The Fed, Mugabe Bucks, and the Yuan

One of the nice things about the Christmas holiday period is the chance to catch up on some reading. I finally put the finishing touches on two really interesting books; Tim Geithner's memoir, Stress Test, and a book Lawrence McDonald's Colossal Failure of Common Sense about the failure of Lehman Brothers. Both are compelling points of view on the unprecedented and chaotic days of 2007-2009. One of the most interesting elements of both books is the role of the state, and officials at the U.S. Federal Reserve, in particular.

Is Monetary Policy Out of Bullets?

Over the years, I have become more and more interested in the conduct of monetary policy, perhaps because it seems to be in a fascinating period of sustained crisis and re-evaluation. Monetary policy has always been an inexact kind of policy instrument aimed at mainly at price stability, but in a kind of mission creep, has also become responsible for stimulating employment. The most obvious way in which the Federal Reserve indirectly influences the interest rates you and I pay, and therefore economic activity, is by altering the Fed Funds Rate; the interest rate the Fed charges commercial banks to borrow money. For almost a decade, the Fed Funds Rate has been set close to zero. Because the Financial Crisis essentially froze much of the lending between banks and from banks to consumers, the Fed has been loathe to increase the interest rates it charges banks to borrow. In effect, the Fed has been without one of its chief policy instruments for a decade.

Trumping the TPP

In early November, I argued that the release of the text of the Trans Pacific Partnership wasn't the start of a long fight over Congressional approval, but somewhere closer to the mid-way point on a road stacked toward approval of the deal. To put things in baseball terms, we were in the 5th or 6th inning of a game that was already being won by the proponents and architects of the deal. As I said then, it will be an ugly fight with lots of atmospherics. But on balance, I still give the edge to the TPP being approved in the United States.


But what are we supposed to make of the U.S. Senate Majority Leader's comments Thursday saying that the TPP should not come before Congress for approval until after the November 2016 presidential elections? Moreover, Mitch McConnell (R-KY) is not alone. Senator Orin Hatch (R-UT), chairman of the Senate Finance Committee-- where any TPP implementing legislation will be considered-- has also questioned the merits of the TPP. Yet, both were among the 47 Senate Republicans that voted for the Trade Promotion Authority (TPA) facilitating the Obama Administration's final push to complete the TPP negotiations this past fall.

What's going on? Is the TPP text so bad that McConnell and Hatch (among others) are now reversing themselves? Did the Administration effectively lie to everyone on Capitol Hill back in June during the TPA debate? Did Congress fall asleep afterward and take their eyes off the TPP negotiations? Did the White House fail to consult with Congress-- as required by TPA-- about the TPP as it was being negotiated? The answer to all of these questions is NO!

The real answer might be Donald Trump!!!!

Currency Manipulation and the TPP

In the days since the text of the Trans Pacific Partnership was release, I and many others have been scouring the text looking for what's new? Apart from the scale of the TPP as a regional trade agreement, it doesn't appear to be the case that there's been much dramatic innovation.... with one big exception; a side agreement on currency manipulation.

Currency manipulation has become an important, polarizing, and misunderstood political issue in recent years. In Tuesday night's Fox Business News GOP Debate, for instance, Donald Trump railed against China's alleged manipulation of the Yuan and celebrated the inclusion of currency provisions in connection with the TPP. Senator Rand Paul then pointedly reminded Trump that China wasn't part of the TPP.

But how well does anyone understand what currency manipulation really is, why the issue has become a political football, or what the TPP Side Agreement actually proposes? In this post, I'll try and offer an answer or two, but along the way suggest that one of the reasons for the confusion is that the definition of currency manipulation (for political purposes, especially) is in the eye of the beholder.

Ken Taylor, 1934-2015

The Academy Award winning film "Argo" was on television the other night and I was again reminded of the drama that unfolded in the aftermath of the Iranian Revolution and the hostage crisis at the U.S. Embassy in Tehran in the 444 days between November 4, 1979 and January 20, 1981.

"Argo" was certainly entertaining, but it was also a disappointingly U.S.-centric tale of an elaborate ruse to smuggle six American hostages out of Iran. "Argo" only makes the briefest of mentions of what is known in Canada as the "Canadian Caper." The fact is, Ken Taylor and the entire Canadian diplomatic mission in Tehran played a far riskier and important role than "Argo" gives credit for.

