A report in the Economist shows that Canada is not doing enough to encourage entrepreneurship and innovation:

Why does Canada not have lots of “new firms” patenting new ideas?  Norway and the Netherlands are both smaller than Canada, so I would hope Canada was at least in the same ballpark as Germany and France…

Now, I disagree with the Economist in their proposal to impose Pigouvian taxes as a means to encourage innovation – this is little different than the pandering to “pet” technologies they hope to avoid.

Lower taxes, more flexible labour markets and less government regulation of markets and products would be a very good first step towards encouraging innovation.

I was going to write a piece refuting a piece in the National Post today (reprinted from the New Republic), but tonight when I finally had the time I discover that the Post’s own Peter Foster beat me to it.

One other point I’d like to make that Foster didn’t cover had to do with Judis’ subheadline:

Try as we might, we’ll never be able to recreate the Golden Age of capitalism that lasted from 1945 to 1970

Umm.  Small problem – how could the period from 1945 through 1970 be considered the golden age of capitalism?  In Europe, the UK and Canada, socialist leanings became government policy and governments in these nations set themselves up for the doom that came in the 1970s and later (and continue today in Europe…)  This so-called golden age only really existed in America, and even there it was distorted by historical luck.  In 1945, the United States was the only significant industrial producer on Earth.  Everyone else had had their industrial capabilities destroyed by war.  Germany, France, the UK, Japan, China, Russia were basket cases of post-war reconstruction.

If those nations wanted to buy something, they bought it from America.  They had no real choice.  As the UK, Germany and Japan rebuilt, they began to compete with America, but at no time prior to 1970 did they have significant economic power.

Also, the post-war period was one of government intervention in the economy through high tariffs left over from the 1930s, and artificially fixed exchange rates care of Bretton Woods.

Only to an American could the 1945-1970 period be considered a golden age – and even for America it turned out to be bad – GM, Ford and Chrysler didn’t have to learn to be efficient.  And when the Volkwagens and Toyotas of the world really arrived in the 1970s and 1980s, they weren’t ready.  And many other American firms couldn’t compete using American workers, because they had had it too easy in the post-war period.

Some Golden Age…

In the WSJ the recent daily trend in the stock, bond and currency markets is taken as evidence that confidence in the days-old European bailout and austerity plans is slipping.

First, a few days is hardly enough evidence. But second- what do they propose.

The real problem is that leaders in Europe need to admit to their citizens that the socialist welfare states they have created are not sustainable and must be dismantled. Not adjusted, but dismantled. Europe needs to get back to work and create wealth. They need lower taxes and balanced budgets. Which means no more subsidies, less government and less legally mandated vacation.

All the parties in Canada’s Parliament are wrong on whether to let the Auditor General do a performance audit of MPs expenses.  First because the A-G office has in the past performed such audits (1980 and 1991), but because we know from other jurisdictions (the UK being the most recent and egregious), an awful lot can be hidden.

So the decision of Parliament to reject the A-G’s request is tantamount to admitting they have something to hide…

Margaret Wente, in the Globe and Mail this week, writes that we live in an era of big “blow ups” that cannot be stopped.

The problem, as I see it, is not that Wente’s smartest people in the world have no idea how to stop it.  It is a combination of:

• People who think they are the smartest, but are not, trying to control things they don’t understand or refuse to understand the law of unintended consequences…
• The smartest people being sidelined because they make the “not smartest people” fearful
• The smartest people being prevented from do what would solve the problems because of bureaucratic restrictions, fear of retribution, or fear of being second-guessed.

On the subject of economics, the problems of the last few years are not failures of free market capitalism.  They are failures of government regulation to foresee how the free market would react to such regulation.   Reducing interest rates to sub 5% levels for nearly 10 years, coupled with government policies to restrict housing development in many areas, coupled with government policies created to increase home ownership did two things – it drove up demand and reduced supply.  Prices rose – as should be expected under a free market.  The problem became that people, and businesses, believed that prices would continue to rise, and therefore boring at very low interest rates against such assets was a good idea.  And for those individuals, this was a perfectly rational decision – except that the party couldn’t continue, because there was too much debt piling up and interest rates can’t stay at zero forever.

If interest rates were set in the free market (solely), they would have risen significantly as the level of debt in society increased – because lenders would fear defaults and want a larger return for the larger risks they were taking.  But with the government setting interest rates and backstopping banks lending into the market, the free market was solely distorted.

On the subject of oil drilling and the safety and environmental issues, it is only in times like this that the engineers are tasked with the exciting job of “fix it now and cost is no object”.  The problem is that it should have been avoided.  But how many businesses will keep working with a piece of machinery that is dangerous because stopping to wait to replace it will have significant negative financial impacts.  And what if the person who should make that decision, to shut down the plant to replace the equipment, has their job on the line based on the financials?  In some cases, those individuals will take the risk on the unsafe equipment because the risk to themselves (their livelihood) is greater than the potential consequences of the failing equipment.   As many incidents have shown, both in industry safety and the financial markets, the human ability to quantify risks is skewed.  Very unlikely events with very bad consequences are often underestimated because of their low probabilities – if you ever hear someone say “but that will never happen”, they have done exactly that.  The history of industrial accidents is filled with such events.  The financial crisis and the Deepwater Horizon incident follow this pattern.

