Hello Mr Olive,
Your article contains a couple of points that I consider have been
overlooked and I appreciate seeing someone come forth with them.
Real and Financial Economies
Sometimes we might think we live in a set of parallel, detached
worlds. As you point out the real world doesn't look too bad. To me
and I hope more, it's the crisis mostly created by financial
intermediaries (FIs) trying to gain/engineer excess "middle man"
profits that has led to an image of financial detachment from the
real world and we suffer the negative impacts. (We also can't forget
irrational US behaviour of living beyond your means and using paper
real estate gains for consumption needs that contribute to the
current global correction/adjustment exercise)
The role of the FI as bringing Saver and Investor or
Supplier/Processor together in globally optimal/ economically
rational ways has lost its way. Pension funds playing commodities is
an example.
The disruptive and reckless role of the FIs almost broke the growth
potential of the global economy. That is, economic productivity of
the real side and the returns on money investment on the financial
side has been driven off off course but must stay together in a
balanced way like the corporate accounting balance sheet This key
economic principle has been lost by too many seeking to gain wealth
without real toil by using the worst drug of all, OPM (Other Peoples
Money) in very risky ways.
The corrective exercise in play for the developed economies should be
viewed as regressing to long term trends_ which point up but with
less slope than experienced in the Bush years, in terms of financial
performance. The financial economy will meet/interconnect with the
real economy again.
US Competitive Advantage (CA) Increasing
I have expressed this in a couple of article comments. It is
something that not many are discussing.
This CA phrase should be creating shivers in Ottawa. Harper may be
forced to re-invent Dion's "Green Shift" to stay ahead of the
imminent US wave that is building up. America, by placing a targeted
spending impulse (into areas you pointed out) that dwarfs anything
considered by all sides in Ottawa (after consideration of the
population ratio factor), should ramble ahead of the rest of the
world and move forward at a rate increasing our productivity gap.
We should expect to lose our auto production advantage (how can we
build 20% of NA vehicles much longer). Oil profits/dividends return
capital mostly outside Canada. We need to find investment
replacements that will close productivity gaps.
We will need to match the US dollar for dollar in new techs/R&D as
well as infrastructure.. We must realize that governments deficits
that are well conceived investments in people, things and ideas have
productivity payoffs.
If we don't move smartly and dramatically in 2009, we will move
ahead but as symbiotic followers, not evolving leaders.
Let's have hope and a happy new year.
Brian
Here is Mr Olive's response:
Dear Mr. Ralph
Many thanks for this superb essay. I appreciate the eloquence, and especially certain
crucial points you raise that I failed to do in my article. In particular, the disconnect
between the real and financial economies, and the origin of that destructive phenomenon,
I didn't convey with the cogency in your note. All of this makes great sense to me, and
I wish it were widely expressed. My only misgiving is the potential for the stimulus to be
misspent. If it's spent as you counsel, we have great hope of attaining leadership
positions in a wide range of policy areas, from environmental technology to taking better
care of our least-advantaged citizens. I just don't yet have the confidence we will spend
the money wisely. But I can hope for different. And your note helps me think that is
possible, if there are enough folks like you to raise red flags when the stimulus funds
are being mis-directed.
Thanks again so much for this remarkably perceptive view of where we are at this
fascinating moment.
Best regards, David
COLUMN REF: http://www.thestar.com/comment/columnists/article/561210
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