Ken Taylor died October 15.

Elephants vs. Donkeys in 2016 May be a Lopsided Affair.....

There are exactly 365 Days to Election Day!!!!  Just getting warmed up, too.

When the governor's mansion in Kentucky was won by a Republican last week, many were taken by surprise. Perhaps they shouldn't have been. I began writing a post about the grim political landscape faced by Democrats in this cycle, and the disappearance of moderates in either political party. While it's certainly the case that Hillary Clinton's remarkable week of successes in the middle of October has given new life to her campaign and lifted the spirits of many Democrats around the country, that enthusiasm seems misplaced if you begin looking at races for anything other than President. While the GOP frequently looks like it's in a state of perpetual civil war, Republicans have lots of reasons to be feeling pretty good about themselves heading into next year.

TPP Text is Out, But Has it Already Been Approved?

It's out! The text of the Trans Pacific Partnership has been released. A Titanic fight over Congressional approval now begins in the heat of a presidential election campaign.

• I've linked the Full Draft text here.
• The Washington Post has a solid story on the early alignment of some of the politics. 
• The Obama Administration has also rolled out a new TPP web-site for distributing information (the Administration's view, of course) about the agreement.

I predict the TPP will be approved. In some ways approval is already baked into the process. It will be close, and put a lot of crass populism on display, but it may already be 2/3 of the way toward being approved.

As I noted in my last post on the TPP, there are a number of pressures pointing in favor of approving this deal, many of which have little to do with the economic merits of trade liberalization. Out of curiosity, I went back and looked at each of the last several Fast Track votes in Congress to see how close things have actually been. Recent votes have been nail-biters, but unless there's something in the text no one has foreseen, the TPP has basically already been approved.  Institutionally, Fast Track itself is a big piece of the puzzle. But in the case of the TPP, so do the Republican majorities behind the one piece of Obama's agenda they seem to like.

Is the TPP DOA? Hardly....

Is the Trans Pacific Partnership dead on arrival? Is the TPP goose cooked before it's even been put before national legislatures? How is that possible when the text has yet to be made public? Are national election campaigns in Canada and the United States complicating matters? Sure? But is the TPP actually dead already? Hardly.....  In 1897, the New York Journal erroneously reported that the towering American literary figure Mark Twain had died, to which Twain famously responded: "The report of my death was an exaggeration." The same might be said of the TPP.

The road ahead for the TPP is going to be rough. But the early reports of the demise of the TPP are exaggerated.

Hell in a hand basket....(September Roundup)

September has been rather chaotic, so much so that every time I sat down to draft a post, what I was writing seemed to be overtaken by events within a day or so. So, I thought I'd just throw a few things on the table-- or in the handbasket, as the saying goes-- as I have seen them unfold.

The Refugee Blame Game

Assigning responsibility for foreign policy debacles is a popular game. In the 1990s, there were all kinds of questions about "Who Lost Russia?" as it descended into the authoritarian Putin-ism we see today? There was the hand-wringing about who was responsible for the terrorist attacks of 9/11? Had the Clinton Administration taken its eye off the ball? Why did the U.S. intelligence community fail to detect the plot before it happened? What about the response? Why was the intelligence on Iraq's weapons of mass destruction so completely flawed? You can find a set of answers to things swirling around 9/11 in the 9/11 Report, but it also generated more finger-pointing.

Today's search to assign blame concerns the humanitarian crisis flowing out of parts of the Middle East, especially Syria, literally washing up on European shores. Whose fault is this crisis? The New York Times is asking the same question today in Ross Douthat's piece titled "Who Failed Aylan Kurdi?," the Syrian 3yr-old whose lifeless body was plucked of a Turkish beach by authorities after he drowned trying to get to Greece. Who's fault is Kurdi's death? Douthat's piece is less about who created this mess than it is about the responsibility to deal with a humanitarian crisis now that it's so obviously here. But what chain of events caused Kurdi's death? Can anyone or anything actually be blamed?

We want to blame someone for a long list of outrages we see around us. But whom shall we blame? The fact is, I am increasingly unsure.

If you're explaining, you're losing....

U.S. Presidential election campaigns are awesome! For some the permanent campaign in American politics is tiresome, expensive, and makes a mockery of democracy. I'm not in that camp. American presidents don't always work out well, but getting to the White House means going through the toughest job interview process on the planet. The gig itself isn't for the faint of heart, so it's no surprise that the process for getting there is equally rough.

