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Canada's Place in the Global Economy

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Part 2:

http://www.spiegel.de/international/0,1518,790293,00.html

Estonia Lives the European Dream

By Ralf Hoppe and Jan Puhl

Part 2: Nothing to Lose

When the Soviet system collapsed almost exactly 20 years ago, the Estonians crept out from under the ruins, declared independence and reinvented themselves, making sure that their legal system, administration, legislature and economic system were as far from socialist as possible. It helped that in 1991 Estonia was run-down, insignificant and had a small population. The Estonians had nothing to lose.

First they privatized all government-owned businesses that were operating at a profit, and closed all factories that were not profitable. Then they attracted investors and tourists by transforming the center of Tallinn into a Medieval Disneyland, complete with cobblestone streets, bell towers and brightly colored townhouses and guildhalls. Today visitors stumble from restaurants to souvenir shops, buying gourmet chocolate, knit caps, reindeer salami and amber, even though there is virtually no amber in all of Estonia. Japanese tourists photograph peroxide-blonde waitresses in their medieval-style outfits, the Russians buy gold jewelry and the Finns come to stock up on vodka.

Estonia finally joined the euro zone this January. The euro had always been the country's declared goal. In the last few years, starting in 2008, the Estonians had fought their way through the worst economic crisis they had ever seen, triggered by the global financial crisis and the bursting of the local real estate bubble. The economy shrank by 14 percent in 2009.

Then three things happened. First, the government announced a harsh austerity program. The government bureaucracy was thinned out, healthcare and social services were cut back, and even the streetlights in Tallinn were switched off at 3:30 in the morning. Businesses reduced wages by up to 40 percent, with the promise they would be increased as soon as the economy improved. The government did not pump borrowed funds into the economic cycle. Instead, it did what economists call internal devaluation.

The second -- and oddest -- development here was that the Estonians stoically accepted these measures. There was no unrest and no protests.

The third thing that happened was the positive outcome of this blood, sweat and tears strategy. Last year, Estonia easily satisfied the Maastricht criteria. In fact, its government finances were sounder than anywhere else in the European Union.

The Shining Example

And while the rest of the euro countries tended to see the common currency as more of a curse than a blessing, the Estonians were unwavering. They celebrated the introduction of the euro. Today a tattoo artist named Elena, who works at the Viru Tattoo Studio, offers a special price of €45 to tattoo the image of the euro coin onto a customer's upper arm or neck. It takes 20 minutes.

"You have to see Skype," says the minister. "It's nearby. It's a real Estonian story."

Skype's offices are in a five-story building in a Tallinn industrial park near the university on the city's outskirts. The drab gray building couldn't be more inconspicuous, but it houses the think tank behind one of the wildest business concepts of the last decade: Why don't people make phone calls via the Internet? It would be much cheaper! And why don't people make calls the way the characters do on the TV show Star Trek, by simply looking at each other through a camera?

It took four Estonian software developers three years to write the complicated programs that made the idea a reality. Microsoft just bought Skype, and the concept, for $8.5 billion. Nowadays it's easy to log in to Skype and call someone in Australia for free. In March, about 30 million people were logged on simultaneously for the first time. Eight years after it was founded, the service now has 170 million users -- a communications club of sorts. Sten Tamkivi, Skype's general manager, was one of the first users. He even has a club membership number: User 59.

He is 33, pale, overworked and happy. Call me Sten, he says. Everyone is on a first-name basis here. On a tour of the company's enormous open offices, visitors see young men with ponytails and women with unusual glasses slumped behind laptops. Sten points out the pool table, where two men with goatees and Black Sabbath T-shirts are playing, along with the computer game corner. He also steps over children. Skype employees can simply bring their children to work. There are toys everywhere. Finally, Tamkivi shows us the company sauna. Throughout the tour, he periodically rattles off figures.

Skype is free, with the exception of a few special services, which provide annual sales of $800 million.

The network is the idea behind the whole thing, says Tamkivi. Those who participate, by logging in, form a node. Those who use the network are able to benefit from the computing capacity of the network. At the same time, users contribute to the network by making their computing capacity available to the network. This alchemistic trick is made possible by highly complex software, which operates in the background, tapping into all logged in computers, linking them and using them for transport operations.

Compressing, fine-tuning and optimizing, that's our job, says Tamkivi. The technical idea behind Skype is like a motto for Europe: By helping others, you help yourself. Is Skype something of a metaphor for Estonia?

'Europe Has Too Many Restrictions'

"We had no money, so we had to come up with something. We built our concept on three pillars: communication in networks, the idea of limitlessness, and the future. We started small and built up from there. The more people participate, the more powerful the network becomes."

What can Europe learn from Skype? He laughs. "Europe? I'm not smart enough for that sort of a question. I can't answer it as a Skype manager, only as a citizen of Europe. Well, in many European countries we have too many restrictions, prohibitions, lobbyists and people protecting vested rights. Countries must act as simply as people think, using the same principles," he says. "My great-grandfather, for example, was a farmer. When he planned his year from an economic standpoint, he looked at what he had, and what he could spend for seed, equipment and a horse. It was a very simple calculation: This is how I earn, and this is how much I spend. Realistic. When you grow up here, in this climate, you think that way. The next winter will come, even if you protest against it. But you still need naïve hopes and dreams."

What are Estonia's dreams about?

"I would say they're about Europe. We have always wanted to be part of it. Here in Estonia, we have always dreamed of Europe and believed in Europe," he says. "We thought: Scandinavia, Northern Europe, that's where we belong. That's our world."

Despite its successes, Estonia is not an economic miracle. The country has relatively few exports, mostly semi-finished products with little added value. Productivity is not particularly high, with Estonia's GDP per capita at about 40 percent of the EU average. The country wants to attract industrious Europeans, including hardworking people like the Greek restaurant owner, Loukas Nakosmatis, and the Spanish entrepreneur, Naphtali Peral. It wants everyone in Europe to know that there is a small, smart nation far in the north where life is good, even if earnings are not record-breaking.

The Smart Car of Europe

The man who is trying to inculcate Estonia with a faith in the future is tall, bald and athletic. He studied mathematics, founded companies, sold them and made lots of money. His name is Linnar Viik, and he is Estonia's image creator. He served as an advisor to the first government, in 1991, acting discreetly in the background.

