One idea for economic growth: fight spam

I'm going to talk about spam. Yes, email. But first a little background:

To get out of this recession, one of the things we need to do is find worthwhile investments. It's only half a strategy for the government to try to stimulate the economy by spending money. If you don't do anything productive with that stimulus money you'll just end up creating inflation down the road. A conservative commentator suggested reducing income taxes to get us out of recession. My reply to that is the same. If there aren't any good investments, people who have income will just hold on to the extra money. No jobs will be created, no investments will be made. That's what's happening right now. Prices are falling. US treasury bills were recently auctioned at 0% interest!

(I'm not saying that the government should not spend until a good investment is identified. Obviously we have to help out families where, say, a job has been lost)

So, let's look for riches that can be unlocked. In history, the availability of new resources such as land, energy sources, technology, or trade opportunities were a source of economic growth. Where is the next big opportunity? I'm not sure, but here is a small one.

Cisco recently put out their 2008 Annual Security Report. They find that spam accounts for 200 billion messages a day, about 90% of all email messages. An enormous amount of time and infrastructure is wasted because of spam.

That's a store of value that can be unlocked, and can serve as a magnet for investment. I'd recommend fighting spam (e.g. figuring out how to implement a charge, say, of 0.1 cents per message) as a worthwhile opportunity to create economic growth. If we can put together a hundred of these ideas, perhaps we'd have a reasonable plan for spending our way out of this recession.

Now, the City of Kingston, Ontario spends $300 million a year on energy. That's $300 million that leaves the Kingston economy every year. Perhaps there's some value to be unlocked there...

Ten weeks later...

Ten weeks ago we read this during the election campaign:

The Conservative official, who refused to speak on the record during a conference call with journalists, accused Liberal leader Stephane Dion of "fear-mongering around the economy for his political gain."

The opposition leaders are "cheering for a recession," the Conservative official charged.

and this

Conservative Leader Stephen Harper accused his Liberal opponent of cheering for a recession as he notched up his appeal for a majority government to run the economy his way.

I've already blogged about how listening to the signals the financial markets are giving is not fear-mongering. Stéphane Dion was willing to listen. Now, long after the signals started flashing red, we have this admission

Stephen Harper has delivered his bleakest forecast yet for the Canadian economy, warning yesterday the future is increasingly hard to read and conceding the possibility of a depression.

"The truth is, I've never seen such uncertainty in terms of looking forward to the future," the Prime Minister told CTV News in Halifax.

"I'm very worried about the Canadian economy."

Get ready for a sweetheart Conservative budget next month!

Selling on the lows, part 2

This is a continuation of my last post on Conservative finance minister Jim Flaherty's plan to sell government assets now, after a historic crash in asset prices, to balance the federal government budget during the coming global recession.

It looks like Prime Minister Stephen Harper has had to backtrack, according to this report from The Canadian Press on ctv.ca:

Prime Minister Stephen Harper insisted Friday there will be no fire sale after his finance minister, Jim Flaherty, said the government is considering an asset sale to raise cash and try and stave off a budget deficit. "The government of Canada will never engage in a fire sale of assets," Harper said prior to heading off to Washington for an emergency summit of global leaders on the economy.

But I think wasn't hard for the CP reporter to find people with credentials to agree that the Conservatives have a bad idea:

"It's hard to believe this is an ideal environment to sell any asset," said Bank of Montreal economist Douglas Porter. "And it raises the bigger issue of just how hard should the federal government press to keep its books balanced. My view is if it comes down to selling the family silver at a discount rate just to make the books balance, that doesn't make sense."

Scott Brison, the new opposition finance critic just appointed by Stephane Dion, is a pretty sensible and knowledgeable fellow:

Brison said Canadians should be especially concerned because Flaherty was finance minister in Ontario when the provincial Conservative government of former premier Mike Harris sold the electronic toll Highway 407 north of Toronto for $3.1 billion in 1999. Three years later, a private investment bank valued the property at four times the sale price. "After three years of bad tax policy, and big spending, Flaherty has put the country in deficit. Now he wants to sell the house to pay for the groceries," said Brison.

There are still groups with tunnel vision, though. The CP reporter was able to count on the Canadian Taxpayer's Federation (CTF) for this quote:

Adam Taylor of the Canadian Taxpayers Federation said the government should do whatever it needs to -- including selling assets -- to balance the budget. "The government owns things that have no strategic value to Canadians and they could be sold," he said. "Property values haven't completely bottomed out and when the government owns thousands upon thousands of acres, there's a legitimate argument for selling a lot of it."