Hillary Clinton's campaign faces a growing set of problems that have little to do with challengers from either party. Many, in fact, are own goals. Back in April, I wrote a post about Hillary Clinton's announcement that she was going to make another run at President in 2016 (Link). I will take the opportunity to gloat a little and suggest that you revisit the list of challenges that the 2016 version of the Clinton campaign would face (see points 3, 4 and 6, in particular). Hillary Clinton's campaign is doing too much explaining. And, as President Reagan once said, "if you're explaining, you're losing."

Foreign Policy Sausage

 It's often said of sausage that you never really want to know how it's made. The same cannot be said about policy. What goes into the policy-sausage is as important as the policy-sausage itself, especially if it turns out badly.

There is a fantastic piece by Karen DeYoung in today's Washington Post about the inner workings of the Obama Administration's National Security Council (linked here). It describes bureaucratic bloat, indecision, sketchy inter-agency coordination, infighting, and competition, and an all too frequent emphasis on process that has often generated more paralysis than meaningful policy; foreign policy sausage-making at its finest.

Have Canadian Bovines Scuttled TPP?

This past Friday (July 31) was to have marked the completion of the Trans Pacific Partnership (TPP), a signature effort for a President that I might best describe as agnostic about trade liberalization, but nevertheless a critical piece of his foreign policy agenda. Well, it didn't happen. Why? Canadian diary cows.... or more specifically, the heavily protected farmers that raise them.

If you've ever wondered why milk and other dairy products on Canadian grocery stores never seem to go on sale, look no further than Canada's supply management system; a regressive, and outdated set of policies that distort prices, controls supply, and limits competition in the Canadian dairy sector. Canada's dairy industry goes to some effort to defend this system, in part arguing that they are defending the health and welfare of Canadians. The reality is that it's mainly about protecting a small group of relatively affluent farmers (poultry too, by the way). 

Is Obama About to Reject Keystone?

Rumors have evidently been swirling in Washington for several days that President Obama is about to spike the Keystone XL pipeline project. One source of these rumors is Senator John Hoeven (R-ND), a key supporter of the pipeline project and not exactly one of the President's staunchest supporters. I would normally dismiss Senator Hoeven's comments yesterday on the Senate floor as just another example of the daily litany of complaints about Obama made by Republican lawmakers in the well of the House or Senate. However.....

What Does Hillary Know?

Hillary Clinton was asked specifically about Keystone XL while on the campaign trail in New Hampshire yesterday. Asked whether she supports or opposes the project, she hedged:

 

If it’s undecided when I become president, I will answer your question. This is President Obama's decision. I'm not going to second-guess him.

At first blush, this looks like a terrible bit of fence-sitting by Secretary Clinton. As she acknowledges, she was Secretary of State when the entire approval process for this project began. For some, this looked like a classic Clinton-esque fudge at an early stage of a presidential campaign. Yet, if she happens to be privy to the President's thinking about the project (not unlikely), her "hedge" actually comes across a little differently. In short, if Obama spikes the project, it will no longer be undecided if and when Hillary Clinton assumed office. My spidey senses are tingling....

Obama Really IS Serious About Climate Change

There are numerous posts on this blog in which I argue President Obama is pretty serious about having climate change be among his presidential legacies. Moreover, he has unambiguously signaled repeatedly that he intends to take action on climate change whether the Republican controlled Congress wants to go along with him or not. If the President spikes Keystone during the August Congressional recess, critics will howl that he just completed a nuclear deal with Iran that, if approved, could lift sanctions on Iranian oil exports resulting in 2 million additional barrels on a market that's already over-supplied--- that's not very friendly to the climate, is it?

It ought to be pretty obvious to anyone that linking fossil fuel extraction to the nuclear talks with Iran was a complete non-starter. So, let's focus on those things related to climate change the President can actually achieve. The major break-through for the President was the deal struck with China as both countries head to the multilateral climate change talks in Paris later this year. Critics of the accord predictably argued that it didn't go far enough and that it punted many of the toughest measures well into the future. Yet, what's really important about the pact is that two countries who regularly spar over a whole range of issues quickly came to see climate change as a problem the two nations needed to resolve jointly.

