No to Auto Bailout, Auto Invigoration Instead

In the first 2 months of 2009 the top 10 selling cars in Canada were small cars and of the 10 only 2 were from domestic manufacturers. Cars of Japan and Korea dominate the small car market. Chinese cars are not on the North American scene.

The Canadian government is planning to use taxpayer's money to subsidize car manufacturing in Canada by the old line producers.

China has invested a large portion of its trade surplus in US Treasury bonds. With the present turmoil in the financial markets they are understandably becoming uneasy. To exchange to Yuan would drive the Yuan up and the US$ down, something neither country wishes.

The Canadian $ is somewhat low relative to the US$, the Canadian banking system is robust and stable. It would be a prudent move for China to move some of its investments to Canada.

Chrysler Canada is in financial difficulty and has threatened to shut down its Canadian operations unless it receives adequate government bailout.

Put all this together and what may emerge?

China moves some of its reserve holdings to Canada.

A Chinese car manufacturer keen on entering the North American market with their small and efficient cars buys out the Chrysler facilities. They borrow the Canadian $ from the Chinese government who are holding Canadian Treasury bills.

With imported components plus North American components and assembly in Canada, the Chinese cars qualify for auto pact free trade.

What a win win situation. Car manufacturing continues in Canada, perhaps with reduced employment and perhaps with reduced demand for North American components. No consumption or waste of Canadian taxpayer dollars. A new competitor in the market provides an invigorating shock to an ailing industry.

Gas, pollution, health, schools, parents

Some facts that seem to be related.
1. Gas prices are still high and driving, particularly for short hops, is expensive.
2. Automobiles are a source of pollution.
3. Parents are busy people.
4. "More than 80% of kids ages 11 to 17 surveyed in the Alberta study had one or more risk factors..[for Type 2 diabetes] because they were inactive….[and did not eat healthily]. [Vancouver Sun 2009-03-13].
5. Elementary schools are located to be within easy walking distance of the area they serve.
Now here is the observation that seems to me to be out of place.
I live across the street from an elementary school and twice each day there is
heavy traffic with children being dropped off or picked up. Each day I ask myself "why?".

Paper Wilting is Not Wealth Destruction

"Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime." (Reuters March 11, 20090

The quote is from Stephen A. Schwarzman, chief executive of the Blackstone Group.
Blackstone describes itself as "a leading global alternative asset manager and provider of financial advisory services ..".

This is a classic example of the myopia of the financial community which sees wealth as pieces of paper that flutter between financial institutions.

The farmland, forests, mines, factories, homes, minerals, office towers, warehouses, etc. still exist. Yes the prices attached to these assets have changed. Yes the composition of the ownership is continually changing with some winners and some losers. The flutter of paper is largely a zero sum game.

The losers in the flutter of paper seek bailout money from us taxpayers while the winners in the zero sum game are understandably maintaining a low profile.

Income Tax Complexity a Modest Solution

Each year I have a rising sense of frustration and outrage at our tax system.

I now must buy a software package and spend a minimum of 1 day preparing my tax return. Without the tax software I would find it impossible to do it myself. That is true for most folks. They hire someone.

There seems to be no automatic factor governing the year by year increase in complexity and therefore in cost and in frustration and outrage.

A modest proposal. Just imagine that in a fit of sanity the House of Commons adopted a house rule requiring all MP's to submit a letter confirming that they had prepared their own tax return without any assistance from either software or people. Surely they are all bright enough to do that. If they have difficulties with that task they might seriously work toward simplification.

My son had a more radical suggestion: that a special session of the House be held each year for the MP's to prepare their tax returns in one massive weeping and wailing session. It would play well on TV.

Some of our representatives might feel that this was not a good use of their time, that they have more important things to do.

Don't we all.

Democracy and Yes to Single Transferable Vote

An election will soon be held in the Province of British Columbia. If the Liberal government carries through with its promise it will again hold a referendum on the adoption of a single transferable vote instead of the present first past the post.

