Stable “loonie” rides high

And now for something slightly different. Not Rupert Murdoch, not the scorching weather, but money. The Canadian dollar (nicknamed “loonie” for the bird on the coin) is hitting heights not seen since late 2007, according to this from CTV news.

As of that article’s publication, one Canadian dollar was trading at 105.98 U.S.

(Note: I checked on line just now and it seemed to have dropped a smidgen, to 105.86. It’s a moving target.)

According to the article:

…analysts say the loonie is benefiting from government debt worries in Europe and the U.S.

“As uncertainty in Europe continues to rise and problems in the U.S. remain at the forefront, there is likely increased appetite to diversify holdings away from both U.S. dollar and euro-based assets,” said Scotia Capital chief currency strategist Camilla Sutton.

“Small open economies, with strong sovereign positions and flexible foreign exchange regimes, like the Canadian dollar, are in demand. We expect this is a long-term trend and one that will help to support CAD into year-end.”

Will a strong Canadian currency affect you and your spending or travel plans?

Is this more evidence the world is nervous about financial uncertainty in the U.S.?

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30 Comments on “Stable “loonie” rides high”

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  1. Pete Klein says:

    Good for Canada. Probably good for tourism in the North Country.

  2. Anita Figueras says:

    The loonie started rising higher compared to the US dollar in 2007, when our daughter went off to study at McGill. Out of three years of undergraduate study, there were only one or two semesters where there was a substantial adjustment in our favor for the exchange rate (we were paying Canadian tuition with US funds). A household joke used to be that we knew when the exchange rate would switch back to the traditional position of a weaker Canadian dollar – May 2010, when our daughter graduated.

    This is definitely another sign of the weakness of the US economy. And I’m glad I don’t have to pay Canadian tuition any more.

  3. Bret4207 says:

    “Is this more evidence the world is nervous about financial uncertainty in the U.S.?”


  4. Walker says:

    So let’s see… it’s the socialist policies of the Obama administration that are weakening the US economy and placing us at a disadvantage, right?

  5. Bret4207 says:

    Sounds like that’s directed at me Walker. So, no, not exactly. It’s the policies of the past several administrations and their actions, along with the actions of the Congress in their unrestricted spending and of the Fed and Treasury in playing fast and loose with our currency, along with the socialist policies of not just Obama, but several other administrations that lead us to this point. Add into that mix the uncompetitive environment for business in the US, taxes and regulation, our sense of entitlement and expectation of ever more “stuff” to be provided to us by Gov’t… is anyone really surprised at this? It’s impossible to devalue your currency and expect it to remain at the same level it was at before devaluation.

  6. If Clapton is God, Warren Haynes is Jesus says:

    I would add that it has a lot to do with the fact that the Canadian banking system weathered the recent worldwide financial crisis far better than nearly every other country in the world. Their system is very stable precisely because it is highly regulated. Or at least far more so than ours and some in Europe have been for the past decade or so. For example, their banks are required to have a very high amount of actual assets to cover their actual investments in case those “bets” fail. In other words, they are required to cover their own butts, instead of the Canadian gov’t.

    We used to follow such a philosophy here at one time. Capitalism works wonders, but it needs guard rails on its highways. Sadly, we took ours down and the Canadian kept theirs up. Good for them as well as for us in the North Country as it’s no secret what has driven the rise in local and county tax receipts. As Pete and others mentioned, it’s great for the tourist sector of our economy.

  7. oa says:

    Clapton is right. All about the banksters. We let ours do whatever. Canada didn’t.

  8. hermit thrush says:

    right, so all of these “socialist” policies in the u.s. weakened us relative to… the even more “socialist” policies in canada. makes perfect sense!