In the early afternoon, Viik packs his two children into his black Land Rover and drives out to the Viimsi Peninsula, where his father lives.

A few years ago, after his divorce, Viik decided that he wouldn't work more than 100 days a year. He wanted to simplify his life and spend time with his children. It's worked very well so far, he says. He taught at the university after selling the software company he had founded in the 1990s. Today he sits on the boards of various Scandinavian banks that have invested in Estonia. He is also a collector of Stratocaster electric guitars and art.

It was Viik who came up with the image of "e-Estonia," a digital, fully interconnected, ultramodern country.

When Viik was studying mathematics, he knew that there were old Soviet-era computers the size of closets standing around in the institute where he worked. There were also three Bulgarian-made computers in the basement. He brought together the computers, made an appointment with the prime minister and made him an offer he couldn't refuse. He asked for the item in the government's budget that was reserved for photocopiers and paper. He used the money to buy a small carload of PCs, and then he convinced politicians to make their work paperless for two reasons. First, there were the savings his plan would generate. More important, however, was the symbolism of the project. WLAN zones were set up throughout the country. Viik had large traffic signs made that read: "Attention: WLAN zone!" The right to Internet access at public libraries was written into the constitution.

If Europe's old industrialized nations are like sedans, large, sedate and comfortable, Estonia was to be like the Smart car, battery-driven but bare-bones, without power windows.

In the evening, Viik and his children return from his father's house with four buckets of plums that they leave with his father, who makes plum jam and plum wine. He puts his children to bed and then spends a few hours at his laptop. The next morning, he attends a reception for the Dalai Lama at the Estonian Academy of Sciences on Toompea Hill, in the historic district. Then he takes the ferry to Helsinki to attend a board meeting at NIB Bank.

He returns promptly, one-and-a-half days later, picks up his children from school and serves them the lunch he has prepared: potatoes, vegetables and a little pickled fish. Viik is an image consultant who knows how image consultants are supposed to live. For dessert, he serves the pale green plums he and his children picked, the ones his daughter likes so much.

Translated from the German by Christopher Sultan
 
The sad realities of the US' situation are evident from this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/loss-of-tax-break-raises-cost-of-travel-strains-us-relations/article2212196/
Loss of tax break raises cost of travel, strains U.S. relations

JOHN IBBITSON
OTTAWA— From Tuesday's Globe and Mail

Last updated Tuesday, Oct. 25, 2011

Travelling to the United States by air or sea is about to get a bit more expensive, and Canada-U.S. relations have become a bit more strained, after Congress stripped Canada of its exemption from a tax on travellers entering the country.

A $5.50 customs user fee has long applied to anyone entering the United States by airplane or ship, but Canada, Mexico and the Caribbean have been exempt from the air charge since 1997, and have paid a reduced fee when arriving by ship.

That exemption disappeared last Friday, when the U.S. Congress passed and President Barack Obama signed free-trade agreements with Colombia, Panama and South Korea.

The bill removed the exemption from Canada and the others to help recoup tariff revenues that will be lost as a result of the three trade deals.

“We did it because of the budget,” explained U.S. Ambassador David Jacobson in an interview. Congress and the administration are struggling to bring down the U.S. government’s $1-trillion-plus annual deficit. Though they agree on little over how do it, they agreed on this.

“I wish we were not in the situation where things like this are necessary, but they are,” Mr. Jacobson said.

“We’ve got to pay for the government, somehow, and one of the ways that we’re doing it is through user fees.”

In the House of Commons, Gerald Keddy, parliamentary secretary to the Minister for International Trade, said the Canadian government was “disappointed” by the new levy.

“We would hope that they will recognize the error of their ways and that free and open trade is the way out of this economic depression, not into it,” he said.

This latest irritant, though relatively minor, joins a rash of similar recent incidents that threaten to undermine Beyond the Border, an ambitious set of negotiations launched at the directive of Mr. Obama and Prime Minister Stephen Harper last February. The talks aim to ease impediments to cross-border trade while also improving continental security.

The action plans that resulted from those negotiations were supposed to have been announced in the summer, but their release has been repeatedly delayed.

In the meantime, Mr. Obama has sent Congress a new stimulus bill that once again contains Buy America provisions shutting out Canadian firms from contracts; American west coast ports and politicians want to impose tariffs on containers entering the United States from Canadian west coast ports; and new efforts to chase down Americans avoiding taxes on money held overseas could sideswipe Canadians living in Canada who also have U.S. citizenship.

Nonetheless, Mr. Jacobson maintained that the Canada-U.S. relationship “is perhaps as good as it has ever been,” despite minor irritants. As for the delay in the Beyond the Border rollout, he said, the initiative is sufficiently important, and sufficiently complex that, “if it takes a couple of extra weeks to get it right, that shouldn’t trouble anyone.”

For the opposition, the new tax is another sign that the Harper government is failing to protect Canadians’ interests in relations with the United States.

“It’s just another added tax, another added cost that Canadians are facing as a result of this government not standing up and making sure that Canadian interests are being represented,” NDP international trade critic Robert Chisholm said.

The new tax, which takes effect on Nov. 5 according to the embassy, is particularly galling for Snowbirds who winter in the United States. The U.S. government, instead of welcoming their contribution to the economy, seems determined to make it more expensive for them to get there, said Michael Mackenzie, executive director of the Canadian Snowbirds Association.

It’s not so much the money, he said in an interview, “it’s the attitude.”


I am not opposed to user fees, no matter who imposes them nor why. I will pay this pittance when I travel to the USA, my only thought will be from 2 Samuel 1:25: "How are the mighty fallen ..."

But there is another issue: the Buy America Act, which requires a Canadian response. I am very, very conscious that Canada led the counters to Smoot-Hawley (1930) and, thereby, made a major contribution to making a "great recession" into "The Great Depression," but we should consider passing tit-for-tat legislation which will deny American companies the right to profit from e.g. the oil sands development or pipeline construction in Canada. Such an act will slow and even stop some projects while alternate sources of supply (for machinery and people) are found but the loss of American jobs should be sufficient to bring them to their senses.
 
User charges work two ways....weak response, but a response......

Getting into a trade war with the US is not in our best interest, but I agree...at some point someone has to bit**slap them upside the head and tell them to play their political games down home...
 