And Canada? How about its position heading into Paris (COP 21)? For years, Canada has conveniently hidden behind American inaction on climate change by saying that it would be detrimental to the economy for serious action that would put Canadian firms at a competitive disadvantage relative to their American counterparts. The Harper Government proudly touts initiatives with the United States like the "Clean Energy Dialogue" as components of their climate change strategy. Yet, Canada is truly an international laggard on climate change and has, in my view, squandered opportunities  to work collaboratively with its North American neighbors to build at least a little credibility on the file (more here and here).

If Canada Won't Do It, Perhaps Obama Will?

All of this leads me back to rumors that Obama might spike Keystone XL. Prime Minister Harper has given President Obama little political cover to approve a pipeline project America may not need for the foreseeable future. Energy markets have been turned upside down by the advent of widespread use of fracking and directional drilling to new supplies. Yet, Keystone XL has been about far more than oil or simply a piece of infrastructure for a very long time. For good or for ill, a pipeline has become a symbol of climate change. Moreover, many believe that approval of the project would simply hasten the rapid expansion of oil sands projects widely believed to be among the world's dirtiest. The President seems unwilling to approve a project that undermines his objectives for America's contribution to climate change mitigation. It's not an extra-territorial exercise of American power, as some may howl, but the effect may turn out to be the same.

Some Humble Pie: I have periodically argued here that Keystone is essentially a piece of infrastructure that will eventually be approved. I also argued that it would be punted to the next president's desk for decision sometime after January 2017 (see post). I'm wrong on both. Keystone is more than just infrastructure (although to be fair, I do acknowledge that too). It also looks like there may not be a project for the next president to approve, especially if that president happens to be Hillary Clinton.

To Drachma or Not to Drachma....

The high stakes drama in the Eurozone over Greece's financial mess has generated a lot of ink, some of it spilled here and here. While Greece and its Eurozone creditors once again went to the precipice and looked over the edge, they once again didn't like what they saw and found a way to pull themselves back from the brink. There will undoubtedly be fascinating volumes written about the brinksmanship of the first half of 2015; ascent of Alexis Tsipras and his Syriza government to power in Athens on a wave of anti-austerity populism; his July 5 referendum gambit for negotiating leverage, eventual capitulation to more austerity on worse terms than he could have had two weeks prior, and even new reporting that renegade Syriza Party members, unhappy with the capitulation, were plotting a kind of financial coup. All of it may yet cost Mr. Tsipras his job.

Yet, as I noted in my June 23 post, the Greeks faced two horrible choices; default and eventual "Grexit" from the Eurozone, or additional austerity that would likely solidify Greece's position as an economic basket-case well into the foreseeable future. It seems that the closure of Greece's banks and the imposition of capital controls concentrated a lot of minds by giving Greeks a bit of a preview of the acute pain a "Grexit" might bring about. However, opinion remains divided (including, evidently, within Mr. Tsipras' governing coalition) over whether the best option for Greece might in fact be a "Grexit." But which path is actually worse? Grexit or austerity? The answer isn't so simple.
 

SCOTUS and the POTUS Agenda

Last week was great week for the President of the United States (POTUS). It may indeed have been the best week of his entire presidency. With a little help from the Supreme Court of the United States (SCOTUS), President Obama may have finally cemented a legacy for himself as President beyond the historical significance of him being President at all. I have been not this President's biggest fan for a number of reasons; basically a lot of sizzle, but little steak. Yet, some credit must be given here. The President's legacy as having presided over some genuinely transformative change is now secure.

There is plenty of commentary out there about this, including the story linked above, but having watched all of this closely for the past several years, I wanted to add my two (rambling) cents:

A Greek Tragedy is a Certainty

Update.... June 28. Buckle up. Talks between Europe (Eurozone members and the IMF) and Greece have collapsed. Greeks have lined up at ATMs around the country trying to get at their savings. The Greek government has announced a banking holiday. Where this goes is anyone's guess....

As of today, it looks as though Greece and its international creditors (the IMF and Euro Area governments) have reached a tentative arrangement that will allow Greece to meet a June 30 debt repayment deadline, avoid default, and continue on its current path of digging itself out of a deep financial hole. Yet, as the parties to this mess rush toward each successive precipice, peer over the edge, and back away again, it's difficult to see a path forward in which crisis management in the Eurozone doesn't become the default mode of operation.