  9. Bret4207 says:

    It’s a mix of a variety of things HT, you must be able to see that. It’s not just banking regulations or lack of regulatory oversight or entitlement programs or wars or any one thing. This is a very, very large can of worms guys. You can point fingers at Wall St or the White House or Congress or the Bush/Obama tax cuts or anything you want. It’s all tied in together and you can’t pick just one area and say that’s what the problem is. For instance- Fuel prices are a vital issue in our economy. Beyond the cost of the oil itself there are taxes and subsidies involved, environmental regs, taxes from the States, the whole ethanol subsidy thing which drives feed prices higher, land prices higher, food prices higher, fertilizer prices higher, etc, etc. I’m not sure there is any one area that you can find where the costs or regulation or subsidies or lack of production.over production affect just that area. Education, energy, infrastructure, unions, taxes, health care, Social Security, environmental issues……the list is endless. Each one affects many of the others which affect even more. It all adds up. So whether you want to point at Wall St and rip them apart or social programs or pork or anything else, it’s all tied in together.

    We did this to ourselves through our own greed and short sightedness.

  10. hermit thrush says:

    i think you’re missing (or at least not addressing) my point, bret. i think on almost every single issued you’ve mentioned, canadian policy has been to the left of american policy. for instance, fuel prices are even higher in canada, where there are heftier taxes levied. yet despite doing even more of things you say are causing problems, canada is doing better. how do you square that?

    here’s how i square it: the economic problems in the u.s. are more the result of too much conservatism than too little.

  11. Walker says:

    That’s my reading too, Hermit.

    You can call it complicated if you want to, Bret, but I’d say it’s pretty simple. We let the foxes run the hen house in the name of creating a business-friendly climate, and what we got was fat foxes, no hens, and no jobs for the hen keepers.

  12. Bret4207 says:

    I don’t see it quite that way. Canada may be more liberal politically in general, but they aren’t stupid. Canada has never run up a $1.4 trillion deficit, of course considering their economy is smaller than Californias, that’s a really good thing. I think this is a case of our Gov’t and Congress not learning to say “NO!”. We have spent ourselves into this, regulated ourselves into this, taxed and borrowed our way into this. Let’s not pretend that all the big money Wall St types are Republicans guys, that just ain’t so. And the people passing the laws that lead to much of this had a “D” behind their name. There wasn’t very much conservatism shown here over the past 25-30 years. There may have been a lot of Republicanism, but it wasn’t conservative.

    Canada has a lot of good things going for it. The old line conservative approach to money lending and debt is a good thing and it seems to be practiced in Canada. Good for them! We should learn from that.

  13. hermit thrush says:

    bret, this is kind of comical. you write

    We have spent ourselves into this, regulated ourselves into this, taxed and borrowed our way into this.

    just what do you think has been going on up here in the great white north? canada has more spending, more regulation, more taxes, and, at least up to the eve of the financial crisis, more debt.

  14. Walker says:

    And more to the point, Bret, we have very much _failed_ to tax ourselves into this.

    You may choose to see the spending as the big problem, but what has really changed in this country that has made the deficit balloon are the tax cuts of Reagan, Bush I and Bush II. It has been Republican policy for thirty years to cut taxes and increase military and business spending with no regard to the deficit, or rather, with the idea that “deficits don’t matter” (Dick Cheney, remember?) and that eventually they could “starve the beast.” Well they’ve succeeded, and the beast is indeed starved, and they figure that’s a good thing.


  15. oa says:

    In general, Walker, you’re right, but Bush I, to his credit, raised taxes (and broke a loud campaign promise) to start to bring down the Reagan deficit. And of course was primaried and third-partied out of office.

  16. Bret4207 says:

    Canada does not “spend more” HT, and I would argue they don’t have more regulation and obviously they have a different tax structure. How it’s spread out differs greatly, yes. But more? Depends on how you look at it. California has a larger GDP than all of Canada. The numbers simply don’t add up. Don’t pick and choose areas, look at the over all picture. Gov’t spending per capita is probably higher and taxes at the Federal level are too I imagine, but overall? I’d have to find a way to find all the various taxes at state/province/local levels.