I don't think we need to implement a "tit-for-tat" law, just pass it. American industry should do the rest for us.
 
And here, reproduced under the Fair Dealing provision of the Copyright Act from the Ottawa Citizen, is Canada's position on the Eurozone crisis:

http://www.ottawacitizen.com/business/Harper+urges+comprehensive+solution+European+debt+crisis/5599799/story.html
Harper urges comprehensive solution to European debt crisis

By Mark Kennedy, Postmedia News

October 25, 2011

OTTAWA — Prime Minister Stephen Harper says European leaders must avoid adopting a "patchwork solution" to the economic crisis now sweeping the continent, or a much larger catastrophe might unfold — with reverberations felt right here, in Canada.

Harper made the comment in a candid interview with Postmedia News Monday in his Parliament Hill office as European leaders are poised to gather Wednesday for a critical meeting to settle economic uncertainty after months of failed attempts.

"Europe may not be the only storm cloud on the horizon, but it is clearly the one that is most pressing and the most threatening," said Harper.

"And I think we have been clear to say that the issue really has to be dealt with. I know that's easy to say, and I know that our European friends have taken great efforts over the past two or three years to avoid any kind of catastrophic event. But I think we're at the stage where simply patchwork solutions are not going to keep us avoiding that kind of event."

Harper said the economic crisis that has now gripped Europe is a "serious threat" to the eurozone. European leaders are grappling with a mix of possible options to stem the economic meltdown, including: establishing a massive bailout fund of perhaps $1 trillion U.S. to help countries in debt; requiring banks to quickly pump more capital into their reserves; and persuading banks that hold Greek government bonds to swallow losses of up to 60 per cent of the bonds' value.

A European deal is considered critical for the rest of the world to proceed with its economic plans, as leaders of the powerful G20 organization prepare for a Nov. 3-4 summit in Cannes, France.

In the interview Monday, Harper stressed that he remains "relatively optimistic" about the future — saying he expects a global economy that continues to grow slowly, and with Canada's growth outperforming that of many other major advanced developed countries.

"Let me be very clear that I don't think we're going to have a second global recession. I think that's important to say."

Nonetheless, he did note that Europe's economic problems aren't confined to the continent, and that they pose an "immediate" threat to global economic recovery.

Moreover, he spoke bluntly about how Europe will have to make the tough decisions itself, before market forces impose their own more draconian solution.

"You have already seen over the past few weeks, there is significant lack of confidence in global markets — not just stock markets, but bond markets, financial markets. And they are seeking a solution. And as I have said before, I anticipate a solution will involve some pain to some actors but I think, at the moment, the markets are looking for not a pain-free solution. They're looking for a solution that provides some certainty and some clarity as to what that pain will be."

Harper said he understands that the economic challenges faced by Europe in its debt crisis are complex and that there are many disputes to be resolved within the continent.

Still, he insisted Europe's politicians will be doing the better thing for their countries if they take decisive action now.

"These are not easy times for leaders," he said.

"Many leaders are taking very difficult decisions. We've had to take a couple here. But look, what I always say is individual difficult decisions are less painful than global recession. And so, let's take what is clearly the better solution. And that is to have something that at least moves us forward. In the end, I think electorates judge you on overall performance, as opposed to individual decisions."

"So if the decisions are right, even if they are painful, I think they will pay dividends down the road. But if you don't take decisions and you end up with a bad result, voters will never forgive you for that."

Harper castigated the opposition parties in Ottawa for job-creation demands that he said would put the federal government into even deeper deficit and abandon targets for a balanced budget.

In fact, he said his government's policies — targeted spending and a plan to eliminate the deficit in three years — are appropriate for the current economic climate.

Still, he reiterated that if Canada experiences "markedly different" economic circumstances, his government would make "appropriate" changes to its policies.

"As I have said repeatedly to Canadians, if things change considerably, we'll adapt. We'll have the appropriate policies. We're not going to be rigid. We'll make sure the policy matches the circumstances we find ourselves in."

As Harper prepares for the G20 Summit in France, he is hoping for progress in five areas:

- Clear and concrete deficit and debt reduction plans, as the G20 leaders promised at their June 2010 meeting in Toronto.

"Countries, all countries, including our friends south of the border, should be putting in place plans to have medium term deficit reduction and debt stabilization," stressed Harper.

- Meaningful action from some large export surplus countries — such as China — to adopt more flexible exchange rates. Harper said fixed exchange rates create situations where some countries have a permanent trade surplus, while others always have a trade deficit.

"This is just an unhealthy situation," he said.

"Our view is very clear that an economy as large as China, and other large economies, can't practise policies that are not systematically sound. The policy has to be sound in terms of the global economy as a whole, not just in terms of one economy's interests."

- Structural reforms to boost economic growth.

- Implementation of financial-sector reform agreed to in previous summits.

"The financial sector can't just write its own rules. The crash of 2008 made very clear that there must be credible regulatory systems on the financial sector or it can lead us in a position where we don't want to be."

- A commitment to resist trade protectionist measures.

"These are all things that are essential to avoiding another global recession," said Harper.

"Some are of immediate import, but all of these things, if not handled properly, could lead us back to global recession."

mkennedy@postmedia.com


Twitter.com/Mark_Kennedy_

© Copyright (c) The Ottawa Citizen

So, we want, soon:

1. Clear and concrete deficit and debt reduction plans;

2. Meaningful action from some large export surplus countries — such as China — to adopt more flexible exchange rates;

3. Structural reforms to boost economic growth;

4. Implementation of financial-sector reform agreed to in previous summits; and

5. A commitment to resist trade protectionist measures.





 
It really looks like we have wandered into crony capitalism or oligarchical monopolism. We would need to smash the too big too fail to even start addressing what is wrong with the economy.

"In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,"

http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html?DCMP=OTC-rss&nsref=online-news
 
I would not presume to debate economics with Joseph Stiglitz, but I think his prescription, reproduced in the article below under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, might be more applicable to a few large, diverse economies than to a medium sized, resource based economy like Canada's:

http://www.theglobeandmail.com/report-on-business/economy/government-stimulus-measures-too-feeble-stiglitz/article2213385/
Government stimulus measures too feeble: Stiglitz

JANET MCFARLAND
Toronto— Globe and Mail Update

Published Tuesday, Oct. 25, 2011

An ardent faith in austerity spending by governments around the globe is “effectively a suicide pact” for the international economy, Nobel Prize-winning economist Joseph Stiglitz warned Tuesday.