Here is a good source of information
http://en.wikipedia.org/wiki/BC-STV
"BC-STV is a proposed voting system recommended by the Citizens' Assembly on Electoral Reform for use in British Columbia. A member of the Single Transferable Vote family of voting systems, BC-STV was supported by 57.69%[1] of the voters in a referendum in 2005 but the government had decided to not be bound by a vote of less than 60% in favour. However, because of the strong majority support for BC-STV, the government has promised to re-run the referendum in 2009"

The rerun is May 12, 2009.

I want to link this to the particularly suitable mechanism of the Citizens' Assembly on Electoral Reform that was used in BC to produce the recommendation that was submitted to the last referendum. They were randomly selected, they met over an extended period of time, they consulted extensively with experts in the field and they overwhelmingly endorsed their recommendations which formed the basis for the referendum,

The mechanism fits almost precisely, and more thoroughly the new and well researched method of Deliberative Polling.

Here is the source and the reference.
http://cdd.stanford.edu/

Deliberative Polling®: Toward a Better-Informed Democracy
"The Process

"Deliberative Polling® is an attempt to use television and public opinion research in a new and constructive way. A random, representative sample is first polled on the targeted issues. After this baseline poll, members of the sample are invited to gather at a single place for a weekend in order to discuss the issues. Carefully balanced briefing materials are sent to the participants and are also made publicly available. The participants engage in dialogue with competing experts and political leaders based on questions they develop in small group discussions with trained moderators. Parts of the weekend events are broadcast on television, either live or in taped and edited form. After the deliberations, the sample is again asked the original questions. The resulting changes in opinion represent the conclusions the public would reach, if people had opportunity to become more informed and more engaged by the issues. "

For "neutral" information from the Provincial Government:
http://www.gov.bc.ca/referendum_info/first_past_the_post_bc_stv/

For information on the "pro" side see:
http://stv.ca/join

For the "anti" side see:
http://www.nostv.org/

For me the process and the conclusions are compelling and fully warrant support for electoral reform in the May 12, 2009 referendum.

An important aspect for me is that with broader representation in the legislature and yes, the possibility of coalition governments our government will be dragged kicking away from the adversarial "majority" and "opposition" mode of operation. See my earlier post on the role of party #2 [Opposition Or Team 2
January 10 2008]. If proposed legislation is indeed good and worthwhile then reasonable MLA's will vote for it. If a majority cannot be persuaded to pass the legislation, then it will fail. But that failure need not lead to an immediate election. We must move away from the "confidence vote" idea. The governing coalition carries through its term of office, accomplishes what it can and then an election is held. Reasonably simple and reasonably straightforward.

Nanny Rules vs. Relevant Information: the Case of Interest

Various levels of government have expressed various levels of concern over the cost of consumer debt.

In the area of credit card interest some have proposed caps on the interest rate that credit card companies can charge.

The latest, in British Columbia is to regulate the payday loan industry to a maximum of 23% on short term loans of, for example 2 weeks.

These are examples of nanny rules to protect individuals from making stupid decisions.

In my view a preferable role of government is simply to ensure that accurate and relevant information is provided to consumers.

Take the payday loan as an example.

If the loan company says "you pay 23%" a reasonable individual may think it a little high but not unreasonable relative to credit card interest of about 24%..

The startling truth of the matter is that the real annualized rate of interest on a 14 day payday loan with a 23% fee is 21,653% while a credit card at 2% per month is 26.8% annualized.

As an aside the press reports the annualized payday rate as simply 26*23%=600% but that ignores the aspect of compounding. If the individual borrowed $100 and rolled over the loan each 2 week period then at the end of the year the debt would be $21,753. Now that might give pause to the wisdom of borrowing at what is an annualized rate of 21,654%. And the converse is that if the payday loan company lends $100 and continually rolls over its cash flow into extending or new loans then at the end of the year it will have $21,753.

So what should be the role of a non nanny government.

They should insure that the effective annualized rate of interest is quoted prominently in all contracts and in all advertisements.

If someone wants to buy money at a price of 21,654% interest rate then who is the government to pretend that their cap on fees at that rate has somehow given them some protection from a stupid move.

The illustration is copied from elsewhere and the specific numbers do not relate to my calculation. The general impression from the illustration is fair.

All this suggests a topic for a future blog. Why We Need to See Financial Calculators in Schools as Well As Scientific Calculators.