A New Beginning

While I have been either away or busy for much of the summer, I will be resuming work on this blog over the next week or so.

When I started this blog six months ago, my goal was simply to start writing again after a ten year hiatus. At the time, one of my goals was to incorporate faith into a discussion of economics and public policy. And while I commented on faith issues from time to time, events (particularly the economic near death experience of the past year) and distractions in my own life seemed to steer this blog inexorably toward the low hanging fruit of comment on economic events and policy.

Hopefully, this will change over the coming weeks and months. While it is clear that catastrophe has been avoided, the ethical issues raised by the crisis remain, perhaps stronger than ever. For those whose faith is at the centre of their lives, these issues are particularly poignant.

If we can afford to subsidize the wealthy to the tune of trillions, it is surely now unconscionable to ignore the plight of the most vulnerable among us. This raises the question of what an economy is for and what role justice must play.

Stay tuned.

They're Back

If you want evidence that nothing has changed in the U.S. financial sector, you can do no better than Paul Krugman's column in this morning's NYT. For Krugman, Wall Street is once again serving a socially corrosive function by using inside information and superior technology for private profit. It is worth quoting this at length

Americans are angry at Wall Street, and rightly so. First the financial industry plunged us into economic crisis, then it was bailed out at taxpayer expense. And now, with the economy still deeply depressed, the industry is paying itself gigantic bonuses. If you aren’t outraged, you haven’t been paying attention.

But crashing the economy and fleecing the taxpayer aren’t Wall Street’s only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view.

And they’re still at it. Consider two recent news stories.

One involves the rise of high-speed trading: some institutions, including Goldman Sachs, have been using superfast computers to get the jump on other investors, buying or selling stocks a tiny fraction of a second before anyone else can react. Profits from high-frequency trading are one reason Goldman is earning record profits and likely to pay record bonuses.

On a seemingly different front, Sunday’s Times reported on the case of Andrew J. Hall, who leads an arm of Citigroup that speculates on oil and other commodities. His operation has made a lot of money recently, and according to his contract Mr. Hall is owed $100 million.

What do these stories have in common?

The politically salient answer, for now at least, is that in both cases we’re looking at huge payouts by firms that were major recipients of federal aid. Citi has received around $45 billion from taxpayers; Goldman has repaid the $10 billion it received in direct aid, but it has benefited enormously both from federal guarantees and from bailouts of other financial institutions. What are taxpayers supposed to think when these welfare cases cut nine-figure paychecks?

So in the face of the largest financial meltdown in eighty years and the most progressive administration in fifty, the financial sector has quickly once again set a socially destructive course. Or as Krugman suggests

Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.

We Can Stop Patting Ourselves on the Back

One of less endearing features as a country is our habit of looking south, feigning horror, and telling ourselves that no matter the problems here we are not that bad. A case in point is the economy.

We have been hearing for months that while our economy is experiencing a mild downturn (that is now over) we have not seen the cataclysm here that was seen in the U.S.. Unemployment rates are lower, housing prices steadier and our financial sector the apparent envy of the world.

Yet as the Economist noted toward the end of last week, Canada's manufacturing sector in Ontario, the heart of the Canadian economy, is in deep trouble. And it is about more than GM. As they note

Ontario’s problems go wider than cars. Recession has curbed demand for its minerals and forest products. Nortel, a telecoms firm that was once Canada’s leading high-tech company, recently entered bankruptcy. Bits of it are being sold off piecemeal. Two-thirds of the 370,000 jobs lost in Canada between October 2008 and June 2009 were in Ontario, most of them in manufacturing.

Ontario’s economy is still the biggest in Canada. But it is no longer the richest. Indeed Ontario is now classified as a have-not province, making it eligible for handouts from a federal fund to equalise public spending across the country. It has even been granted its own federally funded economic development agency.

And, according to uber-pessimist Garth Turner, our financial sector is again handing out zero down long term mortgages to people with little ability to pay, a practice that led to the EFF initiative in the last budget and a $65 billion dollar buyout of troubled mortgaged back asset from our supposedly sterling banks.

So while the recession may have ended with surprising quickness (if it has indeed ended) it leaves not only devastating damage to workers in its wake, but seems to already set the stage for the next one.