In a pessimistic speech in Toronto, the Columbia University economist said the economy has not recovered after three years because politicians underestimated the weakness and wrongly concluded only short-term stimulus programs were needed to fix the problems.


Instead, he said he fears economic recovery will be a needlessly slow process, leaving tens of millions of Americans unemployed or working part time because they can’t find full-time work.

“We don’t have to go through that slow process, and that’s what upsets me,” he told the Toronto Forum for Global Cities. “Government does have tools to shorten it, and it’s really a shame we are not likely to do what we could do.”

Mr. Stiglitz said the world’s weakest countries, including Greece, may not have the financial flexibility to introduce large spending programs to stimulate their economies, but countries such as the United States still have ample room to introduce new stimulus to build needed infrastructure like roads and transit systems.

“The austerity that is going on in Europe, America and so forth is effectively a suicide pact for our economies,” he said.

“Greece does not have much scope, but the United States and Germany and a number of other countries do have considerable space for stimulating their economy, and it is absolutely essential that they do that.”

Mr. Stiglitz, former chief economist at the World Bank, said President Barack Obama has unveiled a jobs bill with a “comprehensive plan” to create hiring in the economy, but said he believes “a very small fraction of that, if any,” will get through the fractured political system.

“I don’t think there’s any sense of optimism we’re going to get anything through Congress at this time,” he said. “We are likely to have a very small jobs bill.”

As a result, he said, economic growth is going to be too slow to make much dent in the jobs deficit.

In a media interview after his speech, he said there has been a fixation on the Greek debt crisis not because the country’s economy is critically important within the European Union, but because its problems have exposed “basic flaws” in the design of the euro zone, which lacks a mechanism for dealing with interest rates and making broad economic adjustments.

He also warned that people in North America should not hope they are insulated from European debt problems, saying, “if Europe goes into a crisis, then the whole world will be affected.”

In his remarks, he added he believes the odds are “fairly high” that Italy, Portugal or Spain will end up in the same crisis position as Greece, escalating Europe’s problems.


I agree with him that some small, weak economies cannot grow - must, I suppose, actually shrink and deprive citizens of both services and savings before they can "turn around." While I, personally think stimulus, for stimulus sake, is the wrong choice for Canada - but we should be ready, willing and able to take advantage of new stimulus spending if it occurs in the USA - I do believe that we can and should be spending, right now, on our crumbling infrastructure.

embed.jpg


The infrastructure problem in Canada is that those with most of the responsibilities, the cities and town, have too little tax money. The cities, towns and villages - the ones with the biggest problems - are, constitutionally, "creatures of the provinces" so we should expect the provinces to chip in with the necessary money. But provinces can't because social services, especially health care, eat up an increasingly too large share of budgets leaving too little for productive spending on e.g. education and infrastructure.*

_____
* There is evidence to suggest, strongly, that infrastructure is tied, closely, to productivity both in extent and state of repair.
 
And just in case you thought things in Europe weren't bad enough, look at this, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/international-news/european/berlusconi-government-on-verge-of-collapse-over-eu-economic-reforms/article2212779/
Berlusconi government on verge of collapse over EU economic reforms

ERIC REGULY
ROME— Globe and Mail Update

Published Tuesday, Oct. 25, 2011

The government of Italian prime minister Silvio Berlusconi was on the verge of collapse Tuesday over a stalemate with his coalition partner on the lightning-quick economic reforms demanded by the European Union ahead of tomorrow’s crucial EU summit.

The chaos in Italy, the euro zone’s third largest economy and the new epicentre of the debt crisis, threatens to throw the summit into turmoil. Already, the finance minister of Poland, which holds the rotating EU presidency, has said the Wednesday meeting may come up short on its promises to deliver a full crisis-fighting package.

At the same time, the EU’s finance minister - known as the Ecofin group - have cancelled their Brussels meeting on Wednesday because details of their agenda have yet to be finalized. "Ministers of finance may meet in the coming days to fine-tune decisions that will be taken tomorrow," said a spokesman for Herman Van Rompuy, the European Council president. "There is no new summit planned."

Mr. Berlusconi’s own political crisis began Sunday at an EU meeting in Brussels, where he was berated by other EU leaders for his go-slow approach on launching the economic reforms needed to revive Italy’s ailing economy. His political problems intensified Monday night, when an emergency cabinet meeting in Rome failed to produce agreements on reform with his coalition partner, the Lega Nord (Northern League), the powerful eurosceptic party based in Italy’s wealthy industrial region in the north.

On Tuesday, Mr. Berlusconi, 75, found himself fighting yet again for his political life as the stalemate persisted. “The government is at risk,” Umberto Bossi, leader of the Lega Nord, told reporters in Rome. “The situation is difficult, very dangerous. This is a dramatic moment.”

He and Mr. Berlusconi are squabbling over parts of the economic reform package, including Mr. Berlusconi’s plan to raise the retirement age to 67 from 65. The Lega Nord blocked this plan.

Mr. Berlusconi and Mr. Bossi were once close partners, but the friction between the two men is now apparent. Mr. Bossi has said publicly that he doesn’t think Mr. Berlusconi’s centre-right government will see out its full mandate, which goes to 2013. The Lega Nord brought down Mr. Berlusconi’s first government, in 1994, after only a few months.

According to a Financial Times blog, the Polish finance minister, Jacek Rostowski, has downplayed the chances of a debt crisis-fighting breakthrough at Wednesday’s summit. In a letter to Jean-Claude Juncker, the president of the Eurogroup (the finance ministers of the 17-country euro zone), Mr. Rostowski said: “As things stand at present, I understand that the full package may not be ready by Wednesday, 26 October. Were this the case, the presidency would need to postpone the Ecofin council meeting by a day or two.”

In Europe, markets reversed course Tuesday afternoon, as news of the political stalemate in Rome came out. The market downturn, however, was modest.


My guess is that Greece defaults first, followed shortly by Portugal and Spain and then, after a few weeks of mixed rioting, lies and hand wringing, Italy.

Euro_zone_debt_cop_1334115a.jpg


After Italy I suspect that we will be able to see that the French economy rests on feet of clay.
 
I will call BS on this.

