OTTAWA — The federal Liberals are set to unveil a budget on Tuesday intended to showcase their plans to keep Canada competitive amid the clean energy transition while supporting Canadians who are struggling with affordability.
N.S. agreements aim for balance on ecological forestry, economy
The Nova Scotia government says renewed agreements with Port Hawkesbury Paper will be good for the forests — and the economy — and take significant steps toward implementation of the 2018 Lahey Report that called for a shift to ecological forestry.
Under the agreements, the province has reduced the amount of timber the company can take from Crown land, while increasing the amount it will pay for management of public and private forests.
Natural Resources and Renewables Minister Tory Rushton says the agreements strike a good balance.
“This was something that we agreed in the terms of it that there’s prosperity for the company, there’s sustainability for the province and it still allows us to meet our targets and goals with the Lahey review,” he said.
Port Hawkesbury Paper agrees with the changes, which have become necessary as the business model for forestry has changed in the province, said Geoff Clarke, the company’s manager of business development.
Under its forest utilization licence, the paper company can harvest up to 275,000 tonnes of timber annually from Crown lands, which is down from 400,000 tonnes.
Taking less Crown timber will mean a shift to the private sector, he said.
“It’s the way it has to be,” Clarke said. “It’s part of the premise to look more towards the private lands to make up the difference of the drop in the allowable harvest off of Crown land.
“It shouldn’t have an impact on the amount of fibre that’s available.”
In addition, with the closure of Northern Pulp, more wood waste has become available to Port Hawkesbury Paper.
The Strait-area mill used to get five per cent of its supply from sawmill residue, but that has jumped to 40 per cent now, Clarke said.
“The model changes and we evolve along with it.”
Under the company’s separate fee-for-service agreement, Port Hawkesbury Paper will be paid $5 million a year to support sustainable forestry management on Crown and private lands.
Fees will help with ecological forestry training
That’s up from $3.8 million, which the province says will cover inflation and an increased focus on ecological forestry.
Clarke said the increased fees will go — in part — towards training and educating private woodlot owners on sustainable ecological practices.
For example, he said, in some cases cutting operations will leave more trees standing.
Raymond Plourde, senior wilderness co-ordinator for the Ecology Action Centre, said he is pleased with the announcements.
Taking less timber from Crown lands was a key recommendation of the 2018 report authored by University of King’s College president William Lahey.
“This is a very positive thing and it responds directly to the implementation of the Lahey Report,” Plourde said.
“Also a good thing is that the company itself is being progressive and is working with government and not fighting this, but rather doing what Professor Lahey recommended.”
Rushton said the agreements follow the full implementation of the so-called triad model of forest management recommended by Lahey.
The first part of the triad, called the conservation zone, exempts 35 per cent of Crown lands from forestry, including old-growth forests, parks and protected areas.
The second was introduced last year involving new guidelines for mixed-use forests representing 55 per cent of Crown lands, which are mostly Acadian forests on the mainland.
In that zone, new and previously approved harvest plans must follow low-intensity practices that prioritize biodiversity.
Rushton said Port Hawkesbury Paper is also launching a pilot project to apply new silviculture guidelines in mixed-use boreal forests in Cape Breton.
‘Still work left to do’
And last month, the province approved the third part of the triad by announcing a high-production zone will make up 10 per cent of Crown lands where clear-cutting will be allowed, but the contractor has to improve the soil afterwards and replant the area.
“We’ve achieved a lot in the last year,” said Rushton. “There’s still a lot of work left to do … and we’re still committed to making the steps forward to achieving those goals.”
Climate Change, Deglobalization, Demographics, AI: The Forces Really Driving Our Economy
Our economy today has been described variously as “weird,” “really weird” and “very, very weird.”
Weird because this is a yo-yo economy where gas prices shot up to more than $5 a gallon and then settled back down. The inflation rate for used cars dropped, then accelerated at a 40 percent rate before deflating at a record rate. Housing has gone from boom to bust, then to boom again. Economic indicators have been described as “a Jackson Pollock painting of data points and trends.”