What's been missing from the frenzied efforts to deal with short-run crises is a real discussion about how to fix the institutional mismatches in the Eurozone that contributed to the pickle Greece finds itself in. Assume Greece finds a way to stay in the Euro Area and dig itself out of the hole. What then?

U.S. Trade Policy Meltdown....

Meltdown Update.....June 24

The U.S. Senate is today expected to pass a measure granting President Obama the Fast-Track authority he has been seeking. Yet, it's very much a pyrrhic victory for the President since the final measure will reach his desk without Trade Adjustment Assistance. The Senate measure relied heavily on support from the GOP, most of whom are opposed to TAA, and many of whom have spent the better part of Obama's presidency opposing nearly everything he puts on the table. Only 13 Senate Democrats supported the bill, one the President had invested considerable time personally lobbying lawmakers.

Two other trade-related measures will be considered later this week, including Trade Adjustment Assistance, likely to be attached to an extension of a trade preferences measure for Africa. As noted below, TAA was considered separately from Fast-Track because Congressional Leadership thought it would be easier to thread together different coalitions in support of each (itself a sign of the modern challenges of trade liberalization). We'll see if this was wise, since TAA was historically seen as a way of "purchasing" additional openness by compensating the "losers" from liberalization.

This face-saving "compromise"in the Senate reinforces the challenges of contemporary trade liberalization and the strange coalitions that need to be put together to make it work. Making sense of it all requires one to tap their inner contortionist.....

Remember,..... this fight is just about authorizing negotiations. A huge fight remains if and when the President seeks Congressional approval of what he's done..... Buckle up!!!!

Grexit and IR Theory.... Arrgh!

Some of you may be familiar with the Monkey Cage, a scholarly blog run by the Washington Post that looks at current events through the lens of Ivory Tower research. I'm a fan, and have a link to the Monkey Cage in my blog list to the right.

In early May, Nicholas Sambanis (Yale University) and Ioannis Galariotis (Athens University) posted a very interesting take on the Greek financial crisis that looked at what was going on through the lens of contemporary International Relations theory (link here). I have written a thing or two in this blog about the Greek mess and there will be several cliffhangers in the summer of 2015 to keep us awake at night, the first of which comes June 5 when Greece is scheduled to make a 300 million Euro debt service payment to the International Monetary Fund (see link). Europe is having a rough go of it these days. In addition to the prospect for a Grexit, many Euro Zone economies are in serious trouble, and Britain has just returned David Cameron's Conservatives to power, in part, on a promise to hold a referendum on the UK's membership in the European Union by 2017. One barometer for some of the public anxieties over Euro Zone economies can be seen in the street demonstrations outside ECB headquarters in Frankfurt earlier this year and the April assault on ECB President Mario Draghi. 

Advice for Premier Notley: The US File

There was a political earthquake in Alberta this week as Rachel Notley and the New Democratic Party ended 44 years of Tory Party dominance in Alberta. The excitement (shock for many) of victory now turns to the even larger challenge of actual governance. Premier Notley has yet to announce who will hold some of the most important portfolios in the new government, but there are several posts that will be important where the United States is concerned; Energy, Environment, International and Intergovernmental Relations (IIR), and the Premier herself.

For this blog post, I thought I'd imagine what I'd say if Premier Notley were to call seeking some advice on how to engage the United States (my invoice is in the mail).

Cry and Sigh Congress....

As many of you who read this blog know, I am a big fan of the Federalist Papers, a series of newspaper articles written by John Jay, Alexander Hamilton, and James Madison in between October 1787 and August 1788 at the height of the debate over ratification of the U.S. Constitution. Two of the most important of these are the Federalist 10 and 51 in which James Madison outlines both the challenges of designing government (No. 10) and then (along with Hamilton) offers his prescription for doing so (No. 51).

For those who care to read these two documents, the seeds of the supposed paralysis in the American political system can be found. The (in)famous separation of powers that sets up the brutal competition for authority among the three branches of government is-- brace yourselves-- all by design!!!!! I happen to be a fan of this design, in part because of its frustrating ability to short-circuit the "mischiefs of faction" (No. 10) and thwart the concentration of power (No. 51). 