If Mr. Taylor really meant what he said (do whatever it needs to...to balance the budget), he'd advise the government to also consider the possibility of raising taxes (or rescinding promised tax cuts). But that's the last thing the CTF would ever say, so they can't be that serious about balancing the budget, especially since they've been applauding the various tax cuts that helped get us to our current fiscal position.
There are, moreover, a lot of economists who are questioning the rationale for balancing the budget right now (and I agree with them). In a severe recession, balancing the budget may come only at the price of a lot of pain for economically vulnerable Canadians, and reduce the number of options the government has to manage the economy and plan for its eventual recovery.
I see that Mr. Taylor is a market-timer who thinks he knows that, after a sale sometime in 2009 or 2010, property prices will continue to fall. If that's so obvious, I'd challenge the CTF to open a trading account, put its money where its mouth is, and sell some S&P Case-Schiller home price index futures on Jan 1, 2009. Hey guys, bet the house because maybe you'll be right!
Finally, the whole idea of balancing the budget by selling assets is based on their being valued on the government books at old, below-market prices. Any revenue you get from their sale is purely accounting revenue - not real added value for Canadian taxpayers.

It's (already) a disaster, not a buying opportunity, Mr. Harper.

A lot of people have already commented but here is my take on Stephen Harper's statement to reporters yesterday (Oct. 7, 2008), "I think there are probably some great buying opportunities emerging on the stock market as a consequence of all this panic" and the statement on the Conservative Party website related to the belated release of their election platform, "The Liberals and the NDP are both a vote for financial disaster" (their emphasis).

Look, it's already a financial disaster (I won't quote somebody else. I'll back that statement up with my past years of experience working in the financial markets). If the Conservatives really believe a vote for the Liberals is going to turn this situation into one, they don't understand what's going on. Maybe they don't want to, or can't. Hey, C's! It's already a disaster guys.

Note how the Conservatives are lumping the Liberals and NDP together so that they can criticize the Liberal Party on economic management. From the Financial Post, Stephen Harper said, "The Opposition proposes raise taxes. In particular, and look at the stock market today -- where the big hits are on energy and commodity prices. And the Opposition proposes carbon taxes. The Opposition proposes to raise taxes on companies in the energy business and other commodity businesses." They have to add in the NDP's plan to cancel planned business tax cuts. They can't simply criticize the Green Shift any more, especially with the publication of the open letter from 230 economists supporting a carbon tax as the best way to fight global warming.

Look, nobody is blaming the financial disaster on the government. This is an international problem, but it is a disaster. Hey, C's! It's already a disaster guys.

The questions Canadians should be asking themselves as they head to the polls on October 14th are, "Who is going to acknowledge the economic crisis as more than a buying opportunity on the stock market? Who has economic management experience? Who will, given that a recession is a near certainty, also look out for the vulnerable members of our society?". That would not be the Conservative Party.

Listening to the markets is not fear-mongering

The Conservatives have been accusing Stephane Dion of "fear-mongering around the economy for his own gain". I used to work in the financial markets and one of the fundamental things you have to know there is that market prices contain information. Nobody has to "fear-monger". Prices in the stock and bond markets make it clear that there is a serious risk of global recession.

Almost everybody is used to following the stock markets, but almost nobody follows something called the interbank offered rate (e.g. LIBOR, the rate set in London). This is the rate that banks use as a benchmark to charge each other for loans. LIBOR is also a reference rate for businesses and consumers borrowing money and is a critical number in the international money markets. What is unprecedented is that difference between ('risky') LIBOR and the interest rate on ('riskless') US treasury securities has exploded and halted a lot of financing of business activity around the world. The stock market drop is nothing compared to what is going on in LIBOR. Do not think that this stock market decline is the same as any other you've seen in your lifetime.

Canada is not the master of its own fate as to the question of whether or not there is a recession. All of that depends mostly on the U.S. economy. Our choice on October 14th is whether or not to acknowledge the possibility of a serious recession, how ready we want to be for it and for protecting our most vulnerable fellow Canadians.

Conservatives have been saying that there is no serious financial crisis amongst Canadian banks. That may be true. But even if the world's financial problems do not impact the Canadian financial system, the slowdown in the world's (especially the U.S.'s) economies will impact (or already have impacted) Canada's economy - and that means job losses. We should be getting ready to take care of each other.

Doing nothing is the risky option. Not admitting the real possibility of a painful recession makes it worse. The choice between a Conservative government and a Liberal government is even clearer.