Economists can’t figure it out. Economic models are only getting us as far as separating top-flight economists into Team Stagflation and Team Soft Landing. Alan Blinder, the Princeton economist, talks about the prospects of the Federal Reserve nailing a soft landing like he is handicapping a team’s Super Bowl prospects: “I think they still have a chance, but it’s a tougher chance than it was.”
Economists tried to deal with the twin stresses of inflation and recession in the 1970s without success, and now here we are, 50 years and 50-plus economics Nobel Prizes later, with little ground gained. The Fed and the Treasury Department buttressed the banking structure in the aftermath of the 2008 crisis. Fifteen years later, we are seeing it breached.
There’s weirdness yet to come, and a lot more than run-of-the-mill weirdness. We are entering a new epoch of crisis, a slow-motion tidal wave of risks that will wash over our economy in the next decades — namely climate change, demographics, deglobalization and artificial intelligence. Their effects will range somewhere between economic regime shift and existential threat to civilization. The risks to the economy, to the stability of our society and to civilization are enormous if we don’t get the economic models right for what’s coming.
For climate, we already are seeing a glimpse of what is to come: drought, floods and far more extreme storms than in the recent past. We saw some of the implications over the past year, with supply chains broken because rivers were too dry for shipping and hydroelectric and nuclear power impaired.
For demographics, birthrates are on the decline in the developed countries. China’s population is in decline, for instance, and South Korea just set a mark for the lowest birthrate in the developed world. As with climate change, demographic shifts determine societal ones, like straining the social contract between the working and the aged.
We are reversing the globalization of the past 40 years, with the links in our geopolitical and economic network fraying. “Friendshoring,” or moving production to friendly countries, is a new term. The geopolitical forces behind deglobalization will amplify the stresses from climate change and demographics to lead to a frenzied competition for resources and consumers.
We can see the impacts of climate change, demographics and deglobalization coming. The fourth, artificial intelligence, is a wild card. But we already are seeing risks for work and privacy, and for frightening advances in warfare.
These risks are going to accelerate and affect us for decades. If our economic models can only get as far as Team Stagflation versus Team Soft Landing — if we can’t get a firm hold on pedestrian economic issues like inflation and recession — the prospects are not bright for getting our forecasts right for these existential forces.
The problem here is not that our economic models don’t work at all. The models seem serviceable when things are simple and stable, when we are in a steady state with tons of past data to draw on. The problem is that the models don’t work when our economy is weird. And that’s precisely when we most need them to work.
Economists have admitted as much. At the height of the 2008 financial crisis, Queen Elizabeth II asked the question that no doubt was on the minds of many of her subjects: “Why did nobody see it coming?” The response, some months later, by the Nobel laureate economist Robert Lucas, was blunt: Economics failed with the 2008 crisis because economic theory has established that it cannot predict such crises.
A key reason these models fail in times of crisis is that they can’t deal with a world filled with complexity or with surprising twists and turns. For example, the mathematical models of economics analyze a representative agent — be that an individual or a firm — and assume the overall economy will behave the way that this one agent behaves. The problem here, and a problem broadly with complex and dynamic systems, is that the whole doesn’t look like the sum of the parts. If you have a lot of people running around, the overall picture can look different than what any one of those people is doing. Maybe in aggregate their actions jam the doorway; maybe in aggregate they create a stampede.
Economists fancy themselves as the physicists of the social sciences, wielding mathematical models to bring solutions to the economic world. But we are not a mechanical system. We are humans who innovate, change with our experiences, and at times game the system. Reflecting on the 1987 market crash, the brilliant physicist Richard Feynman remarked on the difficulty facing economists by noting that subatomic particles don’t act based on what they think other subatomic particles are planning — but people do that.
What if economists can’t turn things around? This is a possibility because we are walking into a world unlike any we have seen. We can’t anticipate all the ways climate change might affect us or where our creativity will take us with A.I. Which brings us to what is called radical uncertainty, where we simply have no clue — where we are caught unaware by things we haven’t even thought of.