There is plenty of historical evidence that "stimulus" spending is ineffective or counterproductive (and many examples have been posted here, just scroll upthread on any of the economic threads), and some of us have memories of the last bout of stagflation at the end of the 1970's, when similar economic  voodoo was being practiced. (We also remember the implementation of Reaganomics and the vast sea changes that occurred as well).

As for infrastructure, I can give you a personal example. London ON has a massive crumbling infrastructure problem, caused by over a decade of neglect by successive city councils, which jacked up taxes by 30% and user fees (water, sewage etc.) by 60% in the same time period. The flood of tax dollars went to civic "monuments" like a convention center (subsidized for between $1.5 million to a low figure of @ $500,000/year each year it has been in operation; a downtown arena that costs taxpayers 4.5 million/year in interest charges and multiple other"investments" which have resulted in a lowering of the property value of the downtown core despite a cumulative $100 million in downtown "revitalization". Add a 200+ % increase in the number of civic employees making more than $100,000/year and you know where the money is actually going.

As for infrastructure, the City Engineer says he needs $30 million/year simply to hold the line on deteriorating roads, sewers, water pipes etc. Council votes him $8 million.

No, cities don't need more money, they need to spend the money they have on the things that cities are responsible for....
 
Thucydides said:
I will call BS on this.

There is plenty of historical evidence that "stimulus" spending is ineffective or counterproductive (and many examples have been posted here, just scroll upthread on any of the economic threads), and some of us have memories of the last bout of stagflation at the end of the 1970's, when similar economic  voodoo was being practiced. (We also remember the implementation of Reaganomics and the vast sea changes that occurred as well).

As for infrastructure, I can give you a personal example. London ON has a massive crumbling infrastructure problem, caused by over a decade of neglect by successive city councils, which jacked up taxes by 30% and user fees (water, sewage etc.) by 60% in the same time period. The flood of tax dollars went to civic "monuments" like a convention center (subsidized for between $1.5 million to a low figure of @ $500,000/year each year it has been in operation; a downtown arena that costs taxpayers 4.5 million/year in interest charges and multiple other"investments" which have resulted in a lowering of the property value of the downtown core despite a cumulative $100 million in downtown "revitalization". Add a 200+ % increase in the number of civic employees making more than $100,000/year and you know where the money is actually going.

As for infrastructure, the City Engineer says he needs $30 million/year simply to hold the line on deteriorating roads, sewers, water pipes etc. Council votes him $8 million.

No, cities don't need more money, they need to spend the money they have on the things that cities are responsible for....


Except, Thucydides, that cities, unlike political partisans, must deal with reality. Thanks to years and years decade upon decade of neglect it would not matter if every city council in Canada devoted every red cent to infrastructure - to hell with schools and welfare - there isn't enough money; and, thanks to the insatiable maw of health care, there isn't enough money in the provincial coffers, either.

So, enough theorizing - there is plenty of time to cast blame. How do you propose to solve the infrastructure problem? And remember, Thucydides there is plenty of evidence, from right wing, conservative economists to demonstrate that well maintained infrastructure is important to productivity.
 
E.R. Campbell said:
Except, Thucydides, that cities, unlike political partisans, must deal with reality. Thanks to years and years decade upon decade of neglect it would not matter if every city council in Canada devoted every red cent to infrastructure - to hell with schools and welfare - there isn't enough money; and, thanks to the insatiable maw of health care, there isn't enough money in the provincial coffers, either.

So, enough theorizing - there is plenty of time to cast blame. How do you propose to solve the infrastructure problem? And remember, Thucydides there is plenty of evidence, from right wing, conservative economists to demonstrate that well maintained infrastructure is important to productivity.

Exactly. And there's no shortage of work to be done in Canada or the United States that would be excellent investments. That could take up some slack in employment numbers, which in turn would create demand in the economy. People who've been putting off purchases for a long time will probably start again with the prospect of good stable work, and there is, of course, a multiplier effect. Spending money on things which don't improve productivity in the long run is wasteful, but fixing roads, bridges, rail lines, etc is both a good way to spur economic activity AND a good investment in the future.
 
From where I sit in BC there are plenty of municipal councils that waste time and money on initiatives and pet schemes far from the core services they should be providing.  And, some of the infrastructure rainbows they chase are poor opportunity cost choices.  Since they could have made better choices, I assume the problem lies with their egos and acumen, not with a lack of funding.  Given infinite funding we could solve all problems; but we don't have infinite funding so the obvious course is to eliminate the white elephants.  Once there is solid evidence of prudence, we can discuss whether there is still a shortfall of money.
 
Brad Sallows said:
From where I sit in BC there are plenty of municipal councils that waste time and money on initiatives and pet schemes far from the core services they should be providing.  And, some of the infrastructure rainbows they chase are poor opportunity cost choices.  Since they could have made better choices, I assume the problem lies with their egos and acumen, not with a lack of funding.  Given infinite funding we could solve all problems; but we don't have infinite funding so the obvious course is to eliminate the white elephants.  Once there is solid evidence of prudence, we can discuss whether there is still a shortfall of money.


The problem is that infrastructure deteriorates (at fairly predictable rates) whether the "white elephants" are eliminated or not. So long as large numbers of humans elect small numbers of humans to political office "solid evidence of prudence" will be hard to find, meanwhile the infrastructure will continue to deteriorate, with concomitant damage being done to productivity. Political purity, fiscal responsibility and the like a pipe dreams. Most people, being people, will "sell" their votes, maybe not for a pint or two of beer anymore, but, rather, for subsidized day care; meanwhile infrastructure deteriorates more quickly due to lack of maintenance.
 
Yes, but what makes you think the next dollar - or the next one after that - will be spent on maintenance?  I have noticed they like to cut ribbons, but never seem to realize they need to look after whatever was left from the ribbons cut before they arrived.
 
No argument from me, Brad, but doing nothing about crumbling, productivity sapping infrastructure is not a useful course of action.

We must accept that public policy is, finally, a political thing and will always reflect the political realities. Heinlein's Starship Troopers was published in a fantasy and science fiction magazine for a very good reason.
 
E.R. Campbell said:
And here is another "middle class" warning in an article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/world/konrad-yakabuski/battle-rages-over-ohios-union-limiting-law/article2218168/

Free collective bargaining performs a vital economic function: it allows business leaders to understand and account, correctly, for the cost (and sometimes the value) of labour as an input. But the operative word is "free." We cannot find the real value of labour if the laws regarding collective bargaining are tilted, one way or the other, to favour either business or labour.