One area in which the interbranch competition has frustrated many Americans is with respect to the War Powers. The so-called "Enumerated Powers" of Article I, Section 8 of the U.S. Constitution clearly states that the Congress has the sole power to declare war. Yet, Madison's division of labor over most issues in the design of the Constitution also assigns the responsibility of "Commander in Chief" of the armed forces to the President in Article II Section 2. While the Constitution manages to distribute a range of authorities across the three branches in ways that set up competition, that competition is a little different where the War Powers are concerned; Congress regularly capitulates to the President.

U.S. Trade Politics: Seen This Movie Before

Those of you who follow U.S. trade policy know how ugly things can sometimes get. In March of last year, I wrote a lengthy post about the conversion of Barack Obama from staunch opponent of trade liberalization to someone that had had some kind of epiphany and been reborn as a proponent of free trade (see link here).

In that post, I also foreshadowed a debate over Trade Promotion Authority that is now upon us. The U.S. Senate is poised to debate, and probably pass, a TPA bill in early may that would delegate negotiating authority to the President to complete two signature trade initiatives; the Trans Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). For those of you unfamiliar with how TPA actually works, I will here shamelessly plug a journal article on the subject I wrote for Diplomatic History in 2012 (I hope Oxford Journals will forgive me for posting it). I still think it's one of the better pieces I've ever written.... Once out of the Senate, a version of the TPA legislation will have to also pass the House. Regardless of the final outcome, the TPA will reveal the deep divisions in both parties over trade (link).

What's amazing is how the debates over trade policy in the United States repeatedly descend to the some of the lowest forms of populist rhetoric. The TPA debate is already part of the 2016 Presidential election campaign as candidates, declared or otherwise, are asked to go on the record regarding their support for TPA. Depending on which way the wind happens to be blowing that day, candidates will declare themselves for or against (See story). What's more troublesome is how readily some of these candidates are willing to pander to anti-trade opponents. These days, it is far safer politically to be against trade liberalization than for it. It's also intellectually lazier! It's far easier to turn to the xenophobia of blaming foreigners for labor market woes than it is to make a more sophisticated case for trade; a topic I also dealt with in my post from a year ago.

As a reminder of the kind of simplistic nonsense that gets peddled about trade liberalization, I thought I'd post here a video that I like to show my students every fall. It's not without flaws, but it makes a strong point about the politics of trade liberalization (it happens to be funny too). The video features clips from the 2008 presidential campaign. As you watch the debate over TPA unfold in the weeks ahead, you might note how often we see more of the same....

Hillary's In!

Perhaps the worst kept secret on the planet was finally made official on Sunday; Hillary Clinton is a candidate for President in 2016.

It's hard to imagine what else can be written about Clinton after a long public career that has already cemented her place in history. There will be many questions about her campaign going forward, first among them whether she has learned from the mistakes she made in 2008. Based upon the video announcing her candidacy, the answer seems to be yes; a small-scale bus tour from New York to Iowa where she stumbled badly in 2008. But other questions loom as well:

Obama at the Summit of the Americas..... Bravo!

 I have to throw a bone to the president for his performance this past weekend at the Summit of the Americas in Panama City, Panama.

A quick scroll through the posts on this blog will show that I have not been especially complementary of Obama's foreign policy. In November of last year, I suggested that Obama's foreign policy suffered from Carter Syndrome. I have also worried about the perfect storm of foreign policy problems that seemed poised to overwhelm the last years of Obama's presidency. I've been much less critical of Obama's handling of environmental policy, particularly where the controversial Keystone XL pipeline is concerned. One can certainly levy the critique that Obama has failed to live up to expectations on issues like immigration and the environment, but I think that criticism needs to be measured against the level of opposition he's faced and his evident determination to tackle climate change in the time he has left. I've also expressed considerable sympathy for the challenges Obama (or any president) faces in being the leader of the most what remains the "indispensable country."

But this past weekend, at least, I began to think about how I'll miss his combativeness and ability to speak and think extemporaneously. 

Alberta as the 51st State?.... Ha!

I nearly spit out my morning coffee when I came across a story in the National Post about the possible secession of Alberta to become the 51st State in the Union (Link). I was even more surprised when I learned that this old ghost of an idea was being floated by a former employee of the respected strategic intelligence firm, Stratfor.

It is an idea that has been the subject of fear mongering by Canadian politicians since before Confederation in 1867 (admittedly stoked now and then by some equally nutty Americans), but one I actually thought had more or less been killed in the wake of the 1988 re-election of Brian Mulroney's Progressive Conservatives and the subsequent formalisation of free trade with the United States.