This possibility is not much on the minds of economists. Charting Fed policy or forecasting consumer demand might have surprises here and there but operate with a well-worn vocabulary. It’s with the longer-term risks that “unknowable” has force.
How do we deal with risks we cannot even define? A good start is to move away from the economist’s palette of efficiency and rationality and instead look at examples of survival in worlds of radical uncertainty. Take the cockroach: It has survived for hundreds of millions of years as rainforests turned into savannas and savannas turned into deserts. And it has done this with a coarse escape system, simply running from puffs of air on its cercal hairs. Not very elegant. It will never win the Insect of the Year award but has done well enough to survive a world of radical change.
In our time, savannas are turning into deserts. The alternative to the economist’s model is to take a coarse approach, to be more adaptable — leave some short-term fine-tuning and optimization by the wayside. Our long term might look brighter if we act like cockroaches. An insect fine-tuned for a jungle may dominate the cockroach in that environment. But once the world changes and the jungle disappears, it will as well.
Rick Bookstaber has served as chief risk officer at major banks and hedge funds. His 2007 book, “A Demon of Our Own Design,” warned of the coming financial crisis. His latest book is “The End of Theory.”
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Budget 2023: Canada’s economy faces mounting challenges – here’s how we overcome them
Robert Asselin is senior vice-president of policy at the Business Council of Canada and a former adviser to two prime ministers.
As we approach the release of the federal budget, Canada is facing three converging and powerful challenges that require a coherent economic and fiscal strategy from the government.
The first challenge is the return of a political economy on a global scale. From the United States to Europe and Asia, countries are confronted with the challenges of national security and climate change with global competition over technological innovation and investment. By now, everyone has heard of the U.S. Inflation Reduction Act. Few should doubt the threat it poses to Canada’s economic competitiveness.
The second is the sustainability of the government’s current fiscal plan. Fast-rising debt-servicing costs, higher inflation for longer and diminishing fiscal firepower as a result of having doubled our federal debt during the COVID-19 crisis will all challenge the federal government’s inclination to ignore the real consequences of unconstrained spending.
The third challenge – largely a consequence of the first two – is the imperative of long-term growth. Without sustained economic growth, both our current account and federal budget deficits will continue to deteriorate, leading to an inevitable decline in Canadians’ living standards.
There are two main drivers of long-term economic growth. One of them is population growth. The government has taken action on this. Increasing high-skilled immigration is to be applauded, but an aggressive immigration policy will only work if we boost the other driver, productivity, thereby raising wages and living standards. The policy trap here is to confuse raising nominal GDP with GDP per capita, the latter being far more important for our living standards.
Increased productivity – output per worker – is the most important driver of economic growth. Recent experience suggests this is very hard to do. We need to pursue measures that will raise productivity in all sectors. In addition, and this is politically more challenging, we need to focus on expanding the sectors that hold the most promise for raising Canada’s productivity.
A country’s industrial composition matters a great deal. Certain sectors generate significantly higher output per employee and can increase productivity at a faster rate. Advanced industries are key to this goal. These sectors combine significant R&D investment and a highly qualified work force.
Sectors that invest heavily in technology and innovation tend to be more productive than others. A country with an advanced manufacturing base using artificial intelligence, robotics, genomic medicine and advanced computation will yield significant productivity gains. This is where the new frontiers of economic competitiveness are being drawn. The political economy of semiconductors fabrication is not the same as the one for manufacturing shoes or T-shirts. One is being developed hastily, the other not so much.
Canada has a significant structural current account deficit in advanced industries, signalling a weakening of our economic competitiveness. It indicates we are not able to generate sufficient income from high-value exports to pay for our imports of advanced goods.
Canada can compete in advanced industries. We should be proud of our Canadian global champions in aerospace, agrifood, energy and automotive, all advanced industries. The problem is we don’t have enough of them.
British cabinet minister Michael Gove stated in a recent speech: “Rather than being an entrepôt, a bazaar and a duty-free exchange, a strong economy must also make, manufacture, create, innovate and shape.” He was referring to the British economy, but this applies just as much to Canada.