Sometimes, mathematically modeling can help – as it does in the case of real insurance in large markets.  It makes senses to buy insurance for some events because it is cheaper for all of us to pool the risk.  This is even the logic of the hedge funds that try to “hedge” out risk.  But if the risks are underestimated (or misunderstood), when they happen all hell can break loose.

But sometimes, you just need to rely on the smart people, be it the engineers, financial wizards, scientists – to be allowed to make a call and the rest of us have to accept they won’t always be right – but we might be better of than demanding they always be right and therefore are too frightened to speak out or act.

Yesterday, there was a report in the Winnipeg Free Press, quoting the Minister of State for Agriculture, Jean-Pierre Blackburn:

“There is a need for new markets for the food sector like any other sector,” he told The Canadian Press. “But at the same time we know some specific aspects have to be protected.”

He said supply management allowed dairy and poultry industries to remain among the most profitable and stable in Canada.

“Here in Canada, supply management works,” said the minister.

“If we open our borders there will be huge difficulties for these sectors. There would need to be changes for the way we do things. And we’re functioning very well in Canada.”

“It’s part of the Conservative government’s tradition, to be close to the farmers,” he said.

Coudl the good Minister please tell me how protecting Canadian consumers from lower prices is good?

Could the good minister please explain why protecting our farmers from competition and preventing them from competing on the world market is good?  Does he not know that when Australia and New Zealand ditched their supply management system, they became some of the largest exporters of these products?

Supply management doesn’t work for Canadians, unless you are a farmer already in the system.  And that seems like a small group of people benefiting at the expense of the rest of us.

A good post on Authenticity Hoax regarding the “local food” movement:

For all the revived fascination with a “local” economy, you don’t hear a lot of people pining for the return of the local abbatoir…

(From Foreign Policy): Influential food writers, advocates, and celebrity restaurant owners are repeating the mantra that “sustainable food” in the future must be organic, local, and slow. But guess what: Rural Africa already has such a system, and it doesn’t work. Few smallholder farmers in Africa use any synthetic chemicals, so their food is de facto organic. High transportation costs force them to purchase and sell almost all of their food locally. And food preparation is painfully slow. The result is nothing to celebrate: average income levels of only $1 a day and a one-in-three chance of being malnourished.

PBS’s Frontline had a very good documentary this week, discussing the dispute that has raged for the last 12 years or so regarding the safety of vaccination, particularly with regard to the misguided belief of some people that autism can be caused by adverse reaction to the vaccines.  I commend Frontline for staying on the side of real science, and not the witch-hunting fears of those who think temporal correlation means causation…

Many people who are dealing with children who exhibit development problems are looking for someone to blame.  The fact that they began to see symptoms in their children after vaccination is an interesting correlation, but correlation does not equal causation.  That is why so many studies have been done looking at the relationship between the MMR vaccine and autism, or thimerasol and autism.  But the studies have found no correlation, let alone causation.  Failure to find correlation means it is EXTREMELY unlikely that there is any relationship at all.  And without correlation, causation is nigh impossible to find – especially if you have no idea what the causation pathway might be.

The problem here is that the general public do not have sufficient understanding of the scientific method or statistics.  It is easy to see relationships, even where none exist – that is a human cognitive feature.  And when we are dealing with a single case (anecdote), many people fail to realize that this CANNOT show causation, without a lot more information of exactly how that cause/effect relationship is organized.  It is IMPOSSIBLE for medical science to prove beyond all doubt that a vaccine or drug is safe – but they can show that the benefits outweigh the risks.   Prior to the introduction of the measles vaccine in the US in the 1960s, hundreds of thousands of cases PER YEAR were reported, and the death rate was often in the hundreds.  Considering no scientific study has shown vaccines to have a such significant downside, we must side with real science and accept vaccination as a safe technology.

So please, have your children vaccinated – the need for herd immunity is great.

And remember, the only way we can ever discontinue a vaccine is if we eradicated the disease from the human population – as was done with smallpox in the 1970s.  We should have eradicated measles and polio by now, but fear-mongering has scared too many people away from vaccines, both in the developed world (in the case of measles) and the developing world (see Nigeria).

Prof. Ignatieff is proposing that the government get MORE involved in the production and sale of food in Canada, to help farmers, help Canadians eat healthier, and improve exports…

Wait, one of the reasons why many Canadian agricultural products aren’t exported is because of the supply management systems that make Canadian dairy, poultry and eggs uncompetitive on the world market.

And past government “help” for farmers has meant higher prices for Canadian consumers – so I want no part of this.

And Kevin Libin showed months ago in the National Post that local produce often has a higher GHG footprint than food from distant locales simply because growing some produce in Canada is inefficient.

Mr. Ignatieff – get out of the way and let the free market do the job it does best.