Public service collective bargaining is an odd beast. The very words "public service" ought to tell us that the function, serving the public, is important. Some public sector workers have an unfair bargaining advantage because the withdrawal of their services would go farther than just costing the "business" (school board, hospital, city, region ... nation) money it (service withdrawal) might actually endanger the public - as, for example, when garbage collectors go on strike and (knowingly) create a public heath danger.

In the 1950s, before public sector collective bargaining became widespread, there was a tacit agreement - a social contract if you will: public sector workers were, broadly, paid less than their private sector confreres but they had:

1. An excellent, guaranteed pension scheme; and

2. Nearly iron clad job security.

Now, 60 years on, public service workers, especially, bastions of the middle class- many of whom were, 60 years, professionals who would have bridled at the terms "education worker" of "health care worker"have unsustainably high salaries and pensions and iron clad job security. There never was a "free bargain." The public, most of whom worked in the private sector, were and are held hostage.

One problem is that the public sector is too public: too many jobs that can, without any difficulty or danger, be done by the private sector are public. Consider the situation of e.g. garbage collection in some (many? most?) Canadian cities. Some garbage collection workers, those who collect garbage from most private homes are public sector workers. Others, those who collect garbage from public businesses, including condominiums (where many people reside) and even city hall and the fire halls, are private sector workers employed by contractors. Two questions arise:

1. Why is private (single family) garbage in need of public sector pick up and disposal while garbage from apartment buildings can be entrusted to the private sector?

2. Why are there so (relatively) few strikes in the private sector garbage collection business compared to the public sector garbage workers?

I have no answer to the first question but I have one for the second: COMPETITION. Competition keeps wages relatively low - but not too bad because in order to compete and make money garbage collection companies must pay well enough to get the job done on a consistently reliable basis - and competition gives individual businesses and e.g. condominium corporations flexibility: if the contracted company is hit by a strike then the customer can hire someone else. That "discipline" keeps both management and labour focused on their best interests. There is no such discipline in public sector unions.

So, solution one is: privatize, Privatize, PRIVATIZE! There are some jobs - those that involve, for example, the potential use of deadly force on the Queen's (our) behalf (police, for example) or very high risk and unacceptable loss of service (fire, for example) that must be public (along with some bureaucratic functions that involve policy advice to governments). Solution two is to recast the bargain: everything, including pensions and job security are on the table every time public sector unions (be they municipal workers (e.g. public transit) or the national civil service) sit down across the bargaining table from management - the people we elect.

The solution is NOT, in my opinion to "attack" unions in an effort to stop free collective bargaining because free collective bargaining is a valuable, indeed even essential business tool.


Two rather different approaches to "public services:"

1. In Canada, this year, the Minister of Labour has, twice, intervened to ensure that Air Canada's schedule was not interrupted by potential strikes; and

2. This, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/world/asia-pacific/qantas-airline-fleet-grounded-over-labour-dispute/article2218639/
Qantas airline fleet grounded over labour dispute

NARAYANAN SOMASUNDARAM
SYDNEY— Reuters

Published Saturday, Oct. 29, 2011

Australia’s Qantas Airways grounded its entire fleet on Saturday over a bitter labour dispute in an unprecedented move, with the government asking a tribunal to stop the conflict which it worries is putting both the airline and the economy at risk.

Tens of thousands of passengers, including 17 world leaders, were affected by the abrupt decision, which clearly took the government by surprise.

More on link

An extended grounding would benefit domestic rival Virgin Australia and others such as Singapore Airlines , British Airways and Chinese carriers on international routes.

Virgin Australia said it would accommodate Qantas passengers where possible and was looking at adding more services in response to Qantas grounding its fleet over labour dispute.


Now, there are some differences: the main reason the Canadian Minister of Labour cited for throttling free collective bargaining was that Air Canada provides essential (access) service to many smaller communities. QANTAS is, primarily, a long haul/international carrier. There is a pretty complete and competitive domestic air network in Australia. While this strike/lockout will hurt many travelers and the Australian economy and while Prime Minister Gillard has asked for immediate, urgent arbitration, the Aussie government is not claiming "national interest."

In fact the air transport business in Canada is so heavily regulated - generally in favour of Air Canada - that Air Canada has become a necessary monster. If we had a more competitive market it is likely that Air Canada would have a much smaller market share (and even worse service, if you can imagine) but a strike would not constitute a national emergency.
 
I like this remark quoted in the G&M article:

“Once you have a debt, you have to figure out how to pay it. The conservative way is to take away collective bargaining. The middle-class way is to take the top 1 per cent that has most of the profits and increase their taxes.”

Most governmental debt below a federal level can be tracked back to unsustainable public payrolls.  What the guy is effectively saying is that "Once you have a good pay package, you have to figure out how to pay it...".  Basically, he is trying to hijack the entire middle class as a "popular front" for his particular pet pony.
 
It has been said that sometimes your only choice is to choose the "least worst" option. While option one (massive bond haircuts and dissolution of the Euro) would be bad in the short run, option two is even worse....

http://fullcomment.nationalpost.com/2011/10/29/david-frum-europe-is-down-to-two-choices-if-it-wants-to-save-the-euro/

David Frum: Europe is down to two choices if it wants to save the euro
To escape its financial crisis, the continent must abandon the euro or impose a new, unelected super-government.

David Frum  Oct 29, 2011 – 10:00 AM ET | Last Updated: Oct 28, 2011 6:18 PM ET

What if they had a revolution, and called it a debt crisis?

This is the real story of what is going on in Europe right now. It’s not about Greece. It’s not about budget deficits.

When the European Union created the euro currency, they created a disaster-in-waiting. Unlike the United States, which can never run out of dollars because it can always print more, the various governments of the eurozone could potentially run out of euros. The European Central Bank does not work for one eurozone government. It works for all the eurozone governments — and that’s a very different thing.

If any one country suddenly needs more cash, it can only get that cash with the consent of all the other countries. Unsurprisingly, that kind of unanimity is hard to obtain.