This is where modern industrial policy comes into play. It is a high-stakes game because politicians will often use industrial policy to justify all kinds of government interventions that have proven to be ineffective. As former U.S. Treasury secretary Larry Summers observed: “I like industrial policy advisers how I like generals. The best generals are the ones who hate war the most but are willing to fight when needed. What I worry about is the people who do industrial policy love doing industrial policy.”
Targeted policy design and execution are paramount. We need to mobilize our human capital, create a modern science and technology architecture capable of converting intellectual capital into expanding our advanced industries and high-tech manufacturing, build proper transmission channels of public R&D to industry and create a regulatory and tax environment conducive to capital formation. In the current circumstance, the worst policy decision would be to take the easy road of spreading subsidies across sectors and all regions of the country.
Getting to the right policy outcomes is more important than political expediency. Addressing these challenges will require policy work that will go well beyond one budget.
Liberals to release ‘tricky’ budget Tuesday
“It’s going to be very tricky for the federal government,” said Randall Bartlett, a senior director of Canadian economics at Desjardins.
The Liberals are expected to invest considerably in Canada’s clean energy transition, in an attempt to keep Canada competitive with the United States as it launches its own aggressive measures.
The Inflation Reduction Act, signed into law last August by U.S. President Joe Biden, invests nearly US$400 billion in everything from critical minerals to battery manufacturing, electric vehicles and clean electricity, including hydrogen.
And with the cost of living still a top economic issue for many Canadians, the Liberals have signalled the budget will include new affordability measures.
“In the weeks to come, for those Canadians who feel the bite of rising prices the most acutely, for our most vulnerable friends and neighbours, our government will deliver additional, targeted inflation relief,” Freeland said in Oshawa, Ont. on Monday.
But Bartlett said the federal government has to balance its big-ticket spending priorities with an uncertain economic outlook.
As global price pressures ease and interest rates dampen spending in the economy, inflation has been slowing. Canada’s annual inflation rate has tumbled from 8.1 per cent in the summer to 5.2 per cent in February.
Even as inflation becomes less of a problem, though, a slowing economy means less government revenues to finance spending.
According to a report from Desjardins, new spending measures alone wouldn’t necessarily put federal finances on an unsustainable path. But if significant new spending is paired with a worse-than-expected economic downturn, that could spell trouble for the federal government, the report says.
The federal government also runs the risk of fuelling inflation with excessive spending, making the Bank of Canada’s job of cooling inflation more challenging. Freeland has repeatedly said she doesn’t plan on doing that, noting the federal government can’t compensate all Canadians for the rise in prices.
Bartlett said the federal government so far has done a good job balancing the need to help low-income Canadians while avoiding adding fuel to the fire.
“My concern is this that (if) they continue to layer this on top of additional spending for other other initiatives … it’s not only going to make potentially the Bank of Canada’s job more challenging, but it’s also going to just increase the size of the deficit at a time when the economic outlook is very uncertain,” he said.
Some policy experts have suggested that increasing tax revenues might be part of the solution when it comes to stabilizing federal finances. A shadow budget put together for the C.D. Howe Institute, an economic thinktank, recommended increasing the GST tax rate.
But Bartlett said raising taxes might be a tough sell for Canadians, especially because the federal government has had mixed results on some of its key areas of investment, such as its national housing strategy.
“If we continue to see increased spending, and that requires tax increases to to afford that spending, there’s going to be … increased scrutiny by the public on whether or not we’re getting the bang for the buck,” Bartlett said.
In the upcoming budget, NDP Leader Jagmeet Singh has said he wants to see the government extend the six-month boost to the GST rebate, introduced last fall, which temporarily doubled the amount people received.
Singh has also said he’d like to see federal funding for school lunches.
Per the parties’ agreement, the Liberals have already agreed to create a federally funded and administered dental care program this year that would replace the dental benefit for children in low-income families that was rolled out in the fall.
The deal also commits the Liberals to passing legislation on a national pharmacare program by the end of 2023 — although there’s been no sign of movement on that yet.
This report by The Canadian Press was first published March 26, 2023.
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