    According to the research I just did Canada never had more than a half billion in debt at it’s highest, quite a difference from our current $14 TRILLION. And as I said, Canada has taken a relatively conservative approach to financial issues. From the WSJ-

    “But unlike in the U.S., Canadian policy makers at the federal and provincial levels have embarked on slow but steady deficit-cutting programs that have largely appeased analysts and foreign investors.

    “Granted, Canadian federal and provincial governments are early on in their plans to eliminate their deficits,” said Derek Burleton, deputy chief economist at TD Bank. “But they do have long-term plans in place, which is a good start.”

    The IMF has called Canada’s deficit-fighting plan “sound and credible.”

    According to figures released Thursday by Canada’s finance department, the budget deficit for February—the second-to-last month of the Canadian government’s fiscal year—was C$592 million, compared with $C902 million in the same month last year.

    Nearly half the 11-month budget deficit of C$28.3 billion was attributed to the government’s fiscal-stimulus plan, the finance department said, which incorporated tax reductions, infrastructure spending and other measures aimed at job creation.”

    Note the last sentence- TAX REDUCTIONS. Even Canada recognizes the obvious.

    The larger point, for me anyway, is that Canada has remained on a fairly constant course for decades. We haven’t done that. We’ve spent and spent and spent without the growth to back it. Some was necessary. Like it or not if it hadn’t of been for Reagan we might very well still be fighting the Cold War. I don’t agree with a lot of what he did, but it worked. But we never stopped growing our spending. Even when the economy falters we don’t stop spending more and more and more. It’s NOT sustainable guys. And we keep moving the tax burden more an more to the middle class, we pay 90% of the taxes. You can undo the Bush/Obama cuts but it isn’t going to fix it all. We HAVE to cut spending. There’s nothing left. And taxes will go up, no doubt, but without cuts the increased revenue vanishes. That’s fact. Our politicians play word games and call aborted scheduled increases in spending “cuts”. We rob ourselves and never even notice.

    Canada has been more fiscally responsible than us. Simple as that.

    Walker, did you ever notice the people always bring up Cheneys quote but ignore the way the progressives cling to Keynsian economic theory that advocates just what Cheney said?

  17. hermit thrush says:

    for everyone else still paying attention to this thread, the main point i want to make has nothing to do with canada or deficits or anything like that.

    it’s that no one should believe anything bret says. he’s simply not credible. that doesn’t mean that everything he says is wrong — far from it — but it’s just that he can’t be trusted. and i would personally go further and say that the same applies to tea partiers generally, but that’s obviously outside the scope of what we’re discussing now, and is a much harder point to support anyway.

    so here’s a fine example of why bret can’t be trusted. he just says point blank that canada doesn’t spend more than the u.s. and of course that’s true in terms of the dollar totals. but no sensible person measures things that way; the right way to do it is as a percentage of gdp. i haven’t been able to find any really nice charts showing the year-to-year data, but this is from a nice paper from 2003 (pdf), which shouldn’t bother bret too much since he’s been talking about how things have been for the past 30 years:

    It is well known that total government spending relative to GDP is higher in Canada than in the US. In 2001, total Canadian government outlays amounted to 38.0 per cent of GDP, compared with only 31.2 per cent in the US….

    the paper points out that about half the difference was because of canada’s greater debt load (as always, relative to gdp). as for the other half of the difference:

    We find that the most important category in explaining the gap in program spending between the two countries is income security, which includes, among other things, all social assistance and public pension benefits.

    in other words, canada has been spending a lot more on exactly the kinds of things bret hates. these are exactly the kinds of things bret is railing against when he talks about how the u.s. has gone astray. yet he holds canada up as a model!

  18. Bret4207 says:

    Fine HT, I’ll do your work for you-

    That’s Federal/National gov’t spending per capita. The US spends almost $6.3 million per person. Canada spends $5.9 million. I’m right.

    If we go to the GDP chart Canada spends $.194 per dollar of GDP, US spends $.159 per dollar of GDP. You’re right. I see why you want to use GDP.

