Public sector and their unions put on notice
I can’t help but think that the coming age of Canadian austerity will likely begin in Ontario. After right-wing, union-busting Rob Ford captured the former liberal stronghold of Toronto with a ‘Stop the gravy train’ slogan, one can’t help but wonder if the latest shot against the TTC union is more signs of building momentum.
The formerly union-friendly Dalton McGuinty declared the TTC an essential service, largely blocking their ability to
hold a city ransom strike, a move that both shocked and angered the unions. No doubt union leaders were caught off guard given how downright amicable MrGuinty has been towards unions in general and the public sector in particular in the nearly 8 years he’s been in office.
As another Rabidoux noted over at his political commentary blog, the public sector has swollen under McGuinty’s rule, outpacing private sector job growth by 2:1. The man has also amassed the most bloated deficit in Ontario history by expanding government spending by an average of 11% per year….massively outpacing the expansion in GDP and tax revenue in that time frame. The end result is that debt has exploded under McGuinty’s watch to the point that some economists are declaring Ontario essentially broke.
The Ontario debt situation is perhaps the least discussed major issue for Canadians. Ontarians owe over $17,000 per person in provincial debt alone. If we compare it to California, a state often in the news as more and more analysts become convinced of the inevitability of a default and restructuring, we find that our debt per capita is 10 times larger than theirs. Yet while California pays a hefty price to borrow money, reflecting their poor credit rating, people are still willing to lend to Ontario for about a half a percent more than they would for Government of Canada bonds….a very slim spread relative to California, who saw their spreads reach 5% over comparable US government bonds. It would be exceptionally prudent to take advantage of this gift from the bond market to repay as much debt as possible while interest rates are still hovering near historic lows. Instead, we see the opposite.
So I maintain that the coming decade will be very different from the one in the rearview mirror. I expect that austerity will be embraced either by politicians or forced by the bond market (particularly in Ontario’s case). Higher borrowing costs amount to a defacto austerity drive as more tax revenue is diverted towards debt repayment and less is available for public spending.
Will the public sector unions hang themselves?
Also significantly, I think that the large public sector unions will need to tread very lightly in light of this. We have an economy that is still largely fueled by stimulus in our own country, while our largest trading partner is sustaining their economy via unprecedented monetary interventions. This will have to be unwound eventually and I suggest that the repayment process will be more burdensome than we currently realize. Absent that stimulus, we would arguably see private sector employment under significant pressure. Those who receive their pay cheques from the government would do well to remember who really pays their salary: the private sector.
Mike Shedlock (who is staunchly anti-union) has done a great job of following the plight of large unions in the US, where the political climate has changed markedly due to the financial crisis. In many ways the unions are hanging themselves in the arena of public support by failing to even remotely empathize with the painful plight of many in the private sector. It’s set the stage for the Chris Christie types to come in with a publicly supported anti-union agenda. Those large public unions who loathed the likes of Mike Harris would do well to remember just what type of politician becomes popular when hard times for the public meet ignorant and unsympathetic demands by the unions:
In the article about the TTC, one quote jumped off the page at me:
“It starts to look like part of this continent-wide attack on working people by governments,” said John Cartwright, president of the Toronto and York Region Labour Council, an umbrella organization representing nearly 200,000 workers. “You see what’s happening in Wisconsin these days. It’s just stunning.”
John Cartwright gets it. But in his own twisted view, he sees this as an attack on ‘working people’. This could not be further from the truth. And unfortunately for Mr. Cartwright and all other union leaders who have lost sight of the fact that their unions were created to protect the interests of the public at large, this is only the beginning.
Humourous ‘bubbleblogger’ commentary
Thanks once again to Mike Shedlock for posting this gem of an article over on his blog:
It’s a scathing rebuke of ‘bubblebloggers’ who the author describes as ‘living on the other side of the sewer grates’. This was written at a time when the Phoenix real estate market had dropped about 5%. Unfortunately for the author, his 21 reasons amounted to nothing as the market in Phoenix has now fallen over 50% from its peak.
What struck me most about the 21 reasons listed is just how familiar they all sound. It seems that the bubbliest real estate markets anywhere in the world tend to recycle the same reasons to support their lofty valuations. As we’ve noted before, it’s never a new paradigm…..unfortunately fundamentals will eventually matter. So with that in mind, consider these fantastic arguments and transpose them onto some of our bubblier markets here in Canada……namely all of Vancouver and the Toronto condo market. Given how wrong cities all over the world have been anytime that their measures of fundamental value strays significantly from their norms, it begs an important question: Are we really that different?
The migration from the Snow Belt states to Metropolitan Phoenix has been unabated for 60 years.
Baby Boomers will retire in droves to warmer climes — the Atlantic coast, the Gulf states and the Southwest.
Just like the migration of retirees to ‘the best place on earth’ to take advantage of all their
rain warm weather?
Phoenix is a destination of choice or the second-landing city for immigrants from all over the world.
Compared to the areas from which many of our in-migrants are drawn, our homes are still very affordable.
Funny that this was true until all of a sudden real estate prices started to melt. While demand from ‘wealthy foreigners’ is arguably still strong in some of our bubblier markets, the reality is that in a cruel twist of fate, most of these buyers will disappear once momentum vanishes. As Bob Farrell reminds us, the public buys most at the top and least at the bottom in any market. So while we love a sale on consumer goods, we loathe a sale on assets like houses and stocks, instead we overwhelmingly rely on trend projection and momentum to convince us of the proper time to buy.
The entire article is quite comical in retrospect….and very telling of just how the ‘it’s different here’ or ‘it’s a new paradigm’ mentality coupled with major dislocations in fundamentals is the number one indicator that an asset bubble is underway.