Brian Lee Crowley

Don’t look at unemployment, but rather employment to understand Donald Trump

In what turned out, alas, to be my last regular column for the Globe’s ROB, I point out that unemployment statistics hide more than they reveal. What tell us a lot more are the data for the shae of the population in paid work or looking for work, know as the labour force participation rate. Focusing on this number tells you lots about politics, the state of the economy, and even some of the roots of Donald Trump’s presidential victory. You can read the unedited text below or online here.

 

What do we know about the people who Donald Trump turned into such a potent political force in the last election?  US unemployment is well below five percent; surely there was no objective basis for the economic insecurities that drove the “basket of deplorables” to vote for the Republican candidate.

Consider, though, that one of the best places to seek insight is not the unemployment rate, but the “labour-force participation” or LFP. The LFP shows the share of working age people who have jobs or are actively seeking jobs in the US. In other words it is also a pretty good measure of how many people have left the workforce because they are discouraged and feel there are no opportunities for them. What do we know about them?

Trump’s election coincides with the US LFP rate hitting its lowest level in more than 30 years. The state-by-state figures  provide even more insight into Donald Trump’s political resonance.

Nine out of 10 states with the lowest LFP rates voted for him. Of the five states that went from Blue to Red in 2016, three – Florida, Michigan and Ohio – experienced a drop in their participation rate relative to 2012, meaning a smaller share of people worked and were looking for work compared to four years earlier. The other two states had no increase in the share of people working despite several years of modest economic growth.

By contrast, the years of Bill Clinton’s presidency coincided with a high LFP rate, a time when workers were prepared to give Bill “I feel your pain” Clinton the benefit of the doubt about how trade would improve Americans’ standard of living and those harmed would not be left behind. No more. That good will is gone.

New research from the centre-right American Enterprise Institute think tank shows that millions of American men are jobless and have given up looking. The share of men 20 and older without paid work is nearly 32 percent. That bears repeating: basically a third of all men in America who are over 20 have no paid employment. Two economists at the centre-left Brookings Institution have now added that the LFP rate of prime-age women has stagnated and also declined. People collecting disability benefit has increased markedly.

This doesn’t just affect their job prospects. Other research, including by a Nobel laureate, shows that the life expectancy and health of these displaced and discouraged workers has gone into a tailspin thanks largely to illnesses related to drug and alcohol abuse and other “lifestyle” factors. As one analyst said, these people are dying of despair, with over half a million needless deaths being attributed to bleak job prospects.

So looking solely at the unemployment rate causes us to lose sight entirely of a major part of the population. This segment is not just constituted of men–and now increasingly women–left behind by economic change. It also includes their parents, friends, and colleagues, who see these people they care about left on the shelf and are angered that opportunities for them seem so few and far between. This starts to be a significant part of the population—and the electorate.

It is no answer to say that these people have misdiagnosed their plight when they follow Trump in seeing trade and immigration as the cause of their problems. Yes, the problem is far more down to automation and other productivity-enhancements, meaning that manufacturing requires fewer and fewer poorly-educated, relatively low-skilled workers. Yes, Trump is wrong when he says that America doesn’t make things anymore and needs to return to this economic vocation. The truth is that America has never made more things than it does today. It just doesn’t require many workers to do so.

But the fact that the diagnosis is incorrect misses the key point about Trump’s voters – they vote for him chiefly because they feel he is the only political leader who doesn’t simply dismiss their fears and anxieties as misguided and ill-informed and doesn’t tell them condescendingly that their problems will disappear if only they get a university degree or if the government institutes a guaranteed annual income and basically writes them off as contributing members of society.

A pervasive feeling has taken hold in many parts of American society that ordinary people are being made to pay the price of the ideals of the elites. Free trade is one such ideal, one in which I happen to believe, but also one whose highly-concentrated destructive effects are undeniable and frequently easier to identify than its widely-dispersed benefits. That is why free trade can only be sustained when the winners use the extra wealth created to compensate the losers – something we, like the Americans, have done poorly and unimaginatively.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

 

 

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Water, water all around — unless you’re landlocked like Alberta

Being landlocked is a bad place to be generally speaking on the international stage. Coastal states are guaranteed freedom of the seas, but landlocked states may not be able to reach the seas and their commercial bounty without having to bribe neighbouring coastal states. Ottawa was created in 1867 to prevent such extortionary behaviour by Canadian provinces. So what gives when BC is yet again threatening to close off Alberta’s access to tidewater? My views on the issue were laid out in my 12th May column for the Globe and Mail’s ROB. You can read the unedited text below or here online.