    What you said was “Canada has more spending”. If we use your rule of GDP then you are correct, but if we go by per capita or total you’re wrong. But there’s more to consider.

    Throw GDP per capita into the works- Canadas GDP per capita is lower. So that has an effect in your favor.

    So what if we look for tax revenue as a percentage of GDP?

    Canada leads the US 32-27. But it’s not that simple. More muddling of the waters is found though when you look further- Maybe you’d like to call a Harvard Professor of Economics a liar too. He seems to take the same view as I do-

    Maybe you’d like a simple tax rate comparison-

    Read that guys conclusions on why US taxes are higher. And be sure to note the Corporate tax rate comparison. Canada gives it’s corporate interests quite a bargain.

    In the end we can argue this till the cows come home. You think you’re right, I don’t. Probably the important thing is effectiveness of tax dollar spent vs tax dollar received, but I can’t find anything on that. I believe you want to us the GDP comparison because it bolsters your position. It seems to me the proper comparison would be taxes per tax payer but I’m not able to nail that one down.

    Making personal attacks is a usually a last, desperate measure employed when an internet wannabe genius see’s his argument falling apart. I would hope you can refrain from that in the future.

  19. Bret4207 says:

    BTW HT, what I’m holding up as a model is Canadas financial systems conservative approach and fiscal responsibilty, not it’s political/social spending. I’m sure if you re-read my posts you can see that clearly. I have seen no evidence of Canada devaluing the Loonie by printing billions of dollars of new money that is steadily declining in value. That’s the type of thing I’m talking about.

  20. hermit thrush says:

    BTW HT, what I’m holding up as a model is Canadas financial systems conservative approach and fiscal responsibilty, not it’s political/social spending. I’m sure if you re-read my posts you can see that clearly.

    i reread your posts and all i’ve discovered is that you’re playing calvinball — anything can mean whatever you want it to, whenever you want it to, all according to a moment’s whim. this is why it’s pointless to pay you any credibility at all. at 10:46 you talk about how “Canada has taken a relatively conservative approach to financial issues,” and then go on to talk about precisely government spending and revenues — that’s what “political/social spending” is all about!

    but let me also say, you’re continuing to miss my point. i frankly spelled it out perfectly clearly at 9:41 and 1:37 and 9:23 above, but let me say it again. you continue to point to our spending, taxation, regulation, and borrowing as the backbone of our current economic problems. you seem to place an especial emphasis on spending. you continue to say that these problems have been building up for at least 30 years. we all also seem to agree that canada has done a lot better in the recession than us. don’t you see how this undermines what you’ve been saying about the u.s.? don’t you see how this maybe suggests that the things you think are problems, aren’t the real problems? canada has been way outspending us for years. and to pay for that spending, they’ve been way out-taxing us. and they’ve been outregulating us too — their banking industry better withstood the financial crisis precisely because it was more tightly regulated. if all these things are so bad, and canada does more of them, then how is it possible that canada is doing better?

  21. Bret4207 says:

    Did you read the 10:28 post links at all?

  22. hermit thrush says:

    i would have if the post existed! :)

    but seriously, i just scanned over all your comments in this thread, and none of them contain any links. i don’t know what you’re talking about.

  23. Bret4207 says:

    Oh jeeze, “awaiting moderation”. Sorry, I keep forgetting Dale has to approve anything with more than one link in it.

    Okay, let me put it this way- I UNDERSTAND what you’re saying, that Canada has a much more socialist pattern to it’s gov’t workings and is far more liberal in the way it provides services for it’s population. I understand it seems to you that Canada “spends more” and taxes more and regulates more and that consequently the US just needs to tax more and spend more and all will be well. I also understand you seem to be missing that I’m agreeing partially with you about banking/financial regulation, but you don’t seem to see what I’m trying to get across regarding that. So I’ll try and make it clearer.

