's stimulus spending has run into a problem: A shortage of General Electric water filters. GE makes them in Canada. Under the program's `Buy American' rules, that means the filters can't be used for work paid for by the $US787 billion ($935 billion) fund…. Contractors are searching the US in vain for filters as well as bolts and manhole covers needed to build wastewater plants, sewers and water pipes financed by the economic stimulus.”

Tom Pokorsky, president of Aquarius Technologies says ”Buy American has stopped US wastewater work this year. I'm surviving by selling to Canada.'' Even that market won't be safe if Buy American sparks a ‘Buy Canada retaliatory initiative.”

They call the Canadian dollar the Loony, after the bird gracing the coin, or maybe after the government managing the economy: Canadian Conservative Finance Minister Jim Flaherty is taking a stronger stand against currency traders, blaming speculators for at least some of the foreign-exchange volatility that is hampering Canada's economic rebound.

Obviously export countries like Canada and Australia fair better with lower exchange rates against the benchmark $USD. It just seems strange that one of the last governments professing to still be in the thrall of all out neo-liberalism should be proposing any sort of regulation. Stranger still when that government does not have the regulatory powers to intervene.

Flaherty can’t order The Bank of Canada to adjust rates or make currency purchases to effect exchange rates, possibly the most effective measures. It seems many Canadian commentators agree, and Flaherty’s only probable tool is his mouth, and his ability to effect sentiment.

All this in a the week a professor of global development studies at Queen's University, David McDonald told us: Like it or not, we're all neo-liberals now The article caught my eye because it is something we’ve discussed here over the past year, it’s just great to see someone with a little more gravitas saying it.

Mind you, while I agree with much of what McDonald says in his article I dispute the headline pasted on by the sub-editor. It was never ‘all’ of any one ideology; neo-liberals were never so hardline as to refuse to pick and choose the bits they wanted. The US free-traders operate strong farming subsidies, as do Canadians. John Howard was a dogged supporter of AWB, which was hardly ideologically neo-liberal.

Indeed, Flaherty’s own wishful thinking about intervening with the Loony is a case in point. Ideologies have never been applied fully or consistently. Which is why I also take issue with McDonald’s summary: “We may be witnessing the start of a new phase of this ideology, but there is no question that in our rush to save finance capital, we are doing more to shore it up than change it.”

I would hope we are witnessing a new phase, sans ideology. The model could well be JK Galbraith, a Keynesian to be sure, but far more concerned to find solution that work rather than just fill pre-conceived structures. The talk now is of an era of pragmatic economic policy; we’ve tried the others so it must be time now to try to simply address situations with appropriate solutions.


lindsaylobe said...

For the most part I agree with the author about neo liberalism in economics, except for the claim globalization limits countries’ ability to determine their own economic destiny. Both monetary and fiscal policy (e.g. monetary policy being interest rates and controls and fiscal policy being government spending & tax) remain important tools not used properly to smooth out the inevitable peaks and troughs within any capitalist society. At the behest of the monetarists politicians have felt justified in reducing regulation and confining the role of Central Banks to the setting of official interest rates, allowing the culmination of a burgeoned debt arising from the twin deficits of the government deficit and ballooning current account deficits. During this time of debt accumulation regulatory oversight was almost completely dismantled as governments now need to urgently ensure there is a re investment in personal and resources into Central Banks whose terms of reference need to be changed to ensure a role with responsibility for both monetary and fiscal policy advices to governments. This is not the role for a Securities Commission as has been erroneously suggested by some commentators.
Another misnomer concerns overseas trade which, given sensible guidelines, will benefit participating countries. But it assumes countries will have enough common senses for a continued industry policy to support local industries best suited to ones climatic, geographical, and educational and natural resources which encourages any economically feasible excesses to be exported to those countries that lack that same advantage. The reverse applies for imports. It was never in anyone’s best interest to erect trade barriers, tariffs, bans on imports and so forth which both risks subsidizing inefficient local industries and retaliatory measures. But you also have to remain vigilant with a “hands on” approach to ensure dumping of product below cost or human rights abuses and so on do not in any way connect with such trade.
Governments’ hands are not tied because of globalization – indeed there now exists much more opportunity than ever before in our history to co operatively achieve a much more sustainable improved trade cycle. But governments and their hopefully trusted advisers and regulators have to get their hands dirty and not rely on mindless markets to make all of the decisions. Best wishes

Cartledge said...

Thanks for not attacking the messenger here Lindsay. My conclusion is that most North American commentators suffer the same problem as the financial folk who were behind the current mess; that is they preach the fundamentals without really knowing what they are.
That is clear on the financial side, and I’m pleased to see our Michael Pascoe able to preen over recognizing the shortcomings of the latest ‘positive’ job figures. That is that unemployment is not growing as predicted, but as Pascoe points out, work hours (incomes) are reducing. Not the sort of insight we expect from the financial sector.
But many NA economic commentators are solidly wedded to the rote learning dogma of their studies. They were simply not taught to think, but to just accept. Now, of course, they have become enamoured of Nouriel Roubini, Dr Doom.
Roubini predicted nothing that many of us had already predicted. Roubini has as much chance as the rest of us predicting the next steps. The predictors for a global crunch were there to read, even the potential for a major paradigm shift.
My concern now is that both the peer group mentality of the financial sector and the rote learning of the economic mob will lead us back into trouble. The blind leading the blind?