Geography distributes its bounty capriciously and the results can be extremely painful for those who end up penalised by their place on the map.  The outcome of the recent BC election may be about the deliver an object lesson in this principle to this country’s only two landlocked provinces: Alberta and Saskatchewan.

Internationally, being landlocked is a very uncomfortable place to be. Unless you are a Botswana exporting diamonds (small, light and high value products that can be shipped by, say, plane) you likely need to put your exports on a ship to get them to world markets, thereby realising their highest value.

Because ocean shipping is so vital to economic success, the world’s nations agree that ships engaged in bona fide commerce will not be obstructed. Nations can’t target the shipping of other countries and demand ransom to let it reach its destination. That’s piracy.

The main exception is when military or diplomatic conflict causes countries to throw up embargoes against offending countries’ goods, or to prevent them from receiving shipments of things like arms or nuclear materials. Such exceptions are exceedingly rare when seen against the volume of ocean-borne trade.

But landlocked states face a completely different obstacle: their goods must cross another country’s territory to get to port. International law is of little help, and the 45 such landlocked states must negotiate access with neighbours who may have conflicting economic interests, historical enmities or simply little interest in helping.

What the neighbours universally have, however, is the whip hand in the negotiations. They tend to use that to extort benefits far in excess of the actual economic value of the infrastructure and services needed to get their landlocked brethren’s goods to port. And having to get their products through a “transit country” makes companies reluctant to invest in the landlocked. It injects a level of political risk that is difficult and costly to manage.

Landlocked countries thus tend to be poorer than their economic fundamentals justify. All because of accidents of geography and the political leverage they create.

Before 1867, the various colonies that were to become Canada suffered from the ability of each to impose tariffs on the products of the other as they crossed their territory. A key benefit of Confederation was explicitly to tear down these barriers, turning Nova Scotian or Quebec products into Canadian products that could move freely across the national territory, including to ports for export to world markets.

But as we’re discovering, the thirst of transit provinces for bounty to allow neighbouring provinces to move their products has never gone away.

Our only Pacific province has lately been the most egregious offender, preying on the vulnerability of landlocked Alberta and Saskatchewan in their efforts to get their resources to world markets.

Take the Kinder-Morgan pipeline, intended to bring Alberta petroleum to Asia via the port of Vancouver. Before the just-concluded BC election, the Liberal premier, Christy Clarke, had already shaken down the pipeline company for $1-billion to “allow” the pipeline expansion to be built. The province has no jurisdiction, pipelines being a federal matter, but the province could threaten enough obstructive behaviour that the company could see that peace with the province might be worth a hefty price tag. This is nothing but Third World corruption carried out at the expense of Canadian resources, a corruption only made possible by the arbitrary fact of Alberta’s landlocked geography and Ottawa’s complaisance.

Now BC has doubled down on transit province bounty-seeking, this time targeting thermal coal. The province has threatened a thermal coal export tax, ostensibly to punish the Americans for their softwood lumber machinations, but the result will be to sideswipe Alberta, which might lose as much as $300-million in sales of such coal now going through the west coast. Saskatchewan hasn’t been targeted yet, but they understand all too well that they are no less landlocked, and therefore vulnerable, than Alberta.

Assuming recounts and other factors don’t change the BC election result, the situation will only worsen. With the Green Party, unalterably opposed to Kinder-Morgan, holding the balance of power count on all the parties to vie to outdo each other in environmental virtue and the chauvinistic promotion of BC interests, as if they can be separated from the national interest of all Canadians. Kinder-Morgan is sure to be a flashpoint. This behaviour is a dagger aimed at the beating heart of federalism.

As for the much vaunted new free trade agreement between the provinces, it is silent on this issue, proving yet again what a paper tiger it is. Meanwhile Ottawa, created in 1867 in part to be the guarantor of the integrity of Canadians’ freedom to trade, looks on benignly.

Who speaks for Canada? Answer came there none.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

 

 

 

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Think what you like of Kevin O’Leary—He is right to call for the restoration of Ottawa’s economic power

Writing in my fortnightly Globe column I make the case that commentators can harrumph all they want at Kevin O’Leary’s plan to discipline the provinces for damaging Canada’s national economic prospects. He is doing nothing the founders of Canada didn’t plan and allow for.  His rhetoric may be a little over the top, but he is not wrong to say that Ottawa has the tools to discipline provinces who act contrary to the national interest (including via withholding some transfers) and that they should be used when circumstances warrant.