And so what we’re seeing now is a kind of slow-motion bank run, with investors losing confidence in country after country. Even France — the second-strongest economy in Europe — is threatened: France must now pay a full percentage point more interest on its bonds than Germany, the widest gap since the advent of the euro.

There are two escape routes from this crisis.

Escape route #1 is to bust up the euro. People who own Greek bonds will be repaid in New Drachmas. People who own Italian bonds will be repaid in New Lire. French creditors will get New Francs. And German creditors will get New Marks.

This first escape route will be an economic disaster, and not only for the poorer countries of southern Europe.

The French and German taxpayers who refused to bail out Greece and Italy will end up bailing out the French and German bankers who lent to Greece and Italy.

And the harm will not stop there.

Remember the country that profited most from the euro currency was Germany, the most productive country in Europe. So long as the euro existed, Greece, Italy and the other weaker economies of Europe could not devalue against Germany. The euro worked to make German exports cheaper — with the result that between 2000 and 2010, Germany’s share of world trade rose by almost 9% — even as the shares of most other eurozone countries declined.

If the euro busts up, German exports to the rest of Europe will collapse — and German companies will relocate out of Germany into the other EU countries.

The Germans complain that the costs of rescuing the euro will fall on them. That’s true. But it’s also true that the benefits of the euro mostly accrued to them.

The euro currency allowed Greece to borrow more cheaply than it otherwise could. But the euro allowed Germany to sell more cheaply than it otherwise could. Who is the real winner in this story?

Which brings us to Escape #2.

If the euro is not to bust up, it must be saved.

Friday morning, The Globe & Mail reproduced on its front page one plan to save the euro. It looked as complicated as the design for a nuclear reactor: Arrows running every which way, incomprehensible acronyms strewn about the page.

All of that complexity that is designed is so much chaff, thrown into the eyes of the public to conceal the hard reality of what is actually being proposed:

Europe is about to create a new central borrowing power to assume responsibility for the debts of the weaker borrowing countries. To service these assumed debts, the new central borrowing power must gain a new taxing power. To prevent the problem from recurring, the weaker borrowing countries must surrender some of their spending powers.

Does that sound too technical? OK, put it more simply:

Europe is about to create a new super-government — and Greece, Italy, Spain and the others are about to be demoted to provincial or state local governments, subordinated to this super-government.

What Europe must do to save the euro is very similar to what Alexander Hamilton did in the United States in the 1790s to create the dollar. The new federal government assumed responsibility for the Revolutionary War debts of the former 13 colonies. The new federal government also took control of what was then the most important revenue source: Customs duties. The states were relieved of their debts in exchange for surrendering some of their taxing power.

But there is one huge difference between Europe today and the United States in the 1790s. The new American super-government was elected. The new European super-government won’t be. Americans went into their arrangement with their eyes open, understanding the implications of their choice. European voters, by contrast, are being told that they are making a merely financial decision. As with the original euro decision itself, the true implications of the rescue plan will not be revealed until it is too late to reverse them.

© David Frum
 
E.R. Campbell said:
2. Why are there so (relatively) few strikes in the private sector garbage collection business compared to the public sector garbage workers?

I was in the ( Toronto City / Metro ) municipal garbagemen's union* for almost 37 years. During that time, there was only one strike. It lasted 16 days.
( Although officially on strike, paramedics were kept on the job. )



Whatever they lost in wages, the workers made up in over-time O.T. during the after strike cleanup:
http://www.toronto.ca/legdocs/2002/agendas/committees/pof/pof021114/it014.pdf
"There was a net tax supported cost of approximately $3.3 million incurred as a result of the 2002 labour disruption."

This was the so called "jobs for life" strike:
"Thanks to a little divine intervention in the form of a looming Papal visit, Queen’s Park legislated workers back and punted the contract to an arbitrator who strengthened the job-security language."
Globe and Mail

"The union eventually won a ruling on job security during arbitration."
CBC

It began in 1999 when Mayor Lastman first agreed to job security for members with 10 years of seniority or more.
In 2005, Mayor Miller extended the guarantee to all permanent employees, regardless of seniority.

"We tried to take it away from them because they had us by the balls. We fought like hell but couldn’t get rid of it. You don’t know what we had to go through." “Try and fire them, you can’t," “It’s jobs for life.”
Former Toronto Mayor Lastman:
http://www.thestar.com/news/article/940244--james-jobs-for-life-still-haunts-lastman

*Includes: Arborists, Arena-Pool Operators, Asphalt-Concrete workers,  Mechanics, Bricklayers, Carpenters, Bridgeworkers, Electricians, Heavy Equipment Operators, Stationary Engineers, Operating Engineers, Marine Engineers, Refrigeration and A/C Mechanics, Millwrights, Gardeners, Plumbers, Welders, Water and Filtration workers, Machinists, Electronic and Instrument Control Technicians, etc, etc...any job that is classified as "Outside".










 
More about pipelines and oil sands reproduced under the Fair Dealing provisions of the Copyright Act from the Financial Post:

http://business.financialpost.com/2011/10/29/the-stranded-oil-sands-a-worst-case-scenario/
The stranded oil sands: A worst-case scenario

Claudia Cattaneo

Oct 29, 2011


The signs are there: the Keystone XL oil sands pipeline has festered into an uncomfortable election issue for the U.S. president, Barack Obama.

The upshot for Canada: a decision on whether to grant a Presidential permit, promised by year end, could once again be delayed.

The reality is that anything short of a go-ahead in December for Keystone XL would plunge the oil sands sector into disarray until new solutions move forward. The worst-case scenario? Stranded oil sands — for years.

Keystone XL, with a capacity to carry up to 830,000 barrels a day from Alberta to Texas, was due for startup in early 2013. There is no backup on the same scale or timeline.

“Everybody in the industry is thinking about this,” said Bob Dunbar, president of Strategy West Inc., an oil sands consultancy based in Calgary. “Keystone XL is not the only solution, but it is a very elegant solution and it really would have an impact on the industry if it doesn’t proceed in a timely way.”
Even optimists can’t ignore that the pipeline is becoming politically toxic: Anti-Keystone protesters are dogging Mr. Obama everywhere he goes; donors are threatening to pull campaign funding if he approves it; members of the Democratic party are rallying against it; allegations of conflict of interest have strangely emerged; Nebraska has called a special session of the state legislature to discuss whether to block it.