It sounds sexy, but few actually stop to consider whether such a move would be welcomed in the United States itself. Just for fun, let's take the idea seriously.....

Obama Makes Good.... Veto

This past Tuesday, President Obama made good on his threat to veto any Congressional measure aimed at forcing the construction of the Keystone XL pipeline. It was a veto that probably surprised no one since the President has been increasingly explicit about his willingness to warm up the veto pen. Since the measure has no chance of receiving the required 2/3 majority in both houses of Congress, this particular Keystone measure is dead.

More interesting is the open letter about Keystone XL penned by former NYC mayor, Michael Bloomberg, who is now the UN Secretary General's Special Envoy for Cities and Climate Change. In the letter, Bloomberg argues that proponents of Keystone XL should be thinking in terms of a larger bargain between the U.S. and Canada that included a major climate change initiative. It is an argument I've been making for more than a year (See link to February 2014 Post). Putting some kind of climate chance pact, cooperation, coordination, consultation mechanism,..... anything, on the table in conjunction with Keystone XL approval would grease the political skids for Obama to sign off. It would give him political cover in a period in which the economic case for Keystone XL is fading along with falling oil prices.

C'mon Man

Unfortunately, Canada's Ambassador to the United States, Gary Doer, doesn't think such a bargain is possible. Ambassador Doer claims that attaching some kind of climate change deal to Keystone XL would result in a morass of legal challenges to the package that would doom all of it. The problem with this rebuttal is that no one is talking about formal linkage of Keystone approval with a climate change initiative. Formal linkage would indeed be messy, which is why negotiators are loathe to engage in such. But, a bilateral proposal for climate change cooperation in advance of this December's COP 21 meetings in Paris would go a long way toward giving Obama breathing space to approve Keystone XL. The two issues need not ever be connected in a formal way.

At the end of the day, Keystone XL is just a piece of infrastructure. But, rightly or wrongly, it also happens to be infrastructure fraught with political symbolism about climate change. Hence, absent an overwhelmingly positive economic case, the President needs something to expand the win-set for him to approve it. I agree with Mayor Bloomberg that a bilateral climate change proposal is probably the best way to get Keystone XL built. However, I think the onus is on Canadian officials to drop the fiction that Keystone and climate change aren't connected and propose the two countries work on a joint proposal for the multilateral talks in Paris later this year.

Monarch Butterflies and the NAFTA

San Antonio, Texas is one of the most surprising cities I have ever been to. To be blunt, South Texas is generally what you might expect; arid, dusty, dominated by low scrub brush and tumble weeds. However, my first visit to the Alamo City about a decade ago blew me away. In addition to the attraction of the Alamo itself, the San Antonio Riverwalk that surrounds it is a wonderful urban oasis of canals, outdoor cafes, and local artists.

I was in San Antonio again last week, and was just as impressed with the city. However, San Antonio is significant in the history of the North American Free Trade Agreement as well. In October 1992, the final text of the NAFTA had been completed, and San Antonio became the site of an outdoor initialing ceremony designed, in part, to boost the economic bona fides of President Bush.

Mr. Prentice goes to Washington....

The number of long-time journalists with deep institutional and historical knowledge remaining at Canadian newspapers is dwindling, but one of my favourite observers is Graham Thomson, provincial affairs columnist for the Edmonton Journal. His commentary is an astute dose of reality about how Alberta functions politically. This past week, Alberta Premier, Jim Prentice made the latest of a long-line of high-profile trips to Washington, D.C. aimed at promotion and advocacy of the provinces interests in the U.S. capital. In an editorial Thursday morning Thomson repeated an observation he's made before about the many high-profile trips made by Alberta premiers to Washington, D.C.: it's all about politics at home!

It is a point that merits repeating when ever a Canadian politician, of any order of government, goes the the United States. It is also a point that will undoubtedly be repeatable for generations to come. Yet, Premier Prentice's trip to the Imperial Capital last week was different. While these are early days in Jim Prentice's leadership, he has thusfar demonstrated an unusual sophistication about the American political system and the challenges Canadians confront there.

How Keystone is like the Young and the Restless

Update: Thursday, January 28. Well, Republican Senators finally pulled it together on Keystone. There's still reconciliation with the House version of the bill, but Obama's veto pen is getting warmed up.