    Yes, I agree Canada has maintained an better approach to it’s financial regulation from the standpoint of not allowing crazy bundling of bad loans, requiring banks to make loans to unqualified people, print worthless money, borrowing obscene sums to pay for the programs Canada feels it needs. Got that, no argument. Canada also has a much more rigid structure to it’s banking system, one more modeled after the good old British system which I think you’d agree is pretty darned conservative in it’s actions. While I’m sure the TD bank has plenty of clout in Parliment, I don’t know if they have quite the cozy relationship with the politicians we see here. I’ve never heard of the political/banking scandals like we have on CBC. Perhaps it happens, I’ve not seen it though. So good for Canada for not letting politicians and bankers collude to the extent we see here.

    The most important thing is that Canada has not borrowed and run up it’s deficit to anything like we have no matter how you look at it. Canadas national debt is a mere $563 billion, that’s $16K per person. The US debt is $16 TRILLION/ $46K per citizen and $130K per taxpayer. We have $54 trillion in total debt, that’s $176K per person! That’s the part about spending I keep coming back to. We have spent that money! Our total debt to GDP ratio is 98%!!! We’re only taking in 30% of what we need to cover our debt- 30%!!! Yah really think the Bush/Obama tax cut being canned is going to fill THAT void??? Canadas GDP has grown more than the US GDP over the past few years. But that’s not a simple equation, it’s also the result of all that borrowing devaluing the dollar here, so it gets a bit murky. One of my links discusses this very fact.

    As far as the “Canada spends more, taxes more” that’s what all my links are for. The short answer is yes and no. Or no and yes if you prefer. You want to go by GDP comparisons, that way your claim is bolstered. If you go by Federal/National spending per capita though, then I’m right. The US spends about $6.3 million per person, Canada about $5.9 million. IN GDP terms the US spends about 38%, Canada about 39% according to Wikipedia. (After a while it makes your head spin.) So either way we do or we don’t, I’m sure you want to stick to the GDP ratio and I know I want to stick to the spending per capita ratio.

    Taxes it’s the same type of thing- which chart do you want to believe?

    Maximum federal income tax rate in Canada: 29%
    Maximum federal income tax rate in US (single): 35%

    Maximum capital gains rate in Canada: 14.5% (half of capital gains is taxable as regular income, the other half is tax free)
    Maximum long term capital gains rate in US: 15% going up to 20%
    Maximum short term capital gains rate in US: same as income

    Maximum estate tax( Death Tax) in Canada: 0%
    Maximum estate tax in US: 35% perhaps going back up to 50%

    Maximum corporate federal tax rate for Canadian small businesses: 11%
    Maximum corporate federal tax rate in Canada for other businesses: 18% going down to 15%
    Maximum corporate federal tax rate in US: 39%

    Maximum Canada Pension Plan contribution per employee (combined): 9.9% with a cap of $4,326.30 (i.e. no contribution made on income above $47,200 with a basic exemption of $3,500)
    Maximum FICA contribution per employee (combined): 12.4% with a cap of $13,243.20 (i.e. no contribution made on income above $106,800)

    Maximum Medicare tax per employee (combined): 2.9% going up to 3.8%
    There is no equivalent to the Medicare tax in Canada since health care is funded from the general tax pool

    Maximum unemployment insurance in Canada per employee (combined): 4.152% with a cap of $1,793.66
    Maximum unemployment insurance in Canada for self-employed: 0%
    Unemployment insurance in the US is a mix of state and federal programs.

    So I don’t see a huge bunch of numbers in favor of your side on that argument either. Canada has a practically free ride in Corporate Taxes! No death tax, lower Capital gains. What that chart (if it’s to be believed) doesn’t cover is sales tax/GST/PST/local taxes/excise taxes and all the other hidden taxes we never consider. That is the one place I’ll concede I didn’t have the patience to keep looking for information and that you may well be correct. I know the cost of living is higher in Canada, no doubt there, I’ll give you that any day of the week. Why it is has to partially due to taxes I’m sure.