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How globalisation bowled over the taxman

As I wrote in my Globe column for the ROB, carbon taxes are all the rage, but they are not going to be the tax reform that will bring national tax systems into the 21st century. Governments and their traditional tax systems have become the latest bystanders sideswiped by the globalisation juggernaut, and the shift from corporate taxes to more objective tax bases like sales and consumption are going to be the response. In this context, people should stop ventilating and look more closely at the Republicans’ border adjustment tax. In my estimation it is a back-door way of introducing something like  a much needed national sales tax in the US.

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Innovation-obsessed Ottawa tackling a problem that doesn’t exist

In the lead-up to the federal budget, Ottawa was desperately signalling its commitment to fostering innovation in Canada. As the bard might have said, indeed did say, how weary, stale, flat and unprofitable. As I remind people in my Globe column for the ROB, there is nothing magic or special about innovation as an economic activity. Like all such activities, we make ourselves better off when we specialise in those we do well and let others do the same. In areas where we possess comparative advantage, we innovate just fine. In the others, why this mania to innovate at home as opposed to just doing what everybody else does: free ride on their innovations? After all we are one of the world’s wealthiest economies and the obsession with our “poor” innovation performance has for decades gone hand in glove with rising prosperity.

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What explains labour’s falling share of income? Corporate concentration one answer

In my Globe column I argue that the share of national income going to workers is being squeezed in Canada and other G20 countries. An excessive concentration of market share in the hands of fewer and fewer companies – not greed or offshoring – may be one of the most important trends responsible for this change.

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Think the conditions that led to Trump’s rise don’t exist here? Think again.

In my Globe column I argue that typical Canadian smug moral superiority has no place in our assessment of Donald Trump and the political phenomenon he represents. Canada is not immune to the economic dislocation and policy arrogance that propelled Trump to the presidency. If we forget about those whom free trade, balanced budgets and higher productivity are leaving behind important parts of our population will be vulnerable to Trump-like appeals.

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Will robots steal the last job?

In the era of Donald Trump it has become commonplace to bemoan the disappearance of work and the fear seems widespread that robotics will replace virtually every kind of work. We won’t even drive ourselves anymore for Heaven’s sake! Machines will do it all.

Or will they? It is a common fallacy that there is a fixed amount of work to be done and if machines do more of it there will be ever less of it left over for humans to do.

But it is a fallacy no matter how hard some people believe it. The reason is that what creates jobs is human needs and desires and these are infinite. Moreover as we become wealthier (which automation allows us to do with no extra effort on the part of humans), we begin to think about satisfying those wants and desires that we had to set aside when we were too poor to afford them. There is a reason why it is wealthy societies, not poor ones, that go to the moon and the stars….

Read more in what has been my most commented-on Globe column of 2017. OK, it was also my only one in 2017 (published 6th January) so far anyway. Just checking to see if you were reading closely!

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Three myths I’d like to see the back of in 2017

My editors at the Report on Business asked me to do a “what to expect in 2017” sort of column for my last one of 2016. Rather than dreary economic forecasting that you can get anywhere, I decided to write instead about the myths that we will hear about yet again in 2017 depsite the fact that they are, to use a current expression, “fake news”! They are:

  1. That we should get off fossil fuels or we are all doomed.
  2. That wealthy developed countries are the cause of the poverty of the developing world.
  3. That giant corporations run the world, dwarfing the size and power of national economies.

Want to find out why all these myths are, um, myths? Well you’ll have to read the column, won’t you! Happy 2017!

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Why the prime minister still doesn’t understand Ottawa’s role on pipelines

When in early december he announced his decision on several pipelines, approving two and vetoing another, Prime Minister Trudeau clearly thought he was showing how these decisions ought to be reached. Others, like the NEB, hold hearing and then make recommendations but the final decision should rest with the government. He couldn’t be more wrong. As I wrote in my December 9th, 2016 column for the Gobe’s ROB, his job is to be neither cheerleader (what he criticised Stephen Harper for) *nor* referee (the hat that Trudeau donned), but rather impartial rulemaker. Just as parliament makes laws and the hands them over the judges to apply, the government should be setting the tests pipelines must meet to be in the national interest and then handing it over to the NEB and environmental assessment agencies to hold the evidence-based proceedings that determine if those tests have been met. In the long run the last place politicians want to be is holding the bag on these decisions.

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Brian Lee Crowley