Rumours and anonymous warnings implying a delay is likely, such as the one from a U.S. government official this week, are making the rounds: “We’re carefully reviewing all of the information we’ve received, including the many comments from the public, and will make a decision only after we have weighed all of the facts,” the official told Reuters.

Meanwhile, Mr. Obama is keeping his distance, despite the pipeline’s promise of huge job creation in a struggling U.S. economy.

“We’re looking at it right now, all right?” is the response he gave this week to an anti-Keystone protester in Denver. “No decision’s been made and I know your deep concern about it, so we will address it.”

David Wilkins, former U.S. ambassador to Canada, said it’s obvious Keystone XL has gotten more political.

After the President failed to deliver key environmental reforms, the environmental lobby and the left wing of the Democratic party have made the pipeline and what it stands for, a proxy for fossil fuels growth and an impediment to renewable energy, their last stand.

“If there is a significant delay, probably the only rational conclusion you can reach is that it’s an effort on the part of the administration to placate the left-wing of the base of his party, and to placate them and to cater to them going into the election 13 months away,” Mr. Wilkins, who still hopes the project will be approved on its merits by the end of the year, said in an interview.

As the clock ticks, Canada’s oil patch has begun to weigh the implications of a lengthy time out.

It has been a long battle already. Calgary-based TransCanada Corp., proponent of the $7-billion project, first filed an application for a Presidential permit in 2008. The approval process has been delayed repeatedly. The most recent delays were caused by the Environmental Protection Agency injecting itself into the process and the State Department deciding to hold hearings in six states directly affected by the pipeline. A decision by the U.S. State Department on whether the pipeline is in the national interest is now due by Nov. 26. After that, eight agencies affected by the decision have 15 days to decide whether to object. If there are no objections, the pipeline is approved. If there are objections, the issue moves to the White House, which can take as long as required to render its decision.

Former Republican Congressman Tom Corcoran, managing director of the Centre for North American Energy Security and one of the pipeline’s top Washington lobbyists, said if a decision is not made by year end, the odds go up that it will be made in late 2012, following the Nov. 6 vote.

“There are two reasons there could be a delay,” Mr. Corcoran said. “One is that something unexpected was learned in the inter-agency review, which is going on at the moment, of the environmental impact statement, or something we learned in the public hearings. The other reason for delay would be a political decision. It’s a flashpoint. And so with politics, you don’t need a timeline, you don’t need substance, you don’t need an issue to be settled on the merits. And it could be that for whatever reason politics has intruded itself once again into this process, and a decision to carry it over into next year will be made, which I think would be most unfortunate.”

The widest impact of a delay is uncertainty. Would a delay lead to approval or to rejection? How long would it be? If Mr. Obama gets re-elected, would he feel he has the obligation to reward his political base by rejecting the pipeline or the strength to approve it in the broader national interest? As is often the case, until those questions are settled, market players may chose to remain on the sidelines. Those looking to buy oil sands assets may be reluctant to move ahead until they know there is a market.

Industry growth plans would also be in doubt. Aggressive expansions may be revisited if there is no way to sell the oil. According to a new study by international petroleum consultancy Purvin & Gertz Inc., existing pipelines to U.S. markets could run out of space by 2013 to 2016, depending on how quickly oil sands production grows. In fact, after looking at all pipeline options, the consultancy concluded that additional capacity would be needed to accommodate oil sands growth by 2017 to 2019, even if Keystone XL is in operation.

“We can’t ship more than pipelines can carry, so production would slow down and project development would likely slow down, until pipelines catch up,” vice-president Tom Wise, the report’s author, said in an interview.

Meanwhile, existing capacity could be rationed and other options are likely to be fast-tracked. Some involve building new lines, some would undo bottlenecks such as the one at Cushing, Okla., which is depressing prices of West Texas intermediate crude.

The most ambitious involve pipelines to Canada’s West Coast. Enbridge Inc. has proposed Northern Gateway to ship oil to Asia. Kinder Morgan Inc. is pushing forward an expansion of its TransMountain pipeline.

Asked about what it plans to do given uncertainty over Keystone XL, one oil sands developer, Cenovus Energy Inc., said it’s looking at what’s available, including sending its oil by rail and ship to Asia.

“It’s obviously quite a political football in the U.S.,” CEO Brian Ferguson said on a conference call Thursday in response to an analyst question. “There are other alternatives we are looking at and we are making sure we don’t have all our eggs in our basket.”

Yet conspiring against a quick ramp-up of alternatives is the fact that the forces that lined up against Keystone are regrouping to fight other plans. Already, more than 4,000 people and groups have registered to participate in regulatory hearings on Northern Gateway scheduled to start in January, promising a long and controversial review. Environmental organizations are also gearing up to fight the TransMountain plan and other solutions.

In a recent interview, Enbridge CEO Pat Daniel conceded Keystone XL’s outcome will affect all future pipeline projects. It’s one of the reasons Enbridge supports approval of Keystone XL, even though it’s proposed by a competitor.

“I think a horrible precedent would be set if that project were to be rejected because of concerns over oil sands crude or the inability of a pipeline to operate safely near an aquifer, which I think are the two biggest issues at stake,” Mr. Daniel said. “We are absolutely convinced that the system should be built for energy-security reasons in the United States and can be built and run safely.”

TransCanada, after spending nearly $2-billion on the project so far and putting it repeatedly on hold, has no Plan B. It would bear the biggest blow from a delay, which would also leave it wishing for a return to the good old days, when pipelines were just that, pipelines.


There is a very, very good chance that a politically weakened Obama will refuse to permit the Keystone pipeline in order to placate the environmentalists.

1028keystonexl.jpg

Protesters against the construction of the Keystone XL oil pipeline hold signs and stand on a
Keith Haring sculpture as they demonstrate outside of the W Hotel before the arrival of U.S.
President Barack Obama on October 25, 2011 in San Francisco, California.


But, and it is a big BUT for Canada, IF the USA shoots itself in the foot and prefers Saudi oil to Canadian oil we have a HUGE and growing market in Asia - mainly in China.

I am confident that Government of Canada will pull out all the stops to guarantee regulatory approval of Northern Gateway and the LNG pipeline and port if Keystone is blocked by the Obama administration.

But we want both: Keystone for quick, easy profits and Northern Gateway to secure competitive world markets (and prices) for our commodities.
 
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