    As far as regulations…what do what you consider regulations? Where is the huge difference? I’m granting you that Canadas fiscal regs worked better. I’ve never said we should adopt a hands off policy on our lending institutions. I have said we need to keep the politicians out of it! That’s what got us here in the first place. We have a situation and have had for some time where special interests can influence lawmakers beyond anything that even approaches a healthy relationship. IOW, we have a corrupt system. Your answer to that appears (I think) to be to put gov’t (half the guilty party) further into the mix in the hopes that somehow that will fix it. My answer is to pull the ability to influence and to be influenced back quite a bit, to put some walls in place so that the corruption is lessened effectively and to then try and come up with an effective way to maintain oversight without negatively impacting the ability for the participants to achieve their goals. I think you’ll agree that we do want business to make a healthy profit that we can tax them on, right? I mean there’s no doubt the US needs a heck of a lot of money to pay it’s bills. We can’t do that without very successful, smarmy, slick haired Wall St and corporate types making gazillions and hiring lots of worker bees. Myself, I don’t care if they’re rich, I think they should be paying about what I am (30% of a gazillion is lot!), got no problem with that. When people start talking about taking more than 40% and upwards to 70 and 90%…well, that’s just wrong.

    I’m trying not to get off on a tangent so I’ll cut this short. I don’t think for a second that simply doing more of the same will fix the US problems. More spending, more bailouts and stimulus deals, more printing of money and more borrowing isn’t going to fix the problem. The IMF wants us to cut spending, Republicans want to cut spending, Democrats want to cut spending, Obama and Biden say they want to cut spending. Everyone it seems wants to cut spending but you.

  24. hermit thrush says:

    ok bret, i’ll wait till your 10:28 post appears.

  25. admin says:

    Sorry about the posting delay, Bret. In the interest of not discouraging people who want to document their comments with outside links, I will reset the limit to only send posts that contain 4 or more links into the moderation queue. If a whole bunch of spam starts coming through as a result, I may reconsider, but it’s worth trying.

    Dale Hobson, NCPR

  26. hermit thrush says:

    well bret, i don’t want to bite off more than i can chew, and this post has moved off the front page, so i will keep this short and restricted. i just want to say that the absolutely standard way to talk about “government spending” is as a percentage of gdp. if you want to calibrate it in a different way, then the onus is on you to be up front about that from the get-go. i didn’t choose to talk about spending as a percentage of gdp because it bolsters my position, as you erroneously claimed, i chose it because it’s the standard thing to do! if canada spent less than us as a percentage of gdp, then i would have said that canada spends less. i’m not cherry picking the metric, you are. and as for mankiw’s post, that’s nice, but note how weakly he qualifies it (my emphasis):

    For some purposes, a better statistic may be taxes per person….

    well, for which purposes? and only may be better? this is basically to say nothing at all! i think you’re going to have to put forth a much much much stronger argument than he does for when and why this is a more appropriate metric. i found matt yglesias’s counter-post much more compelling.

    one final thing. i’m sorry you don’t like your credibility being called out, but it’s not a personal attack, it’s an attack squarely focused on the content of what you’ve been writing. and i think it’s well-deserved. you’ve made loads of errors in this thread alone that i haven’t said anything about — confusing debt with deficits; asserting that u.s. growth has been worse than canada’s, when in fact since 1980 it’s been at least as good, if not better; this nonsense about “debasing our currency”; and who knows what else. and that’s just in this thread! that’s how it typically goes in most other threads too. you do a great disservice to the community by speading misinformation. so people should know you’re not credible. deal with it.

  27. Bret4207 says:

    What you said was “Canada has more spending”. You didn’t qualify anything in regards to that statement. That leaves it open for interpretation or misunderstanding. You didn’t say “Canada spends more as a percentage of it’s GDP”. I’ve agreed with you on that. You want to limit the discussion to your way of looking at it. There are other options. Go back and read what Mankiw wrote- “The most common metric for answering this question is taxes as a percentage of GDP. However, high tax rates tend to depress GDP. Looking at taxes as a percentage of GDP may mislead us into thinking we can increase tax revenue more than we actually can.” That’s the purpose and the “why”. GDP is not the only or best way of looking at the issue. And we do have a high tax rate as you should have noted from the link I provided, (I suppose that’s wrong too). It’s very similar to the way we speak of unemployment rates- “First time claims for jobless benefits.” Yeah boy, 9%! Bullpuckey. More like 20% plus. It doens’t take all the factors into the mix, but that’s THE STANDARD as you say. It may be the the STANDARD but is it the only/best/most complete way or is it just what we’re used to? In the end, the US spends far more and spends more per person. You win, I guess.