As those of you who have visited this blog before know, the Keystone XL pipeline is a regular topic of commentary here (in fact, it was the subject of my 3rd ever post). Yet, I increasingly liken advances in the plot line over this project to the minor advances that seem to come to television soap operas like the Young and the Restless. Now, I have to be pretty hard up to watch the Young and the Restless, but on those rare occasions that I manage to flip past it, neither the characters or the plot seem to have changed much, even over the course of a couple of years. Every once in a while, I spy a supermarket tabloid headline that says something about a major plot shift in Y&R, but not really. Stop paying your cable bill for 6 months, then tune in again, and you'll quickly pick up the story.

Sadly, the same could be said of the Keystone XL pipeline mess. Once in a while, I see a headline that suggests progress on getting Keystone closer to being built. But, not really. A few weeks ago, a Nebraska Supreme Court decision was supposed to have broken a log-jam. Apparently not. Monday's U.S. Senate vote on a new Keystone XL measure was yet another over-hyped event that promised to do the same. U.S. Congressional midterms last fall were supposed to change everything. An historic Republican majority in the House and a new GOP majority in the Senate were supposed to generally make the last two years of the Obama's presidency miserable, and perhaps alter the dynamics of this long-delayed project. That new political landscape was to have included an early legislative shot across the White House bow in the form of Keystone XL legislation.

The "Grexit"?

In case the list of things keeping you awake at night isn't long enough already, you might want to put Greece and the Euro Area back on your list of serious economic concerns. On January 25th, Greece will hold national elections. The mere fact that elections are being held is problematic, but the outcome might well be far worse.

2015 Will Not Be Kind to most Petro-states...

First off, Happy New Year! In addition to spending a little time with family over the holidays, I managed to catch up on some overdue reading. The falling price of oil repeatedly caught my attention. In the short run, the falling price is a doubled edged sword. Those who consume a lot of fossil fuels are going to see a short-run dividend. For example, I confess a great deal of satisfaction every time I fill up my car. Firms like FedEx, UPS, Union Pacific, CN Rail, and the airlines are all reaping the benefits of lower fuel costs.

Yet, there are significant danger signs ahead in 2015 if the price of oil continues to fall. On the one hand, the global oil glut is a supply story brought about by technological change; namely the deployment of fracking and directional drilling in so-called "tight oil" plays in the United States. In short, oil firms figured out how to get at previously inaccessible sources. However, the larger concern with falling oil prices for the global economy is a worrisome decline in demand. Sure, some of that decline is due to efficiency gains, primarily in rich countries. That's all great. However, declines in demand also suggest a worrisome slowdown in global economic activity that will be good for none of us in 2015.

However, what jumped out at me over the holidays was the profound pain declining oil prices are causing for the many petro-states who depend on oil revenues to keep the lights on or, more appropriately, subsidise the stability of the state itself. Rather than try capture what others have more articulately written and demonstrated, I offer up the links below for a stark snapshot of the pain 2015 may offer for a number of natural resource economies.

From Deutsche Bank (PDF)
From the Economist Espresso Application, January 2, 2015.
From the Wall Street Journal, December 10, 2014.(Note Norway's advantageous break-even position).
From Slate.com, December 11, 2014. (Note that Canadian production is included in these charts).

If you had a look at my previous post, you might wonder whether I think Canada is a petro-state? There have always been striking similarities between Canada and many resource-dependent developing countries. While the falling price of oil is unambiguously a major policy problem for Canada (and Alberta in particular), Canada is clearly NOT like Venezuela!!!!

That said, the expansion of Canada's oil sands developments in recent years has fuelled debates about the management of natural resource revenues, including apt comparisons with well-governed states like Norway whose sovereign wealth fund has become the envy of many countries. Bruce Campbell of the Canadian Centre for Policy Alternatives wrote an interesting analysis in 2013 explicitly comparing Canada with Norway in the management of oil wealth. One broad conclusion Campbell reaches is that Canadian governments should be more heavily involved in the oil business itself, including the establishment of a state-run-oil company and sovereign wealth fund. It is a recommendation worth wrestling with for lessons that could be applied to Canada, but Norway is a major exception to a broader rule that state-run oil companies are not very good stewards of natural resource wealth. Given Canada's track record of resource management, I'm not sure putting more of it in the hands of the state is the route to sustainability.