    Now for the part I just love. Your arrogance is appalling. Of course it’s a personal attack. You sound just like this German guy I talk to, “University in Germany is free!” Me, “No it’s not, The taxpayers are paying for it, that’s not free.” Him, “IT DIDN’T COST ME ANYTHING, SO IT”S FREE!!!” You made an attack on my credibility, that’s personal using any STANDARD you wish to choose. And to be clear, I did not at anytime confuse the deficit, National Debt or total debt. If you can’t keep up with the numbers then tough for you. Canadas GDP has grown about 3.0%, the US by about 2.8% recently. Historically speaking over the past 12 years Canadas GDP has grown at 2.34%, the US at 1.94%. Since 2000 Canadas GDP has almost doubled from $722B to $1.3T, the US has gone up about half- $9.2T-14.6T. You may well be right about figures since 1980 on average, but you didn’t qualify that either and I can’t find that info so far. As for the devaluation of our US dollar, just what do you think QE1 and 2 were? What happens when you pump billions of new currency into a system without corresponding new revenue/reserves to back it? The money is worth less, it’s value drops, de-valued, devalued! As our debt rises our dollar drops too. I’m sorry, you can spin all you want, it’s a done deal.

    I’d love to hear you refute the rest of the stuff I spent all that time gathering. Please, you sorta, kinda proved me wrong once, how about taking some more on? Gives you another chance to tell me I’m a liar.

  28. hermit thrush says:

    bret, i didn’t didn’t need to qualify it. when someone talks about “spending,” the standard interpretation is that it’s spending as a percentage of gdp. maybe that will change someday, but today is not that day. and look, i’m a progressive who loves nuance, so i certainly don’t want you to think i’m asserting that spending as a percentage of gdp is always the right metric to use. but a) again, it’s the standard metric, and i think there are obviously good reasons for making it standard, so “spending” without qualification should always be understood to mean “as a percentage of gdp,” and b) if you want to use a different metric, then you should be clear about that from the get-go (which you weren’t), and you should also explain why you think your different metric is better in the particular situation you’re using it (which so far as i can tell you haven’t).

    as for mankiw, i am really unimpressed. one thing everyone should understand is that mankiw hates taxes. and his blog post seems utterly designed to give fodder to other people who hate taxes, without putting any kind of serious analysis behind it. so hey, sure enough, high taxes do tend to depress gdp! and looking at taxes as a percentage of GDP may indeed mislead us into thinking we can increase tax revenue more than we actually can! but the key thing mankiw omits is (and in a way i don’t fault him for this, since it’s just a one-off blog post that’s obviously not intended to be taken too seriously — contra what you’re trying to pull!) how much? as in, how much do high taxes depress gdp? and how much does looking at taxes as a percentage of gdp mislead us? i don’t claim that the answer to either of these questions is zero, but i do genuinely wonder if it’s quite small. i like matt yglesias’s blog a lot, and i’m too lazy to look up the reference, but i do remember him showing some nice evidence at some point that tax rates don’t seem to correlate all that well with economic growth. so count me as really skeptical that mankiw is making all that good a point.

    on the other hand, if you want to go with people like mankiw, then there’s ultimately not a lot i can say about it. i’m not an economist. if you want to choose an expert who contradicts what i think, then there’s nothing i can do about it. well, i can try to outsource my arguments to people like paul krugman (whom i really do think has been right about almost everything, and whom i really do hope everyone reads). i can show you that i’m following the thinking of people like him. but the fact is that there are genuine disagreements between elites like krugman and mankiw, and nonspecialists like you and me aren’t in much of a position to settle these disagreements. it’s a big problem for the field, i think.

    your example of the unemployment rate is very helpful. (though from what i see i can only conclude you’ve made another mistake. the standard definition of the unemployment rate is that it’s the number of people who are unemployed but looking for work, divided by the number of such people plus the number of people who are employed. first time claims for jobless benefits is quite different.) indeed there’s a standard definition, and if you refer to the “unemployment rate” without qualification, then everyone should understand that you mean the standard definition. however there do exist variants, and these are useful! i’m very sympathetic to them! but if you want to use a variant, then the the most basic tenets of effective communication say that you need to alert people that you’re using a variant. and it’s also a good idea to explain why you’re using a variant, so that people can judge the appropriateness of the variant.

    to bring this back to what we were originally talking about, i see no reason why spending per capita is a better way to think about things than spending as a percentage of gdp, vis-a-vis u.s. vs. canadian spending. in fact i genuinely think that spending as a percentage of gpd is better, quite apart from the fact that it gives me the answer i “want.” maybe you can enlighten me.

    as for personal attacks… well i just looked up “personal,” and i see there are grounds for genuine confusion. on the one hand “personal” can mean

    of, affecting, or belonging to a particular person rather than to anyone else.

    by that standard my attack was indeed personal. however there is also the meaning

    of or concerning one’s private life, relationships, and emotions rather than matters connected with one’s public or professional career

    with the sub-meaning

    • referring to an individual’s character, appearance, or private life, esp. in a hostile or critical way.

    i hope it’s clear that i had this second meaning, and its sub-meaning, in mind. by this second meaning, my attack was certainly not personal. i think when people talk about “personal attacks,” it’s usually this second meaning they’re referring to — but maybe you weren’t. and indeed i think that criticisms that are substantive, that avoid being “personal” in this second sense, are well within bounds.

    as for growth, i think it’s fair to say that you’ve been talking about policy in the u.s. in canada since 1980 or so. here’s a table of american gdp from 1980-2005. this will do for canadian gdp over the same time scale. adjusting for inflation, u.s. gdp has gone up by a factor of 2.16, while canadian gdp has gone up by a factor of 2.04. where are your numbers from? i think it’s a mistake to include figures since the recession began, since this whole discussion has been about what’s been going on in the two countries leading up to the recession.

    i’m going to post this much now since it’s gotten long and i don’t want any weird computer problems to cause me to lose it.

  29. hermit thrush says:

    as far as arrogance goes, let me show you something that i’m capable of and you, at least so far as i can remember seeing over all these comment threads, are not. i can state clearly and unequivocally that i was wrong. no maybe-kinda-sorta stuff. i was wrong to accuse you of confusing the deficit and debt, and i’m sorry for that. i saw that you were talking about two numbers, and in my haste i read $1.6 trillion instead of $16 trillion, which was wrong. an especially embarrassing error since i was accusing you of making mistakes, but there you have it.

    that’s not the end of the story, however. i don’t know what you mean by “total debt,” but i don’t believe that’s a standard term. and you’re definitely wrong about the “total debt to gdp ratio” — it’s the federal debt to gdp ratio that’s around 98%, by whatever definitions you seem to be using. and i sure don’t think we’ve already spent this $54 trillion in debt you’re talking about — where is that from?

  30. hermit thrush says:

    how did qe1 and qe2 devalue anything? more to the point, you talk about “debasing” the currency, which i can only understand in two possible ways. one is that u.s. dollars become cheaper relative to other currencies. this is a good thing for the u.s. right now — it makes our exports cheaper. that’s a standard way for depressed economies to recover.

    the other way is that inflation kicks in. and the question about that is, where is it? inflation has remained low low low throughout the great recession, even threatening to tip into deflation at times.

    there has been no pernicious “debasement” of the currency at all.

    that’s all for me.

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